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🏖️ VTSAX and Chill: JL Collins Simplifies Wealth Building for Everyone💰
1.2k Plays9 months ago
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Today, we're with JL Collins, the Godfather of Financial Independence (FI), discussing the allure of the VTSAX and chill strategy! 🌊💰 🚀
🔑 In this episode, JL Collins unpacks the simplicity and efficiency of VTSAX and Relax, showcasing the power of low-cost index funds in the pursuit of financial freedom. Forget market timing - it's all about the long game! 🎯
Books by JL Collins:
How I Lost Money in Real Estate Before it was Fashionable
🌟 What We Cover: The unexpected success of "Simple Path to Wealth." How investing can be simple yet effective. The wisdom of passive index funds for wealth accumulation. Comparing index funds with stock picking. The role of fees, tax efficiency, and compelling storytelling in finance.
JL Collins shares anecdotes, laughs, and lessons, making this a must-listen for anyone on their financial independence journey. From the importance of VTSAX in a 401k plan to Warren Buffett's endorsement of index funds, we've got it all! 📘
📚 Long Summary: Dive into the details of how JL Collins champions the VTSAX and chill strategy. We explore the low-cost index funds route, emphasizing their efficiency in wealth accumulation and the vital role of fees and tax efficiency.
Discover how a simple approach to investing can lead to significant wealth, backed by the historical performance of the S&P 500 index.
Listen to the Forget About Money Podcast wherever you listen to Podcasts. YouTube: @ForgetAboutMoneyPodcast
Socials: @forgetaboutmoney
#VTSAX #FinancialIndependence #InvestingSimplified #JLCollins #SimplePathToWealth #IndexFunds #WealthBuilding #PassiveInvesting #LowCostIndexFunds #MarketTiming #SAndP500 #4PercentRule #ExpenseRatios #WarrenBuffett #FinancialWisdom #InvestmentStrategy #FIREmovement #VTSAXandChill #IndexInvesting #PersonalFinance
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Transcript
Introduction to Financial Independence and VTSAX Strategy
00:00:00
Speaker
V-T-S-A-X and chill. What is it? And why it's likely the best strategy for you to achieve financial independence. We discuss this and much more with the Godfather of Fi. Here we go. Welcome to the Forget About Money podcast, where we encourage you to take action today so that you can focus on what matters most to you.
Interview with JL Collins: Influences and Success
00:00:22
Speaker
Today, we've got none other than the Godfather of Fi himself
00:00:27
Speaker
He is the author of three extremely successful finance books, one of which can be considered the foundational text of the financial independence community. I'm honored to have you here, JL. Welcome. Hey, David, it's an honor to be here. I appreciate the invitation and it's fun to finally actually chat with you and see you. We've had so much communication over the years, but this is the first time, as you mentioned, that we've actually spoken.
00:00:56
Speaker
First off, I want to thank you for what you have brought to me. I was one of those guys that I was probably inclined more than the next, like learn about money stuff early on. I remember reading Rich Dad Poor Dad when I was 18 or 19. I remember reading Rick Edelman books and the Susie Orman books.
00:01:18
Speaker
All of that when I was fairly young, late teens, early 20s, and yet I still felt that there was something kind of incongruent, like that didn't really connect the dots for me. I understood investing, I understand the terminology, but how did it actually apply to my life? How could that actually intersect to how I'm living my life and what my financial goals are?
00:01:38
Speaker
And in around, I think, 2015, Steve and my brother turned me on to Mr. Money Mustache and the financial independence community. And that's the first time that I actually had a goalpost, because up to that point, you just heard, invest 10 to 15% of your money until you're 65, and then you can go play golf every day.
00:01:57
Speaker
Well, that didn't really mean a whole lot to me. So I really appreciated the financial independence community because they said, no, there's a number and this is how you figure it out.
The Simplicity of Investing: VTSAX and Index Funds
00:02:07
Speaker
4% rule, all of that. And you finally had a very specific goalpost. And right after that, I think you published simple path to wealth in 2016. Is that correct? Yes.
00:02:19
Speaker
And right after that, that book hit the shelves and basically took the world by storm, or at least the financial world by storm, always ranking up in the top three or top five of finance books. Every time I go to the Amazon page, it lists the top selling finance books. And it's also the single book that I have gifted the most to people who I think need to get into a more solid financial footing for themselves and their families.
00:02:46
Speaker
so I appreciate it and thank you so much for sharing that information and that information may have been out there but the way you message it and it may not have been out there to be honest with you because I've never heard it before the book but the way you message it the way your voice for one thing in that audiobook is pretty amazing and
00:03:04
Speaker
Most people right now that are hearing this are going to hear your voice. They're going to be also impressed. That was just icing on the cake. But thank you very much for the, for the impact that you've made, not just on me, but people that I know personally, and then all of those people out there, thousands of people that I don't know personally, but I know that you've helped. So thank you for that.
00:03:22
Speaker
Well, what a kind introduction. Thank you, David. The simple path to wealth has exceeded far beyond my expectations. And it took me three years from beginning to publication to get it done. And mostly because I would throw it down and discuss because writing a book is so much work and you have no idea if anybody's going to care, right?
00:03:52
Speaker
I put it away for months at a time in the actual work of the book probably only took a year but it took me three years cuz I'd step away from it for months at a time before I drag myself to the table so I was hoping it would be modestly successful and worth the effort I remember early on when it was
00:04:11
Speaker
first published and it was selling a few copies. I did a rough calculation. I sort of figured about how many hours over that three years that I put into it and how much money it had made at that point. And I figured, you know, I'd been better served working at McDonald's. But at this point, I've been better served having written the book. It's, yeah, again, beyond my wildest expectations.
00:04:35
Speaker
And the core of the book is that building wealth does not have to be complicated. And in most cases, you're going to be better off just going the simple route. Can you describe what that simple route is? Yeah, so first of all, not only does it not have to be complicated, but the more complicated it is, by definition, almost the less effective it will be.
00:05:00
Speaker
So that's counterintuitive i think for most people are first hearing about this because if you turn on cnbc or any of the financial news channels or for that matter if you read a lot of the stuff written about investing.
00:05:15
Speaker
It seems incredibly complex, and that's because what those guys are talking about is, in fact, incredibly complex. I mean, notoriously complex. There was, during the debacle in 0809, it came out that Wall Street had created these derivatives that even they didn't understand.
00:05:35
Speaker
So anybody listening to this who says, wait a minute, everything that I've ever heard makes investing sound complex, well, you're right. Everything you ever heard probably does. That's the bad news. The good news is none of that stuff matters. If you think about it as a huge banquet table filled with every kind of exotic thing you can imagine,
00:05:56
Speaker
Well you know those things are complex and difficult to make but in the tiny little corner of that table maybe there's the real basic foods that your body really needs and thrives on actually that will make you healthier so you can put your arm on that table and sweep all that other stuff onto the floor and focus on those really basic things that actually will make you healthier.
00:06:20
Speaker
It's the same thing with investing. All of that complex stuff you hear about, you don't have to pay any attention to. The only thing that really matters if you want to build wealth are low-cost, broad-based index funds. The one I prefer is VTSAX.
00:06:35
Speaker
And what is a low cost broad market index fund? So Jack Bogle, who is the guy who started Vanguard back in 1975, is the guy who first sort of came up with this idea that instead of trying to pick individual stocks that might outperform all the other individual stocks you could choose, you would be better off simply buying all of the stocks in an index.
00:07:03
Speaker
So an index can be almost anything but when i say broad based i'm talking about something that files the s&p five hundred, which are the five hundred largest companies in the united states or my preference is what's called a total stock market fund that's what is axis.
00:07:21
Speaker
If you invest in VTSX, you're investing in virtually every publicly traded company in the United States. That means that everybody in those companies is working to make you richer. It's a very strong position to be in. The number of stocks that represents varies because stocks come on the index and they fall off the index, but it's roughly about 4,000 stocks. It's a very broad diversification.
00:07:50
Speaker
So that's a basic index fund. So the argument that, let's say somebody just sees one ticker symbol and that's VTSAX. When we're used to seeing ticker symbols for individual companies, it's not the same. It's a lot of companies, not just one specific sector or one specific company. So the argument, at least you might think just one ticker symbol, you're only investing in one thing, but you're actually extremely diverse.
00:08:16
Speaker
your portfolio is very diverse because it's across 4,000 plus stocks, correct? Correct. So both things are true, right? If you invest in VTSAX, and that, by the way, is not the only total stock market fund out there, it's the one that Vanguard
00:08:35
Speaker
puts out and I'm a fan of Vanguard. So that's the reason I choose it. If you invest in VTS AX, you are buying one fund or one ETF, which would be VTI is the same portfolio. But as you point out, you are
00:08:51
Speaker
you are then the owner of about 4,000 different companies within that one fund. That's dramatically different than just buying a single stock. And you also alluded to the fact that indexing has become so popular
00:09:09
Speaker
Now there are indexes for sectors so you can buy an index for precious metals an index fund for precious metals or for technology or for financial companies i not recommending those either because i want that broad base.
00:09:27
Speaker
And the reason I want the broad base is it's self-cleansing. Everything else you buy, if you buy an individual stock, even if you buy a stock that you think is going to be great, and in fact turns out to perform well for you, you always have to, in the back of your mind, be asking, how long is that going to last? Because companies have life cycles. Sometimes, like Sears, they can last for over 100 years before they implode.
00:09:52
Speaker
add sears dead because walmart and amazon came along and it's lunch sometimes they don't last nearly as long as most often they don't last nearly as long as that.
00:10:05
Speaker
You always have to be wondering how long is this? If you were skilled enough, lucky enough to choose a winner, how long am I going to be willing to hold it? If you own VTS AX as an example, you never have to worry about that. I'm never going to sell my shares other than maybe a few to live on in my retirement.
00:10:26
Speaker
because it has the quality of being self cleansing. And what that means is that the companies that perform well rise to the top and it's cap weighted. So the more successful a company is, the more of it I'm going to own in the fund. That's a good thing. Some people pointed out as a flaw or a bug. For me, it's a feature. I want to own more of the most successful companies.
00:10:50
Speaker
By the same token, those companies that are fading, that are not succeeding for whatever reason, maybe they're mismanaged, maybe their life cycles just coming to an end, they drift off the index. And I don't have to guess as to which companies are going to be the ones rising to the top and which ones are going to fade. That happens automatically for me in that self-cleansing process.
00:11:14
Speaker
So I never have to think about ever selling it or timing it and trying to time things is is poison to your results over time.
00:11:23
Speaker
Those are very accurate words. I remember when I was in my mid twenties, mid to late twenties, I'm a smart guy. Like I said, I read all these books. I know what I'm doing, right? So I get in there and I remember I bought some leveraged gold miner ETFs. Anytime you say like any one of those separately is probably not great either. Just gold or anything leveraged, but I did. And I did. I was doing it inside my Roth.
00:11:49
Speaker
And then my brother did my taxes the next year. He said, that's pretty impressive. I'm like, what? I lost $30,000. He's like, yeah, he had, seems like he probably had to work pretty hard to lose that much money. So it didn't work out well for me. And you mentioned losing the vehicle where you couldn't take the tax deduction for the capital loss. Right. Right.
00:12:10
Speaker
So, but, uh, and I'd like to say I learned the error of my ways, but there was a few more missteps even after, uh, you know, as far as like my attempts at market timing, thinking I'm a smarter than the market, it has never worked out. Not once don't, don't feel bad. I've made all of the same kinds of mistakes and I probably made them for more.
00:12:29
Speaker
years and more repeatedly than you have. So yeah, I feel your pain. And sometimes I wonder, do you have to go through that, that pain, that process yourself to learn this or more? Hopefully I'm, you know, I kind of hope that somebody will pick up the simple path to wealth and maybe my other books and not have to make those same mistakes that you and I made. And they can just start prospering right away.
00:12:56
Speaker
But I don't know that that's possible because the allure of choosing stocks and thinking you can outperform and what have you is just so strong. And of course, it's so aggressively promoted because the people selling these things make a ton of money by virtue of convincing you that you ought to buy them.
00:13:14
Speaker
And even more recently, you've got the Robinhood apps and you've got the, you know, it's just, and then you've got all the subgroups. So people working together to try to time the market and buy this or that and crypto and, you know, catching the waves of the trend lines and all of those things that can be exciting, but it's probably not going to make you successful. Uh, if you look at the stats in the most cases, you're going to have losing money. Yeah, it can certainly be exciting, but one of my key tenants is,
00:13:42
Speaker
I don't expect my money to entertain me or provide excitement in my life. All I expect my money to do is work for me, is to make more money. And I think the more different things you ask your money to do for you, the less well it will do any one of those
Investment Philosophy and Strategies for Financial Growth
00:13:58
Speaker
things. So I always kind of cringe a little bit when people say, oh, you know, I'm investing in this because it's exciting. And, or I'm going to set a certain part of my money, you know, for entertainment, for investing entertainment.
00:14:11
Speaker
I find other ways to entertain yourself. I mean, don't expect your money to entertain you. At least that's my philosophy. I just want my money working for me.
00:14:20
Speaker
So if timing the market or stock picking generally results in losses, what kind of market returns can we expect with a VTS AX and chill strategy? Well, so first of all, timing the market and picking individual stocks doesn't necessarily result in losses. So one of my dirty little secrets is I actually achieved financial independence back when I was about 40 years old, which is more years ago than I
00:14:49
Speaker
comfortable people want to look at by being a stock picker or by extension picking actively managed funds that were run by stock pickers so that's difficult and you know you a lot of people do in fact lose significant money in trying to do it but it can be done and i did it with moderate success so it's not that they can't work
00:15:15
Speaker
In the index and it's not like that's a bad thing that never works and indexing is a good thing that works it's in my experience at least picking individual stocks was effective it did work it got me to be financially independent that's one of the reasons it took me a long time personally to embrace index.
00:15:35
Speaker
is because what i was doing was working but what i finally realized is that it was a whole lot more effort on my part to get those results and those results were not as strong as the simple indexing that took no effort at all and once that got through my thick skull that i could get better results for not only less effort but virtually no effort well then indexing became a no-brainer but i'm a slow learner so that's the first thing to appreciate that
00:16:05
Speaker
when you're having these conversations you're gonna talk to people say i'm doing fine picking individual stocks and in fact they might be but with a whole lot more effort and probably overtime less good results.
00:16:21
Speaker
So when I was writing The Simple Path to Wealth, which, again, as you mentioned, I published in 2016, so I was kind of doing the final revisions of it in 2015, and I thought, you know,
00:16:36
Speaker
Part of the stuff I talk about in there is historic returns. I was looking at the returns of the S&P 500 index because VTS AX doesn't go back to 1975, which is I wanted that 40-year period. 1975 is the year that Jack Bogle brought out the first index fund, which was an S&P 500 fund.
00:17:02
Speaker
also happened to be the year that I started investing myself. So that 40-year period from 1975 to 2015, I thought was a nice long period and I had the historical numbers for the S&P 500 fund.
00:17:19
Speaker
that I know what those are and talk about it in the book. Well, when I ran the numbers, the return was just over 12% a year. And that's a stunningly large number and a number that I was not comfortable putting in the book because I didn't want people to
00:17:36
Speaker
think you could expect to get 12% a year, right? Because I don't think you should count on getting 12% a year. And yet, for 40 years, that was the actual return. And to be clear, this was not some idyllic 40-year period. In fact, I wrote a post on the blog after the book came out called Time Machine and the Expected Return of Stocks or something along those lines.
00:18:06
Speaker
it's one of my favorite posts and the conceit in there is you're sitting around with a bunch of your friends in nineteen seventy five saying hey you know this guy jack bogle just brought out this index fund i wonder how things are gonna work out for it and i raise my hand and i say well i can actually answer that question cuz i just got back from two thousand fifteen in my time machine and i can tell you exactly what's
00:18:29
Speaker
happened in that forty year period and what happened is you had in the seventies high inflation you know stagflation you had business week coming out with the cover that said the death of equities you know nice full run in the eighties and then you had black monday in eighty seven biggest single day percentage drop in the market in history.
00:18:50
Speaker
bigger even than anything in the great depression and then you had the tech collapse in the end of the nineties ninety nine two thousand and then of course you had the debacle in oh seven oh eight oh nine not to mention you know,
00:19:07
Speaker
the attack on the Twin Towers, the wars in Afghanistan and Iraq that dragged on and draining money and treasure. And you had all these terrible things that happened in that 40-year period. And in my blog post, everybody's sitting around the campfire saying, well, clearly, I'm not going to be investing in stocks for the next 40 years.
00:19:29
Speaker
That's awful. And, of course, the punchline is that, yeah, in spite of all those things, stocks went up just shy of 12% a year. Now, also, to be clear, there's probably not a single year where stocks actually went up 12%. You know, there are years where it goes up much more dramatically than that. And then, of course, there are years where it goes down dramatically.
00:19:49
Speaker
as we mentioned with the collapse in 87 and around 2000 and again in 0809. It's a volatile ride, but averaged out, it was a stunning number. If somebody is listening to this and they're wondering,
00:20:06
Speaker
what kind of return they can expect if they do decide to invest in a broad market, low-cost index fund. Is it fair to say that they can expect for their planning purposes between 8% and 11% on average? What are your thoughts on that? What would be a good planning assumption? I think when you go back like 100 years, the market
00:20:29
Speaker
does something like 10, 11% over time. But again, remembering that there are extended periods of time where it's down. And so it's a very volatile ride. I don't think about it in terms of what my expected total return is going to be.
00:20:48
Speaker
I kind of like what's come to be known as the 4% rule, which I think of more as a guideline. And that suggests that if you're living on your portfolio, you can comfortably withdraw 4% a year to live on, adjust it for inflation, and the portfolio will have enough left behind to continue to grow, outpace inflation, and last for an extended period of time. The Trinity study looks at 30-year periods of time.
00:21:17
Speaker
And that works at 96% of the time that at the end of 30 years, you still have some money. Most of the time, interestingly enough, your money's grown to extraordinary proportions. So it's not something you want to set on autopilot. You want to pay attention because if the stock market wins happen to go against you, especially early on in living on a portfolio, you're going to have to adjust your spending accordingly because you don't want to, you don't want to be in that 4% of the time that runs out of money.
00:21:47
Speaker
But also, as I say, much more frequently, your portfolio is going to grow dramatically. And you don't want to miss out on having the opportunity to enjoy that money as the years roll on. So 4% is a good guideline. It sort of implies that you're going to get about an 8 plus percent return over time. And I think that's a reasonable way to think about it.
00:22:12
Speaker
What are your thoughts about as you get older or closer to retirement age and reducing the amount that you have in stocks and increasing the amount that you have in bonds? Is that something you personally adhere to or advocate for others? The basic answer is yes, but I don't think of it so much in terms of A.
00:22:34
Speaker
Right. So the traditional way of thinking about this stuff is that you're going to, you're going to come out of school. You're going to get a job. You're going to work for 40 odd years. You're going to retire at 65. And, and so traditionally people say, as you get older, you want to add more bonds, which are a conservative, uh, balance to the stock portfolio. Uh, the thing you have to understand is that.
00:23:01
Speaker
bonds smooth the ride, but they don't have the engine of growth that you want for your portfolio to last and to continue. So you're always going to want to own a pretty good slug of stocks. My way of thinking, because in this financial independence community that I rate for, there are a lot of people who retire much earlier than the traditional age. So I look at it and I say, when you're working and you're earning income,
00:23:31
Speaker
as my daughter is, for instance, I'm going to want to be 100% in VTS AX, which is to say 100% stocks. That's considered very aggressive because if you're striving for financial independence, you are going to be taking a fairly large percentage of your income and putting it in your investments.
00:23:49
Speaker
And that means that whenever the market drops, which is a perfectly normal part of the process, should never be upsetting to you, should never be surprising. When the market drops, you're taking advantage of that because that amount of money that you're putting in, say every month, you're buying those shares now on sale. That's a good thing. And that's the tool that smooths the ride for you. The volatility of stocks turns that volatility into an advantage for you. Now, if you stop working,
00:24:18
Speaker
you're probably going to want something to take the place of that cash flow out of your earned income, right? Cause you don't have earned income anymore.
00:24:27
Speaker
And that's the role that bonds can play. So you add bonds to the portfolio, that stabilizes the volatility of stocks a little bit, also provides some dry powder to take advantage of when the market drops and you can shift some of that bond money into stocks at those bargain prices. But that might happen in this community when you're 30, you might step away from your job and add bonds.
00:24:53
Speaker
Maybe when you're 35, you say, you know what, I've started this little business and it's doing well, it's prospering. Or I started this new career or I went back to my old career, whatever. When you have income flowing again, then you probably want to shift out of the bonds and back into a hundred percent stocks. So I think of it as the wealth accumulation stage when you're working and you have cashflow and the wealth preservation stage when you're living on the portfolio.
00:25:20
Speaker
And that informs whether or not they had bonds. Yeah, I like that idea. I had not thought of traditionally you think about bonds as like mitigating the downside risk and evening out the ride.
00:25:32
Speaker
but practically, and I never even thought about, you know, what if you get a side hustle that gets more income or you go back to work or something else that actually does mitigate that downside risk. So then you've taken that risk out mostly, or at least the response to that downside risk is accounted for. So yeah, thanks for sharing that. That's something new in my thinking that I'd never considered before when about thinking about the stock bond allocation as you,
00:26:01
Speaker
or as life circumstances change. So yeah, when you were preparing and writing for the simple path to wealth, was this an epiphany moment for you at some point that said, wait, why am I doing it this way? Because of this, was it something you academically studied and then the light switch came on? Or is it something that you became familiar with through your own experiences in your own
Evolving Investment Philosophies and the Rise of Indexing
00:26:28
Speaker
investing?
00:26:28
Speaker
So if you're talking about the philosophy, the investment approach, and the simple path to wealth, that was something that evolved over time. I mentioned that I started investing in 1975, which coincidentally was the same year that Jack Bogle introduced the first index fund, the S&P 500 index fund. I didn't know that at the time.
00:26:53
Speaker
I wish I had known it at the time. And more importantly, I wish I had been wise enough at the time to embrace it because the path would have been a lot easier for me and a lot more lucrative. But I didn't know it. And I would not have embraced it at the time, even if I had. And the reason I know that is 10 years later is when I did learn about the existence of these things called index funds.
00:27:19
Speaker
I just refuse to accept accepted even then and.
00:27:25
Speaker
As I alluded to earlier, part of it was I was doing okay picking individual stocks and picking actively managed funds. And it's kind of a hard psychological thing to wrap your head around if you're into this stuff, because when somebody says, as index investing does, that you'll get a better result just buying everything, well, at least I was saying to myself, well, no, that doesn't make sense. All I have to do is just avoid the bad companies and I'll outperform the index.
00:27:54
Speaker
you know just focus on the good companies in the index will course the problem is sometimes bad companies are tomorrow's exciting turnaround stories and sometimes today's good companies are the ones that are just on their way down so it turns out that it's extraordinarily difficult to actually choose winners and losers especially overtime.
00:28:17
Speaker
That was Jack Bogle's brilliant insight. And of course, when he first launched these things, people mocked him, especially people in the business for two reasons. One, it went counter to everything they thought they knew. But the other thing is they recognize this was a real threat to their income because they made money selling these active things to investors like us. You know, the guy who ran Fidelity,
00:28:42
Speaker
Investments at the time ran a series of ads. This is the 1970s calling indexing on American.
00:28:50
Speaker
Right? And Jack Bogle, to his great credit, had the ads framed and mounted in his office. But now, as we're 40 plus years on, there's been enormous amounts of research done on the effectiveness of indexing. And the message is clear. Indexing is, in fact, the superior way to invest in outperforming the index.
00:29:14
Speaker
especially over time, is vanishingly difficult. And so some of the things that make VTSAX and other funds like it a good thing to invest in. We've already talked about diversification. We talked about the market returns. But additionally to that, these, especially when compared to actively managed funds, is lower fees
00:29:37
Speaker
lower taxes because there's fewer taxable events inside the fund itself because they're not being traded as often because basically a buy and hold until a stock falls out of that particular index fund and compounding, which can be for any sound investment.
00:29:54
Speaker
And then the philosophy that you really embrace is simplicity. And I think as I've gotten older, simplicity has taken more of a forefront in my own life, not just in investing, but in life in general. And if you can simplify what is traditionally deemed something either scary or complex, like money, then I think that's a huge win. And it's a big part of our lives, whether you can say money buys happiness, it doesn't buy happiness and all of those things. But it definitely, if you don't have money,
00:30:24
Speaker
You're going to have some challenges that you probably would rather not face. So if you can take that money piece of the pie, make it simple and which you have and then people take those actions. But like takes, for example, if I'm listening to this.
00:30:39
Speaker
And I've got a, I work for a company and they've got 401k. And I don't really even know what I'm invested in. I just signed up whenever I went to HR upon being hired, did my 3% or whatever it is. Maybe I don't even know what my company matches up to. So I've got some homework to do. But part of that homework should be, take a look at what funds are offered. And now if, after hearing this, I'm like, okay, I'm looking for VTS-AX, where is it? If it's not there, as far as one of my investing options, in your opinion, what do I do then?
00:31:08
Speaker
Well, so you covered a lot of ground there. So backing up a little bit to your point about fees and the other characteristics of something like VTS-AX, fees are critical. Jack Bogle has a great line.
00:31:26
Speaker
where he says, you know, performance comes and goes, but fees are forever. And fees are an enormous drag on your investment return over time. They are critical. They can sound small if somebody says, oh, I'm only charging you one or 2% a year.
00:31:43
Speaker
People tend to think, oh, that's not much. But compounded over time, that's huge. And those were the kinds of fees that were typical in actively managed funds. Because of the competitive pressure from indexing, those fees have come down, but they can still be 1% or 0.75%.
00:32:01
Speaker
something like vtsax is point zero three percent i mean it's almost non-existent and that makes an incredible difference in your performance and then you mentioned you know tax efficiency you know if you're holding these things in a 401k or an ira it doesn't matter so much but in an active in a taxable account where you're trading
00:32:24
Speaker
Well, every time you trade a stock, it's a taxable event and that makes your tax return a lot more complicated, but also that's that continual drag as taxes come out of, out of your returns. And as you alluded to an actively managed fund, of course, is doing that trading within the fund.
00:32:41
Speaker
And typically at the end of the year in those funds, you will get what's called a capital gains distribution, which is a taxable event. So indexing is much more tax efficient. So those are all important advantages of indexing. But going back to your last point, if you're looking at your 401k,
00:33:00
Speaker
How do you find the right fund? And what I tell people to do, and this ties into the fee question, is you should have a list of all the different funds that are available in your 401K. And there should be a column that lists the expense ratio, the ER, which is the annual fee, the fund charges, right? And so when I say an actively managed fund might have an expense ratio of 1%, that's where you'll find it.
00:33:28
Speaker
So if you take your finger on that column and you run it down, you start looking for the smallest number on there. You know, you start looking for something that's instead of being, you know, 1.05% is 0.05% or 0.03%. You look for those really low numbers and that will be a good indicator that those are the index funds and then you can zero in on them and you want to find
00:33:56
Speaker
a broad-based one, so something that follows the index, the S&P 500 index is a good one, or something that follows the total stock market index. Most commonly, and I think this is changing, but most commonly, you'd find an S&P 500 index fund in a 401k, and those are fine. They're great. I mean, you don't have to obsess about not having a total stock market fund if you have access to that.
00:34:25
Speaker
Yeah, traditionally, I believe the S&P and the VTSAX, they pretty much move in lockstep. Is that correct? They track very, very closely.
00:34:32
Speaker
Yeah. And Jack Bogle himself held the S&P 500 fund his entire life. He's passed away now. So I have a slight preference for the total stock market because it includes some small cap and mid cap stocks. But because these things are cap weighted, which means the bigger the company, the larger percentage of the fund it represents, you know,
00:34:58
Speaker
The VTS AX is about 80, maybe even 85% the S&P 500. So there's, yeah, they're very, very close and they track very closely.
00:35:08
Speaker
And I think just another boat of confidence for indexing is Warren Buffett. I believe I might get this wrong, but I think Warren Buffett said when he dies, his net worth should just go straight to an S&P 500 for his family. What he does leave to his family, I know he's going to give a lot of it away. But if even Warren Buffett, the best investor in history, can say S&P 500 index fund is the way to go, then I think it's probably good for the rest of us.
00:35:32
Speaker
You know, that is striking. You're correct about that. And specifically, he says, put 90% in an S&P 500 index fund, and he recommends vanguards, and the other 10% in cash, cash equivalents. And what's really interesting to me is he doesn't recommend Berkshire Hathaway. And
00:35:53
Speaker
You know, Berkshire Hathaway has been an extraordinary performer. I haven't looked at the numbers recently. As it's gotten so large, it's become more and more difficult for it to outperform the market. But for a long time it outperformed the market, one of the very few that
00:36:10
Speaker
that do. But that's not what he's recommending. And speculating here, I think there's two reasons for that. One is that it's gotten so large of performance by his own admission, if you read his letters to investors, his annual letter.
00:36:26
Speaker
you know it becomes harder and harder to perform when you have that much money to deploy so that's probably one reason but the other reason and he talks a lot about the very competent management team that's in behind him you know he and charlie monger built that company charlie has already passed away
00:36:42
Speaker
Warren's in his 90s. And I think there's an omission that, you know, Charlie and Warren had the magic fairy dust that it takes to outperform the market. And there's no guarantee as competent as the team that they put together have that same magic. And it is almost magic because it's so difficult to outperform and particularly difficult, again, if you're trying to deploy huge amounts of money, as Berkshire at this point is.
00:37:10
Speaker
So it's striking to me that that's his recommendation. And it's a great one. And it's one that served you and me and many, many, many, as far as the index fund investing very well.
Legacy of Financial Wisdom and Teaching the Next Generation
00:37:23
Speaker
So the source of inspiration for your Simple Path to Wealth book was for you writing to your daughter to teach her how to manage money. At the time that you wrote this book, she's in her 30s now, is that right? Yeah, she was in college.
00:37:40
Speaker
Okay. So she was a young adult at the time. And before she was a young adult, I mean, you didn't just like you said, you didn't just flip a switch and this book was birthed. So you had time and of course you raised her. So during that time between
00:38:00
Speaker
birth and 20. This is something that you are at least somewhat passionate about over that time. And as a parent, you're like, this isn't some important stuff here and I want to impart some of this wisdom on my child so that they maybe have a leg up in the world as they venture into adulthood. How did that process go and how did that result in you actually writing this book?
00:38:22
Speaker
Yeah, so my friend Christy Shen, who wrote the book Quit Like a Millionaire, and she and her husband Bryce have a blog called Millennial Revolution. She has a great line, which I'm probably going to butcher, but it's something of the effective. If you understand money, life is really easy. If you don't understand money, life is dramatically hard.
00:38:44
Speaker
And I think there's a lot of truth in that. And of course, like every parent, I want my kid to have the best possible life. But that led me to make a critical mistake of pushing this stuff way too hard, way too young. And I managed to turn her off to all things financial. And that was terrifying to me because, again, if you don't understand money, life in our modern world is very hard.
00:39:11
Speaker
Uh, my wife used to tell me, you know, she's absorbing more than she lets you know. And it, I've come to realize that that's true, but I didn't know that at the time. And so, um, in 2011, I started to think, you know, I better, cause she's not listening to me. I better start getting some of this stuff down on paper so that when I'm dead and gone, if she's ever willing to hear it, it's available to her.
00:39:38
Speaker
So i started i started doing i start writing essentially letters to her about this stuff and a friend of mine i share share with a friend and he said this is pretty interesting to put this on a blog with that point i heard of blogs i can't vaguely knew what they were i never actually looked at one i joke that the first blog post i ever read was the first one i wrote but what appeal to me was not building a blog audience but this seem like a great way to archive the information.
00:40:05
Speaker
To make it easily available, so I created my blog jail Collins nh.com and archive this information and I started writing a series of posts about it and that was kind of the beginning and then I discovered.
00:40:22
Speaker
There were other people writing about this stuff, like Mr. Money Mustache. There's the one that was before him, The Early Retirement Extreme, which led me to Mr. Money Mustache. Suddenly, there was this whole community of people out there talking about things along these lines that was of interest.
00:40:44
Speaker
So I started the blog in 2011 and then my reader, I started to develop this readership, which amazed me. I was never a goal and I never expected it, but suddenly I had this readership that was commenting on my work and asking questions. And so then that gave me, I'd say, oh yeah, I should write about that too. So that would be another post. So I now have the core of the blog is what's called the stock series, which is about 35 posts.
00:41:14
Speaker
And that's about half of the content of the blog, maybe a little less. Well, when I first came up with that idea of doing a stock series, it's only the first five in there that I had in mind. I mean, the rest of them kind of grew organically. And then around 2013,
00:41:32
Speaker
I began to realize that I had the material here for a book and that maybe I ought to take this material and create something that was a little more concise a little better organized.
00:41:47
Speaker
Because the blog, again, had kind of grown organically and published the writing a little bit. And that's essentially what the simple path to wealth is. And as we talked about earlier, the response to it has been far beyond anything I anticipated.
00:42:04
Speaker
But this was all, you know, this was all came out of this desire to have this information available. My daughter, in fact, she likes to tease me now. She says, you know, dad, if I'd listened to you when I was young, there'd be no blog, there'd be no books. And David wouldn't want one interview, you know, so here we are. So I would all the little girl who wouldn't listen.
00:42:27
Speaker
Now all of our kids, they have their own personalities and on unique things about them and dispositions towards certain subjects over others. Can you provide any guidance to parents out there who want to impart some of this wisdom on their children?
00:42:42
Speaker
You know, as you may have guessed from the story I just told, my track record in doing this is not particularly successful. Now, I'm relieved to say that my daughter, who's about to turn 32, is well on the simple path to wealth, and she's embraced the concepts.
00:43:01
Speaker
uh but that came later in life so i guess my first piece of advice would be don't push it too hard too young but the other thing is is my wife observed you know she's absorbing more than i realized even though there was a big part of her that didn't didn't want to hear it so don't be afraid to talk about it
00:43:20
Speaker
Right. Don't push it to our, but don't be afraid to talk about it. And the last thing I say is they pay much more attention to what we do than what we say. And we have always lived a modest life. We've always put a premium on spending our money on the stuff that was most important to us. And the single most important thing was buying our freedom. There's nothing that money can buy.
00:43:43
Speaker
as far as I'm concerned, that it's more valuable than my freedom, owning my own time. And I think she saw that and that made a difference. Where on the spectrum do you fall as far as actually helping your children build wealth? For example, I have a daughter, she's 20, about to be 21. When she turned 15, well, before she turned 15, I had an UGMA account, Uniform Gift to Minors Act or an UGMA, same thing.
00:44:10
Speaker
And I began contributing to that for her. And in this particular account, the day that she turns 18 or having zero impact on this account whatsoever, legally, it basically completely becomes 100% hers to manage or to spend as she sees fit. And then when she turned 15 and becoming a W2 employee, she then qualified to start a Roth for herself.
00:44:34
Speaker
And I supported her in that. And for parents out there who have the means, who are either well on their way to reaching their financial independence number, or who have already achieved it and want to provide, there are clearly some pros and cons in that as life unfolds. But what is your instinct?
00:44:56
Speaker
And you can share what you did or didn't do if you're comfortable with that. But how much, especially for those of us who might be a little bit, who might be able to, how much literal money do you give your kids and then at what stages?
00:45:09
Speaker
You know, it's an interesting question. So first of all, I love the Roth idea. And so one of the things we did when our daughter started working in high school and she started having earned income is introduce her to the idea of having a Roth account. And I would fund it. So in order to have a Roth, you have to have earned income, right? So you can't fund it before they have a job. Although if you have a business, some people
00:45:38
Speaker
quote-unquote, employ their kids at a very young age. You know, they have blogs and their kid becomes a model at two years old.
00:45:46
Speaker
But for our daughter, it was when she started waitressing and making money that way. And so I would put up the money for the Roth, whatever she earned when she was young. So that was the first start of it. So I'm certainly not opposed to doing that. But I also, at one of our Chautauqua events, Chautauquas were events that I ran for about 10 years. We took small groups of people to cool places.
00:46:12
Speaker
to hang out for a week and talk about this stuff. I had a conversation with some people at one of those events and about inheritance. And, you know, my daughter was still young. I mean, she's still around, you know, late teens, maybe early 20s. And I wasn't certain as to how responsible yet she'd be.
00:46:34
Speaker
with money and i said you know if unless i become convinced that that she can handle it that she will be responsible about money i'm not gonna leave her money because doing that leaving money to somebody who is irresponsible with it is
00:46:51
Speaker
harmful for them. I mean, it can lead to very disastrous consequences, so better to leave them nothing at all. Well, the good news is that she turns out to be very responsible with money. But the more interesting news about that is that because she's responsible with money, she doesn't need my money. She's got her own money. She's building her own wealth. So the irony is, it's kind of a catch-22, right? I wouldn't give her any money unless she was responsible for it.
00:47:21
Speaker
But because she's responsible for it, she doesn't need my money. So that's kind of where we are. The other thing I will comment about is there's a book that's pretty popular out at the moment called Die with Zero. I have mixed feelings about the book, quite honestly. There's some parts of it that I think provide appallingly bad advice.
00:47:44
Speaker
But there's some excellent parts of it. And one of the excellent parts or one of the excellent points that the author makes is that if you're going to leave money to your children, don't wait until you're dead. Because if you wait till you're dead in assuming you have a long healthy life, you're going to be 90 and your kids are going to be 60 and they're not really going to have any use for your money. So if you're going to do it, you know, start shifting some money over to them when they are young enough that maybe they need to down payment for a house or that kind of thing.
00:48:14
Speaker
but what i've learned is if you raise your kids well and you teach them about this stuff they're not gonna need your money and you know if for whatever reason they're not responsible with money you don't want to leave the money so there's do with that what you will that's kind of a great irony.
00:48:32
Speaker
I like that perspective because as much as we love our children, we don't know what really, what kind of adults they're going to grow into. And as weird as that, as I say, we like to think we have all of the influence, like 100% of influence of how our children turn out. We're good parents and we're doing all the right things and, but we just don't know how it's going to turn out. So, you know, one of the things that, that I always
00:48:54
Speaker
that I believe and that I would say to my daughter when she was older and could appreciate it is I will always love you unconditionally. There is nothing you can do to change that. I will always love you unconditionally because you are my daughter. Whether I like you or not is up to you. And I think there's a distinction. And as it turns out, we're very fortunate because we love our daughter unconditionally, but we also like her.
00:49:21
Speaker
she's also a good person that we enjoy spending time with and fortunately she feels the same way about us but that was up to her you know it's very possible that she could have grown and a lot of kids do grow into people that you not don't necessarily like so i think you should always love them unconditionally but whether you like them or not is up to them
00:49:41
Speaker
So if someone's listening to this and they're a parent or they're not a parent yet and they're in a position where they're growing into adulthood or have a job, they might be thinking, oh, these two guys are decent financial means, lucky for their kids, everything's great, but we all have to start somewhere. Like I didn't grow up with money at all and I'm not sure your history, but I did not. Our family did not have much at all.
00:50:07
Speaker
One way to get there is by following the principles that you advocate, the simple path to wealth, taking action, automating your contributions to index funds out of your checking account or your paycheck to your 401k. And so for somebody who's listening to that and say, well, that must be nice, these two guys and their kids, but I think the power of that is like,
00:50:26
Speaker
who the information is there. You can make the difference in your life for yourself and for your kids. Should you decide to do that? And you just have to take the action and it takes just the first few steps of learning and your book, symbol path to wealth. Oh, by the way, did you know simple path to wealth? I've just noticed it recently SPW is like, or SP two W I think is your now your, you have your own ticker symbol for your book and people's writing blogs and things like that. Did you notice that?
00:50:54
Speaker
No, I didn't. I refer to it as SPW, which is some people add all the articles and the simple bath of wealth, which just looks cumbersome to me. So I always call it SPW. You just wanted your own ticker symbol. That's what it is. No kidding. No, I didn't know that. Actually, that'd be pretty cool if somebody started to index fun with that as the ticker symbol. That'd be pretty cool.
00:51:21
Speaker
Maybe you can now reach out to your friends over at Vanguard and do that. I do want to mention that we were very pro Vanguard. I have Vanguard funds. You advocate for those as well. But I will say, if you're listening to this and either you don't have Vanguard offered in your 401k or you already have a Fidelity account or any other brokerage account, look for like investments and a quick Google search of what is the Fidelity equivalent of VTS AX will get you
00:51:50
Speaker
will get you what you want. So you don't have to be in VTS AX, but it's more of a philosophy of using the broad market low cost index fund strategy. And almost every, if not every fund family has those kinds of funds for your investments. If you find that that
00:52:10
Speaker
Like, say, Fidelity, and your user interface is much nicer than Vanguard's, which is one of my few complaints about Vanguard is their user interface is not very intuitive at all. Their website's cumbersome, but you've got to memorize where the drop-down menus are that you regularly go. And if Vanguard, if you're listening to this, please fix it. I know I'm not the first one to make this comment to you formally.
00:52:34
Speaker
But if you're listening to this and you're saying, okay, I already have a fidelity account, there are equivalents, and a quick Google search will get you there. Just make sure you're looking at expense ratios and ERs or MERs, but it's not hard to find. Yeah, which I mean, I'll second that.
00:52:51
Speaker
What you're looking for is either an S&P 500 index fund or a total stock market index fund. And an S&P 500 index fund is essentially the same, whether you're buying Fidelity's version or Vanguard's or Schwab's or whatever, and the same thing with the total stock market. So that's the litmus test. Like you, I have a preference for Vanguard for reasons we can delve into. And also like you,
00:53:17
Speaker
I am not happy with their website. And they revamped it maybe a year ago, maybe a year and a half ago now. And in the process made it, in my opinion, much more cumbersome. And, you know, there's a, without going into the weeds, I mean, you know, if I want to look at my activity in a specific fund in my portfolio at Vanguard, I have had to call them at least half a dozen times
00:53:45
Speaker
to walk me through the process, which they have done. And I will give Vanguard props that their reps are great. They're very patient in walking me through it. But you shouldn't have to do it. I'm a reasonably bright guy. It is so counterintuitive that I have to be reminded over
00:54:08
Speaker
want to be. And I always, when I get these people on the line, and they're always very, very nice and very, very helpful, but I always complain bitterly. And they're like, yeah, we hear it all the time. So not as strong. I mean, Vanguard has some work to do, and they made it worse, not better with their last revamp. And I have never used Fidelity.
00:54:30
Speaker
I do understand that their interfaces is good so if you're at fidelity in your fan there's no reason necessarily to change but the reason i like vanguard is the whole idea of indexing and low cost is hardwired into the vanguard dna companies like fidelity have been dragged kicking and screaming into it by the competitive pressures.
00:54:54
Speaker
that frankly vanguard brought to the market so i want to be invested with the company where this is not something they've been forced to do but something that's that's hardwired into their dna and i'm willing to put up with the with the cumbersome website to do that but yeah it's it's an issue
00:55:15
Speaker
It is an issue. And you think in a world today where apps and user experience is like number one and on probably every programming team's priority list, it just misses the mark. But your investments are still there. It's with a good company. And I would encourage anybody who is a Vanguard investor to whine and complain about this issue.
00:55:38
Speaker
because I think the reps tell me that they're hearing it a lot and so hopefully it'll sink into the powers that be. Well, Vanguard and Broad Market Index Fund and Vexting aside for a moment, you are a writer. The Simple Path to Wealth, SPW, is not your only book. Since then, you have published two more books and part of my income is from rental properties and
00:56:07
Speaker
I'm grateful for that. However, in hindsight, I might've done it a little bit differently. Can you tell us about your second book and what the gist of that book is and how real estate should or shouldn't be a part of one's portfolio?
00:56:20
Speaker
Like you, when I was younger, I fooled around with investment in real estate for a while and had some success with it until I reached the conclusion it was way too much like work for my personal tastes. But the very first piece of real estate I ever bought was a condo in Chicago that I bought to live in that morphed into an investment because I couldn't sell it when I wanted to move on.
00:56:45
Speaker
And suffice to say it was an unmitigated disaster. It cost me a lot of angst at the time and a lot of money at the time. And it's not large amounts of money now, but it certainly was then. So the good news is I got a book out of it. It's very short. It's very cleverly illustrated. I found a wonderful illustrator and it's
00:57:08
Speaker
called How I Lost Money in Real Estate Before It Was Fashionable. And it is the tragic comic story of my Chicago condo, which I can finally, after all these years, laugh about. This was something I bought in the late 1970s. But it's an entertaining story, and I think it's a cautionary tale.
00:57:30
Speaker
for anybody who is thinking about buying their first piece of real estate and or investing in real estate is there so many books out there that make it sound like it's an easy simple way to get wealthy and it certainly is a way to get wealthy but it's like any other business you had better know what you're doing.
00:57:49
Speaker
if you expect to get those kinds of results and i think a lot of people including me back in the day when i bought this thing have no idea what they were doing and it just it leads into all kinds of disasters which that book talks about which i can now laugh at but
00:58:08
Speaker
they weren't funny for me at the time one of them and i think maybe this will be shocking to people is when i was trying to get rid of this condo the condo market chicago in the day had gotten so bad that i couldn't get a broker to take the listing now when you think about that when you know broken doesn't cost a broker anything to take a listing
00:58:28
Speaker
And on the off-chance of sales, they get paid even if they do no work on it. Things were so bad in those days that they wouldn't even take the listing to offer it for sale. And I think sometimes in this more robust economic times we live in, people don't appreciate that that too can happen. So that's the second book, How I Lost Money in Real Estate Before is Fashionable.
00:58:52
Speaker
It's a short, fun, cleverly illustrated, and I can say that because I didn't do the illustrations book. Did you only have one investment property in your past other than a primary residence? No, no. After the condo, I went on and did a little more in real estate. And that, because I learned some better lessons with the condo, I did
00:59:16
Speaker
And I made some money, but again, it's a lot of work. And one of the things, I was in Chicago at the time, and part of the reason I stepped away from it is I moved away from Chicago and I didn't want to be a long distance landlord. Although with the technology these days, I guess that's a lot easier to do.
00:59:37
Speaker
But the other reason is when you're a landlord, at least in those days, you get to know other landlords. Other people are investing in property as you're looking at properties and you're finding people that, and there was no internet in those days. So if you were going to learn about this, you had to find people who were doing it that would
00:59:57
Speaker
Talk to you and i sit around with these these guys and the conversations would always turn to these nightmare tenants you know who just didn't pay the rent but absolutely destroyed.
01:00:11
Speaker
the place that they were living in. And I had never had the experience of having one of those tenants, but I'd sit there and I'd listen to these people and I'd say, you know, I'm not smarter than these people, particularly not about real estate. I'm certainly not as experienced as they are. And so the only reason I haven't had this horrible experience in my life isn't because I'm doing something right. It's just my bad luck hasn't turned up yet.
01:00:41
Speaker
And I thought, you know, it's a lot of work and I just, I don't want to, someday if I keep doing this, I'll have that nightmare tenant and I don't want to live through that. So that's when I decided to sell things off and I've never regretted it.
01:00:57
Speaker
Yeah, it's interesting because I think sometimes it also matters where you're at in life and your current net worth of like, where do you think real estate might be a good investment or not? For example, at my peak, I owned seven rental properties in middle Georgia and all probably lower, they were not expensive properties. I live in San Diego now. I could probably buy all of my properties for the price of one house here.
01:01:24
Speaker
And they were good rentals. I mean, yes, very bumpy. It is not passive by any means. So if you hear that rental real estate is passive, it is not. It's work, and it's a headache, and it takes mental bandwidth. But it could be worth it. And for me, I thought it was worth it as I was going through it, even with the ups and downs. Because my idea was that it's like a hedge against inflation, rents will go up,
01:01:48
Speaker
I did not, my properties did not appreciate as much as some people want them to appreciate when they buy their rental properties. And I was military, so I knew I was going to get a pension, those kind of things. So it sort of fit. However, looking back, I have since sold four of those properties. So now I only own three because I want simple.
01:02:10
Speaker
And in the idea of simple, why not just start that at the beginning and just funnel all that into index funds. And if I had a crystal ball and I knew the market was going to be what it was over the last decade, that's exactly what I should have done.
01:02:27
Speaker
And maybe I should have just done it anyway, knowing what I know now because it's simple. And I may sell the other ones in the future because I don't want to continue dealing with those issues. It doesn't fit into my lifestyle right now. I'm already retired. I'm financially independent. I'm on the other side of the country. I don't have problems managing the properties from a distance, but it's just one more thing you have to worry about when you want to worry about other things.
01:02:51
Speaker
Yeah, being in the financial independence community, I've gotten to know a lot of real estate investors who have done it like you have done it successfully. And a lot of them are going to continue to do it because it's what they love to do. And that's great. But there are a lot of them who are like you who have had a good run, have made it work, but are kind of deciding, I just don't want to put in the effort anymore.
01:03:16
Speaker
And there's kind of a nice transition into index investing from real estate investing if you want to do it. You can start taking that cash flow and buying your index funds. As you sell off properties, you can
01:03:32
Speaker
transfer that money so you know it's it's a it's it's the if when you're young and aggressive and taking those risks is probably not a bad thing to do provided that you take the time to learn how to do it properly as you did and as I eventually did but but but yeah I mean it's looking back on it it's it's way too much like work for my taste and
01:03:58
Speaker
Let's get to your most recent book. It's Pathfinders. It was released last year in 2023. I actually have that one on my desk here. You've got it there and I've got it on my phone and my Audible app. There you go. I've been listening to it. Yeah. What I really liked about this book is it's a series of stories, real life stories of people who have discovered the simple path to wealth and or solid five core principles, adopted those principles
01:04:28
Speaker
and made a change, in many cases, very drastic change in their life for the better.
Stories and Motivations in Financial Independence Journey
01:04:35
Speaker
And one problem that I see as someone who is in the financial independence community, who's a huge advocate, is how do you message financial independence to the masses? So that is
01:04:47
Speaker
It seems relatable, attainable, and a realistic approach. For someone who doesn't know anything about financial independence, many times my pushback is, not my pushback, what I get as pushback is, well, I don't make enough money.
01:05:03
Speaker
There's no way I can do it. I've got all these bills, I've got debt. And one of your stories in Pathfinders really stood out. And it's from Joe and Ali Olson, who were both educators in the Pacific Northwest, I believe. They had modest incomes of, I believe, at no point did they each earn more than $44,000 a year for their base salaries.
01:05:29
Speaker
right around the time that they were 30, they became millionaires because they followed your advice. So that's a story that I now, as someone who I've had a decent income throughout my career as a military officer, and I've got a pension. So my story also doesn't relate to the masses. But for those people who say, I don't make enough money,
01:05:50
Speaker
Well, here's a prime example of how two people who combined did not make more than $100,000 a year did it by the age of 30 or right around the age of 30. So that's inspirational. And it shows that it can be done, not just a blanket, I can't do it because dot, dot, dot. And in your accumulation of these stories, is there any particular story that stood out to you as inspiring or surprising?
01:06:15
Speaker
So you know the story you selected is a great example of one of the reasons that i'm excited about this book because.
01:06:24
Speaker
Within about six months of The Simple Path to Wealth coming out, I started hearing from people who'd read it and talking about how they took the principles in it and were applying them to their own lives. And these stories were coming from all over the world. And in many ways, The Simple Path to Wealth was written for one person. It was written for my daughter, who was in the United States, an American, at the very beginning of her journey. And I was hearing
01:06:52
Speaker
stories from people taking the principles in the book from other parts of the world. I was hearing from people who were much older and further along in their journeys, and maybe they had debt to unwind, or maybe they had investments that were not well considered to unwind, and all these kinds of things. So, Pathfinder is a book. It was published last fall on October 31st. It took two years.
01:07:17
Speaker
to do it, but it's a book that I've wanted to do for years to share those stories. For a lot of the reasons that you mentioned is that the pushback against the idea of pursuing financial independence most commonly is, well, that's great if you're a high-tech engineer and you're making six figures, but it doesn't apply to the rest of us. And that always frustrated me because
01:07:42
Speaker
In the real world, when I go to Chautauquas or I go to conferences and I meet people in the FI community, that was not the profile. The profile was incredibly diverse. I mean, diverse in income levels, diverse any way you could think of it, racially, sexual orientation, age, education. It was this incredibly diverse community of people who just said, I'm going to go out and do this.
01:08:11
Speaker
And pathfinders reflects that. And so there are a lot of stories in there, like the ones you allude to. There's a story in there from a guy who was a migrant vegetable picker, you know, as a kid, he was picking asparagus and, you know, he's building a, he's got a multi hundred thousand dollar net worth at this point and growing. There's a story from someone who talks about how when they were a kid,
01:08:37
Speaker
The people who had flush toilets were the rich people. So following the simple path to wealth, becoming financially independent is not just for highly educated, highly compensated people. In fact, in some ways it's almost harder for them because they get caught up in lifestyle inflation and they spend every dime that they make.
01:09:01
Speaker
So those are the kinds of stories that I love about. I think Pathfinders in many ways is the better introduction to this idea of pursuing financial independence than the simple path to wealth itself. Early on, somebody asked me in an interview, do you have to read the simple path to wealth first? And I said, no. I mean, you can read either one first. It doesn't matter. But the more I thought about
01:09:27
Speaker
The more I've come to think that you're better off, if this is all new to you reading pathfinders first and reading these stories and really in understanding how doable it is, you know, how, how accessible it is, regardless of where you're coming from. Certainly anybody who is able to listen to our conversation is able to pursue, uh, financial independence. So, and then if you read the stories.
01:09:57
Speaker
and you're inspired, then the simple path to wealth is sort of the how to actually do it, the how to manual on how to pursue this. But Pathfinder sort of shares with you how accessible it is and what a big difference it's made in people's lives who choose to get on this path. So I like it. The two most striking stories to me that were so unexpected is
01:10:25
Speaker
There's a story in there from a guy in Ukraine who not only is pursuing the simple path to wealth himself, but he has a podcast in Ukraine talking in Ukrainian, talking to
01:10:40
Speaker
other Ukrainians. Well, this is a country that's being invaded, that's in war. So when I hear people say, oh, it sounds good, but I'd have to give up my two least luxury cars, well, OK, maybe you're not quite motivated enough. There's also a story in there from a guy in Russia who's pursuing the simple bath to wealth.
01:11:00
Speaker
This this is the country that's doing the invading that has massive economic sanctions lodged against it. He's still figuring out a way. So I mean, those were the two most surprising stories to me. But yeah, and then, of course, there are the more typical, you know, there's a story of a couple in from Ohio that that were high tech engineers. They went to Silicon Valley. They figured out a way to live inexpensively.
01:11:30
Speaker
relatively anyway, in Silicon Valley, while they were making the big bucks. And after a few years, they moved back to Ohio, where the cost of living was a lot lower, where their family was retired. So, you know, certainly if you have a job like that, and you play your cards right, you have some advantages. So there's stories like that in there too. But yeah, it's really accessible to anybody. And I think that's the power of the book. And the stories are just fun to read too.
01:11:57
Speaker
Yeah, I like that because again, I haven't thought about the order that you read the two books in, but one of the most important things for people on their financial independence journey or who are debating on whether they're going to start a financial independence journey is what's your why? And these stories share the why of so many people. And you can, with stories as stories tend to do, they get a response from us and we buy in and there's a believability and a relatability.
01:12:25
Speaker
And if in this book, there's so many stories, if you find relatability to yourself, between yourself and any one of these stories, then you might be able to see a Y of phi for yourself. And that's what's going to get you through the journey. You have to have that clear Y of phi.
01:12:43
Speaker
Additionally, I think to help people overcome that, you know, I don't make enough money or this, or this circumstance is not me, and I can never do that because of X, Y, or Z. Okay, great. Well, let's compare your current habits right now at 23 or 33 or 43. And what do you think is going to happen
01:13:04
Speaker
What trend lines have you had in your last decade? Let's assume those same trend lines continue. Is that what you want 10 years from now? If it's not, then do something about it. Yeah, do something different. And do something different. You may not get to 3.26 million dollars your fine number.
01:13:19
Speaker
But having $300,000 in a check-in account is better than having a negative $300,000 in your check-in account, or a debt of $300,000, which is where you're going to end up, maybe, if you keep doing what you're doing. So no matter what, whether it's you officially reach financial independence or not, it's still a better path than what most people are probably on right now, and they can improve their lot in life.
01:13:43
Speaker
I think it's a great point. And I think it's important to realize that this is not an on-off switch. It's not like you start at zero and nothing happens until you reach that magical, I'm now financially independent number. The moment you start, you're a little bit stronger than you were the day before. It's kind of like going to the gym. You're not going to bench press 300 pounds the first day.
01:14:08
Speaker
But the moment you go, you're a little bit stronger than you were the day before. And as you said, not only are you better off with 300,000 in your bank account, you're better off with $300 in your bank account than nothing, or 3,000. Every step makes you a little bit stronger. And then because of compounding, those steps begin accumulating. Because when you're first beginning, it's all your effort.
01:14:35
Speaker
to come up with the money to put into those accounts. But over time, that money is now working for you and at some point,
01:14:43
Speaker
there will be enough money there where the money itself is actually making more money for you than what you're contributing. And that's a magical thing to watch happen. And every step of the way, you get stronger. And even if you're 60, why not be stronger a decade from now, even if you're 70? You might not be technically financially independent, but
01:15:10
Speaker
You're going to be stronger than you were. One of my favorite quotes, but the quote is if you Leo Burnett, he was a big ad agency guy back in the sixties started an ad agency, uh, Leo Burnett's quote is if you reach for a star, you might not get one, but you won't come up with a handful of mud either. And so I say reach for the star, you know, reach for financial independence and you may not get there, but you won't come up with a handful of mud either.
01:15:39
Speaker
Yeah, that's a good one. I know we've been talking about money for over an hour. And because of what we do in our space, it's easy to assume that that's what we're really passionate about. And that's what we spend most of our time doing. But you're not only the author of three books, but you're also the author of sci-fi stories. So would you like to share your favorite sci-fi story that you've written?
01:16:04
Speaker
And tell us where we can read more. I think you're referring to my other blog, Uranium Sea. And that's kind of never been publicized. It's a WordPress blog. It doesn't get much traffic. I haven't done anything on it for a number of years.
01:16:26
Speaker
But it was kind of fun and it got a reason for the few people who read it. It got a good response. It was interesting. At one point, this is a number of years ago, I think it was on on Reddit, a conversation started where this woman said something to the effect of, you know, I've read The Simple Path to Wealth and JL Collins and h.com and I
01:16:52
Speaker
I really like his investing approach. It makes a whole lot of sense for me. But then I found this other blog that he's written, this Uranium Sea thing, and this guy's out of his mind. He's clearly crazy. And so can I trust his investment advice. And then a debate erupted, as it tends to do in Reddit, with some people saying, well, yeah, what you're reading on Uranium Sea is clearly nuts. But that doesn't mean his investment advice is bad. And then other people saying,
01:17:21
Speaker
what you're reading on Uranium Sea is fiction. And I'll leave people to decide for themselves. All right. Well, I'm going to get that link and I'm going to put it in the YouTube description notes so that fans of yours can search it out and get that traffic up and maybe inspire you to continue writing. It brought you joy at one point, right? Well, yeah, it was fun. And I think it's an important story that needs to be told, because most people don't realize.
01:17:50
Speaker
It answers the question, you know, there's the question out there of, you know, where are the aliens? You know, why don't we see the aliens? And, you know, for anybody who's interested in this, there's the idea that there's filters, that civilizations collapse before they become interstellar travelers and what have you, but that in fact is not the reason.
01:18:15
Speaker
Well, I like that cliffhanger. Now we've got to go check it out to figure out what the real reason is. So now the readership of that blog will go from one a month to maybe one a week.
01:18:31
Speaker
Oh, that's been great. Where are you right now in the world? I'm in Florida. Florida? Yeah. I didn't know you lived in Florida. Well, I don't live in Florida. We spent last winter in Florida, and we liked the complex we were renting in last winter, so we bought a condo here. The plan is to spend winters in Florida.
01:18:52
Speaker
Yeah, you're not from Georgia, so not too far. No, not from Georgia. I'm very familiar in Florida. I know there's Savannah at this point. Oh, beautiful. Another great place. Savannah. One of the few real estate markets that's actually doing pretty good right now. Yes, Savannah's a beautiful place. Yeah, well, we had never been until she moved there, and now, of course, we've been many times. You get to buy a second condo in Savannah. Yeah, well, that's not going to happen.
01:19:17
Speaker
Jill, thank you so very much for spending your time with me today. I think it's going to bring a lot of value to those who find this on YouTube or wherever they listen to it. I know you have touched the lives of many in a very positive way and a not only a life changing way, but a generational changing way. And I will be forever grateful for that. And I look forward to when you and I can actually meet face to face and be at a
01:19:44
Speaker
lake somewhere, or in Florida, or Savannah, or when you come out to San Diego, I'll be a great host for you. I'm looking forward to that as well. Hanging out in the real world together. And this has been a blast. Thanks so much for inviting me to onto the show. You're very welcome. And thank you again. And thank you all for listening to the podcast.