JL Collins recently released his first book, The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life. Collins is not yet a household name for most people.
However, if you start reading blogs among the early retirement community, you cannot help but learn about the man. He has been featured on the most popular blogs, been interviewed on the top podcasts, and his writing is repeatedly recommended by other highly respected bloggers in the early retirement space — including Mr. Money Mustache, who wrote a foreword for the book.
After reading his blog, and particularly a series of posts labeled the Stock Series, it became clear why he is so highly recommended. He writes about personal finance and investing, which most people find overwhelming or boring (or both). However, he makes these topics simple, accessible, and interesting.
I personally credit Collins’ Stock Series with providing me the foundational knowledge to be a confident and competent do-it-yourself (DIY) investor. It also gave context for all subsequent financial decisions I made.
When Collins announced that he was editing, reorganizing, and adding some new content to this series of posts to be released in book form — which became The Simple Path to Wealth — I was excited to read and review it. Continue reading to learn why this may be the book that will get you started on your path to financial freedom.
The Best Strategy
The Simple Path to Wealth grew out of the Stock Series from Collins’ blog. The Stock Series, in turn, grew out of a series of letters he had originally written to his then-teenage daughter. Collins, a self-described financial geek, realized the need to write this content when he was trying to teach his daughter about money and she replied, “Dad, I know money is important. I just don’t want to spend my life thinking about it.”
The beauty of Collins’ writing is that he stresses the importance of money in our society, while writing a book that people who do not really care about money will actually find interesting and actionable. He recognizes that the best strategy for building wealth and investing is the one that you can actually understand and implement.
Finance for Everyone
Many investing books will discuss investing terms such as valuation. They will use concepts like price to earnings (P/E) or price to book (P/B) ratios. While technically correct and important, these measures are not likely to draw in the average reader. Even the most interested and sophisticated reader can then get caught up in paralysis by analysis. Which measure is better? At what point should one buy or sell?
Collins tackles the topic of valuation without ever mentioning P/E or P/B ratios. In fact, he never uses the word “valuation.” Instead, he uses an analogy to compare the stock market to a glass of beer. The beer represents the things that should determine the price of a stock, a share in a viable business expected to increase in value and pay dividends to shareholders. The foam represents all of the unknowns that affect the price of a stock to varying degrees at any given time such as fear, greed, and hype.
In Collins’ example, stock prices are represented by the brew poured into a dark mug that you can’t see through. You never really know how much is beer and how much is foam. Collins then explains how to use this knowledge to make an informed decision to become a long-term investor.
The book is filled with these types of analogies along with parables and personal experiences. Collins does not try to use complicated statistics and sophisticated concepts to convince his readers how smart he is. Instead, he translates complicated concepts into layman’s terms that can be incorporated into a simple wealth building and investing strategy.
It is pretty easy to see why Collins is a darling among the early retirement community, who play by their own set of rules. Instead of the standard advice of saving 10-20% of your income as seen in most places, he advocates saving 50% of every dollar you make as a starting point.
Collins has equally radical views on debt compared to most of today’s conventional wisdom. He describes it as self-imposed slavery that should be avoided at all costs. In his own words, “You weren’t born to be a slave.”
While most books and articles on wealth building and investing focus on saving for retirement, Collins emphasizes that “it has never been about retirement” for him. He instead focuses on what he terms “F-You Money.” He describes this as “enough money to be completely free of the demands of others and able to do exactly what [one] wants with [their] life and time.”
While maybe a bit politically incorrect or offensive to some, the concept is likely to resonate with many readers. It is difficult to get people excited over the delayed gratification for some unknown retirement 30-40 years in the future. However, it is very motivating to take action when you begin to see the potential to achieve financial freedom quickly by following the principles recommended in the book.
Simple is Better
Collins is at his best when taking the topic of investing, which most people find complicated and overwhelming, and making it simple. He encourages becoming a DIY investor. He advocates the index investing approach of Vanguard founder John Bogle, who Collins’ describes as one of his personal heroes.
Collins clearly explains that this approach makes it easy to control investing costs and taxes. Controlling these factors by investing in index funds not only makes his approach extremely simple and easy, it makes it very effective.
But Not Too Simple
Collins is careful not to oversimplify. He devotes a considerable portion of the book to addressing the single biggest factor in determining your ultimate success or failure with money and investing, your behavior. However, he again takes an unconventional approach.
Most behavioral finance approaches recommend using crutches such as the “Debt Snowball” or using your age in bonds to determine your asset allocation. These strategies emphasize psychological factors such as motivation and feeling secure, while deemphasizing the math behind the decisions. Collins advocates that it is “better to adapt yourself and your attitude to the numbers than to adapt the strategies to your psychological comfort levels.”
Collins gives a history lesson of the market. Rather than recommending simple rules of thumb for investing, he encourages readers to fully understand what it is that they are investing in. He wants readers to decide whether or not to follow his advice with eyes wide open to all of the possibilities. He eloquently addresses the dominant emotions of fear and greed that drive most investors’ decisions.
Collins encourages readers to develop realistic expectations based upon an understanding of history. His advice on whether you should implement his strategies and become an investor in the stock market is this: “Until you are comfortable with the risks that accompany the rewards, the answer is no.”
Money is the most powerful tool in our society, yet most people are never taught how to think about it and use it to their advantage. Many people find personal finance, particularly investing, very complicated. Much of the literature, regardless of how well-intentioned and technically accurate, only adds to our feeling of confusion and overwhelm.
JL Collins wrote The Simple Path to Wealth as a guide to money and investing for people who realize that money is important, but would rather spend their time raising kids, advancing in their careers, pursuing other passions and making the world a better place. He aims to clarify what is truly important in personal finance and provides a plan of action to take control of your money and investments with minimal ongoing thought or effort.
If you like personal finance books filled with advanced statistics, complex strategies and technical jargon, this book is not for you. However, If you know that you need to take control of your finances and want to become a DIY investor, but have been struggling to get started, this is a great book for you. It is packed with actionable advice mixed with entertaining story telling to keep you engaged throughout. The Simple Path to Wealth is a book that lives up to its title, and I highly recommend it.
Have you read the book? If so, what did you think about Collins’ approach and advice?