Although he didn’t know it right away, Jim Collins did just that. In 1989, he became financially independent, only a decade and a half into his profession.
Jim Collins is now the author of A Simple Path to Wealth and also has his own financial blog, jlcollinsnh. He began his blog as a way to share different financial strategies with his daughter, family, and friends, that may help them become financially independent as well.
Through the past six years that Jim has had his blog, he has met hundreds of like-minded people. He has also expanded his blog to an annual trip to Ecuador, which he likes to call a Chautauqua — a place where people come together to share ideas, concepts, and companionship.
In today’s podcast, I will be talking to him about how he did it, his blog, and his new book, A Simple Path to Wealth. I also ask him for some tips on how we can all achieve financial independence.
Table of Contents:
Topics Covered in the Interview:
- Why Jim Collins began blogging
- Meaning of Chautauqua
- The Pop-Up Business School
- This year’s Chautauqua in the UK
- The meaning of financial independence, according to Jim Collins
- The difference between “FU money” and financial independence
- The 4% rule
- How much money do you need to retire?
- Saving at a high rate — investing in your freedom vs. buying something new or extra
- Was there ever a time when Jim Collins felt like he was missing out?
- Bond market funds vs. simplified portfolios — which is the better choice?
- Buying individual stocks
Resources Mentioned in the Interview:
- The Chautauqua institution
- PopUp Business School
- Vanguard Total Stock Market Index Fund Admiral Shares
- Mr. Money Mustache
- Afford Anything
- Mad Fientist
- Millennial Revolution
- A Simple Plan to Wealth
Here’s the podcast audio, followed by a transcript of the interview:
Rob: JL, welcome to the show.
JL: Thank you. It’s an honor and a pleasure to be here.
Rob: Well, I am thrilled you’ve taken some time to talk with us today. A number of listeners of our podcast have wanted me to invite you onto the show and I’m grateful for your time.
JL: There is no accounting for taste.
JL: New Hampshire.
Rob: Of course it is. New Hampshire.
JL: When I started this blog, I had heard of blogs but I had never actually seen one before. I had written a series of letter to my (then) college-aged daughter about financial things I wanted her to know and she wasn’t ready to hear at that point. I guess I’d be dead when she was ready to hear them. I shared some of this stuff with one of my business colleagues who thought it was pretty interesting and suggested I put it on a blog to share with family and friends. That appealed to me mainly as a way to archive these things for my daughter. I wanted the people I shared it with, my friends and family, to know that it was me. When I started investigating all the variations of my name for the purposes of naming the blog they were all taken so I finally ended up taking nh for New Hampshire (where we’re living) on the end of it. That wasn’t taken. Now I’m in this much bigger world of FI blogs where they have creative names like, Money Mustache, Afford Anything, and Mad Fientist, which are some of the blogs I love. And I have this rather pedestrian-named blog but that’s where it comes from.
Rob: That makes all kinds of sense. When did you start your blog?
JL: Actually, the blog just had its sixth birthday a couple of weeks ago. It started in the spring of 2011.
Rob: We’re going to get to your book—when you wrote the book you indicated you were retired at that time. Are you still retired?
JL: Retirement, for me, is an odd definition. I’ve been financially independent since about 1989 although I didn’t realize it at the time. My goal when I was first starting on this path— this is when there was no internet and I had no idea that there was even a concept of financial independence. I didn’t come across that until after I started writing my blog. I just knew at the time that I wanted to have what I called, FU money which was enough money that I didn’t have to work all the time. I could take sabbaticals whenever I wanted, basically. I liked working but just didn’t want to do it all the time. It was during one of those sabbaticals that started in 1989 and was about five years long, about three years into it I noticed something remarkable which was we had paid all of our bills as we always did. My wife had also quit her job at that point when our daughter was born. Looking back over the previous three years, every year my net worth was higher. I realized something remarkable had happened but I didn’t have a name for it. Of course, now the name is financial independence. I’ve always kind of stepped away from jobs for various times. The first time I quit a job with the idea I was going to be retired and never work again was in 2011. That’s when I, coincidentally, started the blog for the reasons I’ve described. And now when you ask if I’m still retired, I am still retired in the sense I no longer have an employer but the blog itself has blossomed into this thing with an international audience. It’s become a small business and now with the book out, the royalties on that, suddenly I have this business operation going that I never intended to have. It’s a wonderful thing. Not so much for the income although that’s nice, but for the incredible people it’s brought me in contact with. This morning you’re one of them.
Rob: Yeah. That was one surprising element to blogging because when you start (or at least when I started) it was just me behind the computer. It never occurred to me that I’d literally meet hundreds and even thousands of people.
JL: And how incredibly fascinating those people would be in this space.
Rob: Oh, yeah. No question about it.
JL: And these are not the run-of-the-mill kinds of people like I met throughout my business career. This is an incredible group of people that read these blogs and come to the Chautauquas we put on, so I have a whole new group of friends from all kinds of different backgrounds and ages which is wonderful. They have all kinds of experiences. It’s been an incredible blessing I had no concept of when I started put this stuff out.
Rob: You mentioned Chautauqua, which brings to my mind at least, the art of motorcycle maintenance. What’s all that about?
JL: I came across the term in a book. There is also what’s called, The Chautauqua Institute, in western New York state. Chautauqua is an old native American word that basically means (as I understand it) a gathering of people that come together to share ideas, concepts and companionship. For the last few years we’ve taken small groups of people down to Ecuador to do exactly that, so that’s why I named it Chautauqua. This year, in August, we’ll also be doing one in the United Kingdom.
JL: We limit it to 25 people. The first time we did this, in 2013, it took about three weeks to sell out and I remember when it sold out, we were thrilled. The moment the excitement of selling it out died down I thought to myself, “What have I done? What if I hate these people? I’ll be stuck with them for a week in Ecuador.” It turned out they were 25 of the coolest people I’d ever met in my life. We did it again in 2014 and sold it out again, this time in two weeks. But, I wondered if the first group was a fluke and the second group was going to be a bunch of losers and I’d hate them all? They turned out to be equally engaging and wonderful to meet. It’s this community we’re in. Every group has been an awesome bunch of people and I’ve got a lot of remarkable friends that have come out of it.
Rob: It sounds like a lot of fun. Is that the same thing that Pete, from Mr. Money Mustache attends? Or at least has attended some of them?
JL: It is. In fact, when I was first working on the concept with Cheryl, who is the woman in Ecuador who does all the logistics which is actually her business — I helped her develop the concept for it. Pete was the first speaker I knew I wanted for it. I knew I wanted him for a couple reasons. One, he’s an incredible guy with an incredible message. But also, one of the key things to making these things successful is you have to have speakers who have a following so people will be willing to travel to Ecuador because nobody wants to come to Ecuador just to hear someone talk about investing. People will come to Ecuador to meet Mr. Money Mustache. I knew if I could get him I was a long way toward to filling those seats. Interestingly, Pete was fairly cool to the idea initially. It took some persuading but eventually he agreed. We didn’t really know each other very well in those days because this goes back to 2012 when we were first putting this together. But he knew my work and I knew his work so I think we had a mutual respect and we were starting to like each other. My sense has always been that he only agreed to do the first one as a favor to me. He really wasn’t into it and he said to me at the time, “I want you to understand, I’m only going to do it this once.” So I didn’t think he was ever going to do another one. But, he went down to Ecuador and fell in love with Chautauqua because it was such a wonderful experience, not only the people who came, but for the speakers too. He fell in love with Cheryl who, like I said, organizes it down there so Pete’s been back every year since.
Rob: That’s great. Now, did he ride his bicycle down to Ecuador or did you talk him into actually getting on a plane?
JL: (Laughs). You know, I didn’t think of that. I didn’t think to ask him. I do know he takes planes but had I thought of it I would have insisted he ride his bicycle.
Rob: I’ve got to tell you, I’m pretty disappointed if he didn’t ride his bike down there.
JL: You have given me a whole new ‘club’ to beat him with the next time I talk to him.
Rob: Well, if he’s going to England I’m not sure how he’s going to bike there. But, in any event—
JL: I couldn’t persuade him to do the one in England. He said once a year was enough for him. The guy who is organizing it in England was actually an attendee last year. He does a thing called, Pop-up Business School. Allan and his wife Katie help people launch businesses without major investments. Its basic concept is to find your customers first then launch your business. They’ve had remarkable success. By the way, he’s someone you might want to consider interviewing. He’s a really dynamic guy which is why I reached out to him to the UK one. Then Brandon, who is the Mad Fientist, will be the third speaker. And Kristy Shen, of Millennial Revolution, will be the fourth speaker. In Ecuador we do two Chautauquas back-to-back. Each one is a week so Kristy will be a speaker at one of the two in Ecuador.
Rob: It sounds like fun.
JL: For Pete, Ecuador was enough for him.
Rob: You mentioned the concept a few minutes ago of financial independence. What does that mean to you?
JL: That’s kind of an interesting question. I’ll put it in context of the other term, which is having FU money. A lot of people relate to the two of them because they’re essentially the same thing. I wouldn’t argue with that. I think you can look at it from that point of view. I’ve always seen them as separate. FU money is when you have enough money that you can step away from any situation you choose to step away from because you don’t have to worry about your weekly or monthly paycheck to pay the rent, mortgage, or put food on the table. You have a backlog of money that gives you freedom. So FU money is really initial freedom, but it is not, in my mind, enough money that you don’t ever have to work again. When you have enough money that you don’t ever have to work again, that’s what I define as financial independence. FU money is kind of an intermediate step that ultimately will lead to financial independence.
Rob: If you were to ballpark financial independence, would it be 25 times your annual expenses? Sort of backing up the four-percent rule? Or do you look at it differently?
JL: No, that’s exactly how I ballpark it. And, just for your listeners, you’re looking at 25 percent of your annual expenses that comes out to what’s called, the four-percent rule. That goes back to a study that was done awhile ago indicating that in the vast majority of cases if you have a portfolio of a given amount and you spend four percent of it a year, it will last indefinitely with rare exception. An implication of that is if you have $1 million you can spend $40,000 a year. Of course, 25 times $40,000 (if the math works) is $1 million, I hope.
Rob: It is.
JL: When people ask how much it takes to retire, it really depends on what your spending rate is. If you’re spending $100,000 a year then you’ll need $2.5 million. If you’re spending $20,000 a year, you’ll need $500,000.
Rob: You said you had achieved financial independence around 1989. How long did it take you to achieve financial independence by 1989?
JL: I did work as a child but most of that money was taken to put myself through college. Just like you, I was English major.
Rob: Poor thing. I feel for you.
JL: Yeah. It’s turned out alright. You would probably agree and probably know from firsthand experience, when you’re coming out of college employers are not lining up to put you to work. When I came out of college it took me two years to find my first professional job. I owe body and soul to doing things like landscaping and that kind of work—the kind I had to do to put myself through college. To put that in prospective, I came out of college in 1972 so my first professional job was in 1974 so in 1989—I’ve never done that math. What is it, 15 years?
Rob: Yeah. Yeah, that’s impressive. It reminds me, in your book—and this may be in the two years before you got your first professional job, you were saving a large amount of money. I’m trying to find the reference. It was like you were making $10,000 a year… Yeah, here we go. In the book it says, “I first had mine at age 25 when I managed to save the princely sum of $5,000, something achieved after working two years at $10,000 per year.” So, I guess you saved 25 percent. You made $20,000 over two years and I guess that’s before taxes. And you saved $5,000 of it. How in the world did you do that?
JL: I have always targeted saving 50 percent of my income. It’s interesting to me because now a lot of people are suggesting 50 percent. Some people in the FI space (as you know) are much more aggressive than that. They’re saving 60, 70 and 80 percent which I think is wonderful. But most people look at 50 percent and say that’s impossible. For me, and again, I didn’t have a concept of being financially independent, I just wanted to have money to invest. To have that freedom basically, that having that money would provide. When I was making $10,000 a year I just looked at it as if I was making $5,000 and started putting the other $5,000 away and investing it—not particularly well, by the way. Sometimes people ask me how I know so much about this stuff. To the extent I know about this stuff it’s because I’ve gone out and made every possible mistake you can make. I’ve made a lot of mistakes along the way. So yes, it’s that basic savings rate. It’s just as if I had a job that paid $5,000 a year and that’s what I had to live on. When I was making $100,000 a year I was saving half of that so my lifestyle could go up as I made more money.
Rob: People listening though would say, “Okay, that all sound nice, simple and clean but either you had to sacrifice or do something different than what the average person does.” What was different about your way of living that allowed you to save at such a high rate?
JL: That’s a great question. I think one of the advantages that I had, and again, remember I didn’t have any path laid out in front of me. There was no internet so there was nobody writing blogs about this. There were no books I was aware of that talked about this. But one of the advantages I had is I was never particularly interested in owning things. The thing that I wanted to own was my freedom. That was the thing that was most important to me. I lived in Chicago when I was first out of college so I didn’t have to have a car. I took public transportation everywhere. I lived in an unfashionable part of town because the rents were cheaper. I remember one of my friends chiding me for that saying, “Why don’t you live down in Lincoln Park where I live, where all the action is?” I could have done that but that would have interfered with accumulating the money to invest which was simply more important to me. At one of our early Chautaquas, I was talking to a woman who had come with her husband and he was the one was really into this FI stuff and she was saying she had grown up in a very wealthy family where you just spent money. That’s what you did. And she said she liked the concept but it was really hard for her because not spending money and diverting it to investing just felt like such deprivation. She said she struggled with that. She understood it and wanted to support her husband and everything but was still struggling with it. I remember telling her to think about it this way: you’re still spending money. You’re just buying your freedom instead of a new pair of shoes or a fancier car or a bigger house. You’re still spending it. You’re just buying investments, and that’s a way of getting your freedom. I don’t know where that came from. It just popped into my head but I could see it made a profound impact on her. It really changed the way she was able to think about this in a way that became much more comfortable for her. I actually incorporate that concept into the talk I give at Chautaquas. To me, you’re not choosing between spending money and having fun and saving money and depriving yourself. You’re choosing what you want to spend your money on. Pete of Mr. Money Mustache is famous for telling people how to do things. I’m not like that. You can do whatever you want with your money but if you want to be financially independent and if you want to be free and be able to step away from jobs whenever you choose to, I would strongly suggest you want to spend your money buying your freedom. But, if fancy cars or bigger houses or wardrobes or whatever else is more important to you, it’s your life and your money so you’ll get no argument from me. But, if you come to me and say, “I want to be financially independent but I have to have all these other things too,” I’m going to say, “Well, I want to be young and good looking…” (Laughs)
Rob: I think the way you approach this is fascinating, with this husband and wife you mentioned where the wife was not quite on board. It does seem to me that for some people (including me) there needs to be some reprogramming, some rewiring. I used to wonder what it would take for me to be happy and content in life. If the answer is buying a lot of stuff, then there is a problem. That’s something I need to work on and fix. It’s not to say that I’ll never go buy something nice, but do I need all the nice stuff to be happy? Some people don’t. I’m like you. I’m not going to tell someone how they should spend their money. But particularly with family and friends, they know what I do and they’ll say, “I want to live life now. Life is short. I want to live it to its fullest.” I do too but that doesn’t mean I’ve got to go spend $60,000 on a pickup truck. To me, that is not living life to the fullest. There’s nothing wrong with the pickup truck. If you want to buy a pickup truck, knock yourself out. To me, living life the fullest means being retired at age 49. That’s living life to the fullest. I wasn’t always that way. You learned this a lot faster than I did. At least a lot earlier in life than I did, but there’s some kind of reprogramming or rewiring that has to occur for a lot of people.
JL: I think you’re right and, of course, I agree with you in that people can spend their money in any way they choose. For me the trait was just obvious and clear. The idea of having freedom to make choices was much more valuable to me than a pickup truck. I’ve met people who say, “I love my job. I want to keep doing it forever.” I think that’s wonderful. Just because you become financially independent doesn’t mean you have to quit your job. If you still love it you can continue to do it but I would say to those kinds of people, remember that things change. The world changes and the job you’re in and the company you work for may change. It may become a company that you don’t like working for. The job itself may go away for some sort of technical reason. The boss you work for that makes it so wonderful may go away or may get promoted. Just because you love a situation now doesn’t mean it will be the same situation there for you in 10 years. It might be, but if it’s not, if would be awfully nice to have a little bit of FU money just in case. Having the FU money, even if you keep your job, is never going to be a bad thing. If you keep your job and you roll on and you have the FU money, you can always divert it to the pickup truck if that’s what you want. Here’s a great story. A friend of mine, Jim, who used to ride motorbikes, has a son who is a year older than my daughter. They’re both young adults now, but at the time they were both in high school. His son was accepted at West Point which, of course, is a wonderful school but it’s also a completely free ride. As all of us who have children—or at least most of us, Jim was saving for his son’s education. And when his son was accepted at West Point, suddenly Jim had a brand new, top-of-the-line, BMW motorcycle. Months after that he had a new SUV. You could just see that Jim was spending the college fund because his kid got into West Point and he suddenly didn’t have to divert to the college. When you have money everything becomes easier. I had breakfast this morning with a friend of mine who is a reader of my blog and is also financially independent. When we finished breakfast he say, “Come on, I want to show you something.” He had just bought a new sports car. Of course, being thrifty as those of us in this world tend to be, it wasn’t new. It was a 2004 BMW Z4 but he bought it for cash. And, at this point in his life, it was pocket change. That’s the power of having money. The FU money continues to grow and earns more money for you.
Rob: That’s the thing. The point of this, at least for me is not that you can’t buy nice things it’s just that I’m not going to spend money on anything that sacrifices my financial freedom. If I want to go out and buy a Lamborghini and still maintain my financial freedom that’s fine for me.
JL: I would agree with that. The other thing is, being financially independent allows you to buy things from a position of power. So if you’re not financially independent and you go and buy that big expensive pickup truck, you are buying it from a position of weakness. By that I mean you really can’t afford it without sacrificing other things. Other things that are more important, like your financial freedom so you’re probably going to borrow money to buy. And when you borrow money to buy it, your expenses of owning it go up. All of the expenses of owning this thing go up. If instead you buy your financial freedom first, then turn your attention to buying toys, you’re buying the toys from a position of power where you’re paying cash for them. You don’t have to go to the bank for a loan to buy it. For anyone who cares about my opinion and wants to listen, buy your freedom first. Then everything else gets so much easier.
Rob: I want to revisit for just a second, the idea of saving 50 percent of your income. Were there times in your life where you were saving the 50 percent and it was really difficult? Where you had to make some big sacrifices or you just had to live life a lot differently than your friends or family? Was it every hard?
JL: It never was. And that might be surprising for our listeners to hear but I never once felt deprived. I never once felt that I was sacrificing. My wife Jane, fortunately, is cut from the same cloth in that we’re not people that need fancy things. When our daughter was born we were both working and talking about Jane staying home and being a full-time mom. We both liked that idea but Jane was very reluctant because she had always worked and felt that if she wasn’t working and bringing home a paycheck, she wasn’t contributing. I thought about that for a second and said, “If you keep working and we keep having that income, what could we possibly buy that would be more valuable to us than you staying home with our daughter? We don’t particularly want a Mercedes. We don’t want a fancier house. There is nothing we could buy with that earned money that’s more valuable to us than you staying home with our daughter. In a sense, you giving up your job is buying us a full-time mom.” It’s just a little different mindset, I think. In my professional career as I was working my way up the corporate ladder, (or at least trying to) there were many times when I’d look at my peers and they were driving fancier cars than I was driving and they were living in bigger houses in fancier neighborhoods. Things that I could have afforded if I wasn’t saving 50 percent and doing things the way I wanted to. There were times when I thought I really should do those things. I really should be driving the car to fit in better and I should be living in a better neighborhood and better house to fit in better. Maybe that would help my career prospects. But, I just couldn’t bring myself to do it because I wanted the investments more than I wanted those things. As far as I can tell, looking back, it didn’t hurt my career. But it never once felt like a sacrifice to me.
Rob: Did it ever affect your daughter as she was growing up in ways she found difficult or challenging particularly when she was perhaps comparing herself to the other kids in school that had all the cool stuff?
JL: I can think of one classic time along those lines. We were living in New Hampshire and she was in second grade. This is in 2000 so you have to understand that we’d been financially independent for about a decade at that point. I was working at a pretty good-paying job and still saving 50 percent because that’s just part of the ethic. When we moved to New Hampshire for the school district which most people with kids can relate to— we were looking for the best school districts which tend to be in the wealthier towns. So, we ended up living in a town here in New Hampshire called Bedford which is a fairly wealthy town. From second grade onward, our daughter grew up around some fairly wealthy kids. As she was approaching her sixteenth birthday she started campaigning for a car for her birthday. We only had one car. That wasn’t always convenient but as a family we only had one car. And I just kept saying, No. One of the nice things my daughter and I have always done since the time she was small was, just on a random basis, I’d invite her to go out for breakfast or lunch for some one-on-one time. As she was getting closer to her birthday, for the first time ever, she invites me to go out for lunch. Usually I was the one to initiate these things so I knew something was up. We go out to lunch and about halfway through she says there’s something she wants to talk to me about. Of course, it’s the car. She had done her homework. She started laying out a case as to why she should get a car for her birthday. And I should say, at this point, it’s something we very easily could have afforded to do. I’m listening very patiently to her and I kind of let her get through her presentation and finally said, “Well, Jessica, if you really want to have a car, I have to tell you, you’ve made one very important strategic mistake in your approach.” She got very concerned and said, “What’s that, Dad?” And I said, “Well, you picked the wrong father because I am not going to buy you a car for your birthday. That’s just not going to happen because I think, philosophically, it’s just the wrong thing to do.” And she said, “But Dad, all my friends are going to get cars.” First of all, even though we’re living in a wealthy community, that’s a teenager exaggeration. So I said, “That’s wonderful. That way it will be easier for you to get rides.” And we never did buy her a car. In all fairness, we did give her liberal access to the family car but she had to make sure she chauffeured her mom around when she needed to go somewhere. I think it worked out well. She doesn’t have any permanent scars. As I’ve told her since she was a little girl, “My job as your father is to make sure that if a time comes where you’re in therapy, you’ll have lots to talk about.”
Rob: (Laughs). That was very thoughtful of you.
JL: I know. We have to fulfill our parental—
Rob: Did she go to college?
Rob: And she’s out of college today?
JL: She’s out of college. She’s in the Peace Corp at the moment, actually.
Rob: Good for her. The reason I asked that is, did you ever help her buy a car? Or did she buy her first car on her own?
JL: No, she never bought a car. When she graduated from college she went into service at Ameri-Corp which is sort of the domestic version of the Peace Corp and the commitment there is one year. She had to wait a year to get into the Peace Corp which is what she wanted to do. What we did at that point was lend her our family car which was a 2007 Subaru. The same car she learned to drive on. We gave her that to use for a year until she went to the Peace Corp. We went out and got another car because, as I said, we only had one car at that time. Had she decided to get a job and stay in the States we would have just let her keep that car but when she went off to the Peace Corp the car came back to us. We happened to like the Subaru better than the other car we had so we just got rid of the other car and kept the Subaru. So she’s never actually ever owned a car, but we did give her our car for a year.
Rob: I think that’s a mistake my wife and I made. We didn’t make it while they were in high school, but that’s for another podcast. In your book you describe your portfolio. One of the things I try to stress on my show is that there is no one ‘right’ asset allocation. There’s plenty of wrong ways to invest but people want to know what the perfect asset allocation is and there just isn’t one in my view. At the same time we each have to pick one, or it picks us one way or the other. In your case it’s pretty much as simple as can be. It’s not a target date retirement fund although you describe those in your book and you find those to be perfectly reasonable choices as do I. But in yours, for stocks it’s just total stock market, Vanguard— I think it’s VTSAX but I may have that wrong.
JL: No, you’ve got it right.
Rob: And the total bond market fund and, of course, maybe some money in cash. What’s your thinking behind that choice versus a portfolio that also tilts towards emerging markets and REITs and small-cap value? Is it just a question of keeping it simple or do you think the more simplified portfolio will do better over a long period of time? What’s your thinking on that?
JL: A little of both. I don’t know how far back we want to go but fundamentally, I think there is enormous amounts of research that indicate that broad-based index funds outperform just about everything else over time. If you flash-forward 10 years from now, or for that matter, if you look back over the past 10 years and look at a bunch of asset categories, VTSAX total stock market index fund will not be the top performing thing. There will be other things that perform better but there is no way of predicting what those are. The ones that performed better in the last 10 years will not necessarily be the ones that perform better the next 10 years. But when you buy VTSAX you know that you will be in the top 80 percent of all things that you could possibly invest in. Sometimes real estate REITs will outperform over a certain period of time. Sometime emerging markets will outperform over a period of time or small-caps become fashionable. Or sometimes large-caps become fashionable. There are always categories that will outperform for some period of time but then they tend to revert to the mean. The total stock market, of course, by definition, owns a little bit of everything. It is the mean in a sense and it does tend to outperform everything over extended periods of time. So, in a given period of time—five years, ten years, you might find a segment that will outperform. But I’m in it for the long game. Of course, the name of the book is, The Simple Path to Wealth.
JL: So, what I tell my daughter, who is not terribly interested in investing and finances, this is all you need to do. When you’re working you buy this one thing. You save as much of your paycheck as you can, assuming being financially independent is important to you. You put it into VTSAX. The fact that you have this new money flowing in will smooth out the ride because the stock market is inherently extraordinarily volatile. It always goes up over time but it’s a very wild ride. The money you’re putting in is a form of dollar-cost averaging which I’m not a fan of for lump sums. But, when you’re doing it out of your earned income it smoothes the ride of the volatile stock market margins to take advantage of those dips. Then when you’re financially independent or taking a sabbatical or you stop working, I think you add bonds. They serve the function of smoothing the ride now that you don’t have that earned income to do it. It’s really no more complicated than that. On my blog, I get a lot of people like my daughter who know it’s important to get this stuff right but really aren’t all that interested in it. In her case, she wants to serve in the Peace Corp. They want to build bridges or create computer programs or cure diseases and that’s wonderful. My book is for those people. You will get outstanding results and it will only take a modest amount of your time. I do get people who read the blog who are really into this stuff. I’m sure you get listeners who do the same. And they’re always asking me, “Well, what if add some small-caps because historically, they outperform…” Yeah, if you want to screw around with it, you can screw around with it. Chances are it’s not going to work out real well because those things require timing. It’s like buying individual stocks. I have the disease. I still can’t resist buying individual stock. What makes it so attractive is that sometimes they work and when they work it’s extraordinary. It’s like a shot of Heroin when they work.
JL: It’s the same kind of addiction. But it’s not a great long-term investment strategy. For the average person who wants to go out and cure diseases or build bridges, the important thing for them to understand is that you will outperform most of the professionals and almost all of the amateurs just by buying the basic stock index fund and not panicking when it goes down. Just keep adding money to it.
Rob: Okay. I confess. I own some individual stocks. And my theory on that is, one way to do well with individual stocks is to have a rule that says, once you buy a stock you never sell it. It’s yours for life. If you do that, it changes the entire way you think about investing in a company. You’re certainly not going to invest based on the market price or what you think it will do in a year or two, and you’re going to make darned sure you’re investing in a pretty solid company because you’re going to hold it for 40 or 50 years. That being said, less than five percent of our assets are in individual stock so it’s not as if I’ve put half of what we have into Amazon.
JL: You know, Rob, you raise a really interesting point that I’ve given some thought to. One of the things our listeners might be interested in is that I actually achieved financial independence before I discovered and embraced indexing. I achieved it investing in individual stocks and by extension into actively managed funds that had managers who were trying to do the same thing. I agree with what you just said in that if you were going to buy individual stocks that’s a great strategy. But it’s not what I did. I was buying and selling them because I was still under the impression that one could successfully do that over time. And you can. Indexing is not like individual stock picking. Even actively managed funds aren’t going to guarantee that you lose money, although it certainly increases your chances of losing money. You can make money doing those things and I did overall but indexing is just easier and more reliable and frankly, more effective.
Rob: And I would agree completely with that.
JL: Yeah. But I look back at the individual stocks I owned that I bought and sold and bought and sold and frequently thought to myself, if I just kept everything I ever bought and never sold anything, my results would have been better. Now, some of those companies disappeared to nothing. But some of them went on to prosper well beyond after the time I sold them. In a sense this is a little bit of Warren Buffet has done. Obviously he’s very skilled at picking the companies he chooses but the other thing is he doesn’t sell very often. His favorite holding time is forever. The nice thing about VTSAX is can hold it forever because you aren’t relying on the fortunes of one or two companies or even a handful. But yeah, I agree with you. If you’re going to buy individual stocks you should buy them with the intention of holding them forever and then hold them forever even if they go down because today’s disaster is tomorrow’s exciting turnaround story.
Rob: I hear you. Hey, I appreciate all your time today. Let me ask you one last question. You’re retired and you have your blog. How much time do you spend on your website and doing interviews like this and whatnot? And for whatever other time you have in life, what do you do?
JL: That’s a big question to end on. In terms of the blog, I’ve really become fairly negligent. I very rarely put up posts these days. But the blog continues to be successful primarily because the posts that I’ve written, like the stock series which it’s most famous for, is a perennial. People come to it and read it so my blog is not reliant on new material as some other websites might be. There’s a pretty good body of work there that people still find useful. That allows me the luxury of just posting on it whenever the spirit moves me. At the same time, as the blog has grown and continues to grow even though I’m posting less than I ever have, it’s opened up more opportunities like the one I’m sharing with you. Because the blog has grown and you suddenly start hearing from some of your listeners, “Hey, maybe I ought to talk to this Collins guy,” now I have the opportunity to chat with you. While I’m publishing posts less frequently, I have the opportunity to do more podcasts like we’re doing today. That’s kind of fun because it’s new and different for me. In terms of what we do other than those two things is pretty much whatever we feel like when we wake up. Today, for example, we went out and had breakfast with some friends. We do quite a bit of traveling. We like that. Being retired or not having a full-time job has certainly not been difficult to fill the time. Most people look back on it and say they don’t know how they had time for the job when they had it.
Rob: Yeah, yeah. That’s terrific. I appreciate your time. So folks can find you at jlcollinsnh.com. I’ll put that link in the show notes. Your book, The Simple Path to Wealth, they can obviously buy at Amazon I’m going to assume?
JL: Yes. In fact, I’ll make an announcement on your show that nobody has heard yet. The audible version of the book is coming out at the end of the month. On Monday I go into the studio to wrap up the final recording on it. They tell me they’re going to have it out on June 26 or 27. I haven’t even announced that on my blog yet.
Rob: Well, I’m thrilled that you’re the one doing the audio because you have a phenomenal voice. That book baritone is just perfect.
JL: Thank you. That’s one of the few things people compliment me on is my voice. It’s certainly not my good looks. They asked me to record it and I liked the idea because I liked the idea hearing books in the author’s voice myself. I was a little concerned because while I might have the voice for it, recording a book or doing voice-overs is skillset. People who do that professionally are highly trained and I don’t have that training. So I grilled them pretty thoroughly as to if they were sure they wanted me to do this because I had never done this before. I’m a rank amateur for doing it. What I learned is that it’s the magic of editing.
Rob: It will be terrific, I have no doubt.
JL: That’s why I’m going back. To record the things I didn’t give them enough material to edit properly.
Rob: We will certainly look forward to that. Again, thank you so much for your time.
JL: Well, thank you for the invitation. I’ve enjoyed meeting you and chatting with you and I hope the audience enjoys listening to it.