Steve’s note: The partially hidden farmhouse on the right side of the picture is where I was raised in northern Wisconsin. I drove my 1953 Ford on this obscure dirt road heading west to attend college, the first of my family. It’s my personal “Simple Path” where my adult life started a half-century ago.
The Simple Path to Wealth
By JL Collins
Book review by Steve Schullo
I liked the author’s podcast interview by the respected, financial data-driven and the whimsical Mad Fientist. I bought this book for two important reasons: it was self-published and the author’s persistent reference to Jack Bogle’s genius. I support self-published financial authors because the traditional publishers deploy editors to tweak the author’s voice, and original story, to make the final “processed” book more sellable. Instead, self-published authors do not have to satisfy shareholders, or generate sales, so the author’s message about Bogle’s investment philosophy and the company he founded, Vanguard, remains organic for the readers’ best interest.
This book belongs to beginners and some seasoned investors who are sick and tired of searching for that short-term investment miracle. Collins stuck with Bogle’s purest message from the beginning to the last word. As a Bogle devotee, I appreciate his courage to stand up, write a terrific book and argue persuasively for the indexing strategy and against the delusional appeal of day-traders, hedge fund managers, active management strategies, timers, or individuals who claim they can successfully speculate and win big. Far too many normal investors get caught up in those phony, but exciting fantasies and lose. The new guy or gal investor gets the skills to construct a simple portfolio you understand, and then have the courage and the confidence to permanently ignore the media’s seductive financial noise machine.
The Simple Path to Wealth basic message to beginners is well-known in the Do It Yourself (DIY) investing culture:
- think long-term
- live below your means
- plan ahead with a fully diversified portfolio (except international stocks, more on this below)
- invest in Vanguards low-cost index funds
Sooooo, what is not to like? I’ll admit it’s a boring plan, and not all DIYers embrace it. But I love my boring plan, and it’s where the power of what we can do lies—after setting up our plan, we must be patient.
Collins writes much about psychology, for good reason. The power lies with us. It’s not us versus the big intimidating stock market. With time and experience, we learn to be psychologically tough. In the movie Wizard of OZ, Glenda told Dorothy that she “always had the power to go home again?” It’s the same for us investors. All of the features of a constructing a balanced plan remains under our control. It is fairly easy to learn. But the hard part is the unfair and counterintuitive psychology. Thinking long-term is the best antidote. Over time the growth will pay enough of a return to meet or beat the inflation rate. Meeting or beating inflation is a simple, realistic goal, and psychological attractive. This book shows you how to like saving with minimal time and effort to discover the investing process.
Patience, psychology, and philosophy are a difficult sell. Many investing aficionados are more interested in the adrenaline rush and chasing the opposite sex than building wealth over the long haul. The market is not something to conquer or control. It is simply made up of wonderful organizations of hardworking people, called publicly traded corporations. The author explains how to harness all of that positive corporate energy, and just flow with it, whether it goes up or down, and over time it goes up. The author addressed the tough sell with elegance and polish.
The author discusses investment costs, taxes, tax-deferred retirement plans offered by employers, the retirement years and strategies to keep from running out of money. My favorite chapters are “Why I don’t like Investment Advisers” and “Some final thoughts about risk.” Financial advisers are an easy target with hundreds of reasons not to like. Most of us DIYers will never need a financial adviser, for two good reasons: Collins writes “Nobody cares about your money more than you do,” and “you can learn to manage your money yourself with far less cost and better results.” From my personal experience, knowing how to save investment costs alone was enough to pay cash for the Tesla Model S.
On the subject of risk, my favorite part, and I quote as the author was speaking to the zombie apocalyptics among us especially the financial media: “Major Armageddon extinctions events, like the asteroid that took out the dinosaurs some 65 million years ago, have happened about five times. So that’s about one every 10 million years or so. Are we really arrogant enough to think it’s going to happen in the geological eye-blink we’ll be around? That we’ll be the ones to witness it? No likely.” Allow me to add my profound opinion, economic Armageddon ain’t going to happen either.
There are a few minor omissions. The author is not well known, so he needs to talk more about himself about what he did. I felt like he had more to say as examples of his fears of risk and the mistakes he made. All of that would have made the book even more authentic and organic. What was the role of his wife? What exactly did the author and his wife do for a living? He did report that he worked as a financial analyst. So, was he in the financial industry? He did not explain why he had an overly aggressive portfolio for an individual in his 60s. He did not share his diversification plan, except that he doesn’t own international stocks (he explains why).
Consequently, I give him an A for telling us how to set up a portfolio and his rationale, but I give him a B for not showing what exactly he did and for how long. His rationale is spot on, but portfolio construction and asset allocation strategies and information can be found in many books (The Boglehead Guide to Investors, any book written by Jack Bogle or his followers, Ferri, Swedroe, Roth, and Bernstein).
- Some other minor items that I found perplexing. On page 246, he writes, “Save and invest at least 50% of your income.” What? I reread this again and again, and could not comprehend why the author wrote this. In my working career, I could not even contribute the maximum allowed in my 403(b) plan let alone save 50% of my income (No, I never had new car payments because I could not afford car payments and invest too). Yet, I reached financial independence at age 61. 50% of one’s income is overreaching and discouraging. Just start with what you can afford. For example, I started at age 37 with $200 a month in my 403(b), and that was a lot out of my meager income. But I kept it up for 24 more years.
- Back to his strategy about avoid international stocks. The author knows he will get pushback, and he probably has heard my argument for international investing many times. Diversification means investing in all available stocks, worldwide. So, let’s take advantage of these opportunities to invest in just one fund, the Vanguard Total World Stock ETF (VT). The author won’t have it. IMO, the author might be reflecting his age because he says that investing in the United States domestic market is enough diversification because of the worn-out global connections argument. He tries to offer valid reasons, but they are out-of-date, and one about excessive costs is flatly wrong. Vanguards Global fund charges .14%. I don’t know about you, but that is inexpensive.
Also, I am 69 years old and old enough to remember my elders saying that is too risky to invest in foreign stocks. We are well into the 21st century and the world has changed. Don’t you think that international corporations want to grow and prosper too? Of course. Don’t you think opportunities for diversification have evolved for the better? Yes. I want as much diversification as possible to reduce equity risk, and reduce volatility. I might even get higher returns, but that’s not part of my expectations. The global index funds or ITFs make full diversification in just one investment a synch.
- Another minor objection is his downplaying the Roth IRA. I think he over complicated with trying to predict the tax rate to decide to use or not use the Roth IRA. It’s futile and a waste of time to guess the future. Not having to pay capital gains taxes after investing in the Roth IRA is one of the best strategies for us regular investors (You can run the numbers on a brilliant Excel program created by The Finance Buff). After running the numbers on the Excel program, you will be thoroughly convinced to include the Roth IRA in your plan.
- One last objection. I recommend to readers who don’t have a “lump sum” that is, a bundle of money to invest already, that you ignore the “Why I don’t like dollar cost averaging” chapter. I had to use DCA during my entire working career investing in my 403(b). Because I started from NOTHING and had less than $50,000 for years. If you have a lump sum to invest, follow the author’s advice. But I think I can speak for most investors who have little choice but to use DCA. His opinion about DCA was more discouraging than encouraging.
Collin’s strong opinions about some of his investment ideas represent more of his individuality than sound investment practice. Of course, the author never intended to be discouraging. I am just responding as a reader with a few of my opinions about his outstanding work. That’s perfectly fine for him as his opinions worked for him and they might work for you too. My opinions worked well for me. In the final analyses, he follows the “Boglehead” way. For that, I am delighted he wrote a great self-published book showing once again the work of the legendary investor, advocate, and teacher, Jack Bogle. Outside of these minor differences of opinion, Mr. Collins earned a well-deserved five stars on Amazon.
In sum, if any author self-publishes a book about investing, I think it is important to readers to know that the message is organic—no other agenda item hangs in secret, other than to explain and lay out a simple plan which will connect with new investors and get them results.
Author’s website: http://jlcollinsnh.com/
The book, Simple Path to Wealth, on Amazon
Stephen A. Schullo, Ph.D. (UCLA ’96) taught in the Los Angeles Unified School District (LAUSD) for 24 years and UCLA Extension, retired in 2008. The first generation Italian-American, ex-Marine, Vietnam veteran wrote investment articles for United Teachers-Los Angeles’ union newspaper (circ. 40,000) for 11 years. A thrice-featured volunteer retirement plan advocate, twice in the Los Angeles Times and once in U.S. News and World Report. He has recently been on the national broadcast PBS Frontline: The Retirement Gamble. He started an investor self-help group with Sandy Keaton for LAUSD colleagues and wrote 6,500 posts in three investment forums since 1997. Frequently quoted and interviewed by the media, testified at state legislative hearings, and honored with the “Unsung Hero” by the 40,000 member Los Angeles teachers’ union for his retirement investing advocacy.
After ten years, Steve still serves on LAUSD’s Investment Advisory Committee as Member-at-Large and former co-chair. The committee oversees 457(b)/403(b) plans for 55,000 former and current LAUSD employees, assets of $2.4 billion.