The Simple Path to Wealth – JL Collins

In The Simple Path to Wealth, blogger and financial expert JL Collins offers a simple road map to achieving financial independence and a secure retirement: Spend less than you make, avoid debt, save “F-You Money,” and invest in stock index funds. He demystifies stocks and bonds, as well as a plethora of investment plan options. In addition to explaining basic concepts such as asset allocation, Collins answers key questions such as how to live on your investments and how to avoid major tax hits.

  • Definition of wealth
    • Security + Freedom: Freedom to chart your own path
    • 4% Rule: if 4% of your assets can cover your annual expense, then you can be considered wealthy
  • Mistakes made in investing journey
    • Mistake was not embracing indexing earlier
    • Mistake of trusting Wall Street where their position is that investing is complex, but if you invest in Wall Street, they can outperform the index and the market. Irony is that index beats majority of active money managers
    • In a research period of 30 years, less than 1% of active managers can outperform the market
    • It’s easy to think you can pick the top performing stocks in the index, or avoid the dogs of the index and you can outperform. However, in the long run, it’s difficult to predict if the top performers will continue to be top performers and vice versa
  • Considerations of buying your first home
    • Home ownership might not be a good financial investment, but it might solely be a lifestyle decision
    • Unless you’re lucky that you’ve invested in a rising market, renting might be more favourable
  • Common mistakes for the common investor
    • Thinking you can pick individual stocks, or picking people who can pick individual stocks
    • Trying to time the market. You cannot predict the market.
  • Key Takeaways from Book
    • Understand money
    • Stay away from complex investments
    • If you spend less than you earn, invest the surplus, and avoid debt, you’re already well on your way to financial freedom.
    • Money buys freedom
    • Don’t worry about how things will work out
    • Debt is not normal
    • A stock is nothing more than a small piece of ownership of a company. The stock market is made up of companies, and the holders of that stock are the owners of those companies.
    • Most people lose money in the stock market because we believe we can time the market, pick indivudal stocks and pick winning mutual fund managers
    • 2 stages of investing: wealth accumulation and wealth preservation
    • Collins recommends putting most of your capital in Vanguard’s Total Stock Market Index Fund (VTSAX)
    • When interest rates rise, bond prices fall. When interest rates fall, bond prices rise. In either case, if you hold a bond to the end of its term you will, barring default, get exactly what you paid for it.
    • flexible lifestyle, you can assume more risk

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Hi! I'm

Ricky Young

My belief is that financial freedom cannot be obtained by just a 9-to-5, but a combination of smart investing and passive income. This is my journey to achieve financial freedom.

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