I’ve mentioned The Simple Path to Wealth by JL Collins many times in this blog.
The reason is simple: it has really impacted my investment philosophy.
The timeless principles, the clarity and the simplicity of JL’s approach totally convinced me.
In my 20 years of investment, despite my mistakes, I’ve done relatively well.
You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett
But the words of JL Collins brought me a new level of clarity.
It gave me the courage to simplify my strategy and embrace new principles.
My financial decisions become easier and I feel more confident.
A calm, clear, and patient mind has everything to become rich with the stock markets. And JL helped me in this quest.
The Simple Path to Wealth
I had an excellent chance to test myself in 2020, with the COVID-19 crisis.
In the middle of the pressure, when the market became volatile as never before, when the media predicted the end of the market, I decided to switch part of my asset from a less risky (55% bond) to a more aggressive strategy (100% Stock). Was I crazy?
No (I hope 😀).
JL convinced me on two principles: the investment stage of my life and that in the long term, the market always goes up.
Photo by Morgan Housel on Unsplash
With this bold change, I got excellent results in 2020. But that’s less important than the clarity I won by reading the book. The market will go up and down. Depending on the period, I’ll earn or lose. But the principles which guide my long-term decisions remain.
Clarity is a superpower. I’m sometimes approached for new investment opportunities. In the past, I’d spend time studying and hesitating. My new frame helps me to sort them out quickly. I don’t feel like losing an occasion. I just follow a global structure I believe in and it makes my financial life easier.
Clarity brings simplicity. Simplicity drives actions. Actions bring results.
Simple is good. Simple is easier. Simple is more profitable.
The promise of the book is a clear and simple road map to financial independence through long-term investment. And that’s what it does.
Simple is good. Simple is easier. Simple is more profitable.”
There are very few new things in the book. But as a teacher who has lived his recipe, JL can straightforwardly convey his message, connecting the dots and illustrating with great examples.
To reach financial freedom, which means having the choices to do whatever you want with your time, you need to focus on the basics. There are resumes with these three actions.
Spend less than you earn. Invest the surplus. Avoid debt.”
On the investment part, the whole philosophy is around simplifying your portfolio.
But the simple truth is this: the more complex an investment is, the less likely it is to be profitable.”
He advised the Mutual Funds or ETF (Exchange-Traded Fund) as an investment vehicle for the long term. The portfolio of the author is:
- One stock VTSAX* (Vanguard Total Stock Market Index Fund Admiral Shares)
- One bond VBTLX* (Vanguard Total Bond Market Index Fund Admiral Shares)
- The minimum level of cash needed.
If you live out of the US, the author advises some variation. I personally apply the concept with Vanguard FTSE All-World UCITS ETF Distributing. You can find more on his blog here.
As many, JL Collins does not believe that you can successfully beat the market in the long run with stock picking. Indexing with Mutual Fund or ETF becomes the best option.
I’ve been in this business 61 years and I can’t do it. I’ve never met anybody who can do it. I’ve never met anybody who’s met anybody who can do it.” – Jack Bogle.
Before you start trying to pick individual stocks and/or fund managers ask yourself this simple question: “Am I Warren Buffett?” If the answer is “no,” keep your feet firmly on the ground with indexing.”
I don’t favor indexing just because it is easier, although it is. Or because it is simpler, although it is that too. I favor it because it is more effective and more powerful in building wealth than the alternatives.”
I was already convinced and using the ETF path since 2017 following the all-weather portfolio.
- 55% in Fixed income (bonds)
- 30% in stocks
- 15% in commodities
JL convinced me to move to another level by simplifying my approach to one diversified stock ETF (All-World UCITS ETF Distributing).
He introduces into the traditional question of risks level, the concept of stages in your life instead of age.
The wealth accumulation is the phase where you still earn money with your principal activity. As you don’t need your investment to survive, you can be invested 100% in stocks with one diversified ETF.
If you are in the preservation stage, you are near or already in retirement. You can introduce more bonds in your allocation to smooth the ride.
The wealth accumulation portfolio
Put all your eggs in one basket and forget about it.”
The great irony of investing is that the more you watch and fiddle with your holdings, the less well you are likely to do. Fill your basket, add as much as you can along the way and ignore it the rest of the time. You’ll likely wake up rich.”
My belief that the market always goes up in the long term cumulated to my life stage gave me a clear frame to guide my investment decisions.
My path for my kid: The first 10 years
JL created the book as a reference for his daughter. So he ends up with few pieces of advice for the kids.
The Simple Path to Wealth I created for my then 19-year-old daughter: Put all your eggs into one large and diverse basket, add more whenever you can, and forget about it. The more you add, the faster you’ll get there. Job done.”
During this accumulation phase, celebrate market drops. While you are in the wealth accumulation phase, these are gifts. Each dollar you invest will buy you more shares.”
I’m not a kid anymore 😋, but that’s what I did, converting my cash and bonds into stocks through one diversified ETF during the COVID_19 crisis.
Put another way, financial independence = 25x your annual expenses.”
Making reference to the famous 4% rule, where you can spend 4% of your asset every year.
The author believes that 3% instead of 4% become secure.
Roll it down to 3% and we have as sure a thing as we’ll ever see short of death and taxes.”
Once you are financially independent, begin living on your investments.”
And to finish by:
At the point you become financially independent, you can decide if you are still having fun and want to continue your career or try something new.”
Conclusion
I’ve been an investor for more than 20 years. I could have avoided many mistakes if I’d had this book in my hand before.
It gave a set of simple principles that helped me simplify my strategy and accompany me in my daily decision. It’s also an excellent gift for people around you.
Money is a tool that allows you to reach freedom, and with JL by your side, you’ll feel more confident.
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Financial Independence. I’m Retiring From Corporate Life At 46.
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Don’t try to master the market; master yourself…
How To Gain More Tranquility And Freedom In 4 Steps?
Disclaimer: I’m not a financial advisor. All information posted is merely for informational purposes. It is not intended as a substitute for professional advice. Should you decide to act upon any information on this website, you do so at your own risk.
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