Making the decision to pursue Financial Independence can be quite daunting. There is a lot of information and it can seem like a really long journey when you are right at the start!
Jim Collins writes an excellent financial blog. He started writing a stock series as “letter” to his daughter who he wished to impart financial wisdom onto so that she could get ahead in life. Unfortunately for Jim, she just wan’t interested in spending much time on financial matter, thus “The Simple Path the Wealth” was born.
JL Collins preaches two things: Low cost efficient investing and the importance and power of F-you money. Essentially, he says that anyone can become wealthy as long as you follow the simple path to wealth:
“Spend less than you earn—invest the surplus—avoid debt. Do simply this and you’ll wind up rich. Not just in money.”
Investing is scary for a lot of people, especially taking the first steps into the investment world. The stock market is a potentially deadly space when going in with no knowledge of it. When you hear investing, most people will understand that as active investing which is essentially gambling because no one can guess or time the market, no matter what the experts will have you believe. Mr Collins dispels the fear of investing by advocating for passive investing and buying into Vanguard’s Total Stock Market Index Fund or an equivalent, and demonstrating the upwards trend over the history of the stock market. He also highlights the importance of investing early, as the passive funds will outperform most other investors over 30 years.
The book is succinct and can be read in one sitting if you feel motivated enough. It is an easy read and has a light and chatty air that you won’t find in other investing books. Jim doesn’t get bogged down in the super boring aspects of investing which is great for the majority of people who want a whistle stop tour of investing. Just enough to be successful!
“There are many things money can buy, but the most valuable of all is freedom to do what you want and to work for whom you respect. Those who live paycheck to paycheck are slaves. Those who carry debt are slaves with even stouter shackles. Don’t think for a moment that their masters aren’t aware of it.”
There are chapters of it which is only applicable to the American market. Mr Collins tells the global readers to skip forward to the relevant parts. The advice he gives can be used by people all over the world, except for the section of the book focusing American taxes and retirement accounts.
Mr Collins tries to gently remind us that we are not on the same level as the genius stock picker that Warren Buffett is. Try to pick individual stock winners might work occasionally, but most will fail. Stick to passive index funds where you own a chunk of hundreds of companies, and eliminate the gambling aspect of investing.
When you own stock in a passive index, the index is self cleansing. The poorly performing companies will fall off the index and be replaced by up and coming companies. Some companies will go broke and you lose 100% but other companies can have limitless growth.
Jim Collins talks from experience. He spend years actively investing and backed some winners but ultimately lost out on year of gains he could have expected from passive investing had he only saw the errors of his ways sooner. Hence why he is stressing for you to not make his mistake, but learn from them. Start investing and enjoy the high, but more importantly, ride out the lows. There are going to be several market crashes in our lifetime, and you need to be prepared for this. The real losers in the stock market are those that lose their nerve and sell when their stock value is low, wait for an upward trend and buy back in at a higher value…Not good!
Ride out a market crash, the market will always recover!
Without giving away the entire book, Jim Collins highlights the Wealth Accumulation Phase and the Wealth Preservation Phase. They do exactly as they say on the tin. The accumulation phase outlines the strategy to maximize gains with as little risk to your portfolio as possible and as little effort as possible. It strives for increasing your savings rate and invest as you go, never timing the market. Preservation phase includes changing your portfolio to include bonds. It allows drawing down to cover your expenses without your retirement fund expiring.
“The greater the percent of your income you save and invest, the sooner you’ll have F-You Money.”
I highly recommend this book as it got me to take my first step through the door into the investing world. It is a foolproof plan that can work for people of all ages, in all walks of life. If you have not read the book, you need to change that!
You can find a copy at the below links:
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