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Rachel Smith welcomes J.L. Collins to the stage, who is met with applause.

Defining Wealth and Financial Independence

Rachel Smith opens by asking J.L. Collins about the title of his book, “The Simple Path to Wealth,” and its connection to financial independence and a “rich, free life.”

Collins explains that wealth can be viewed from two perspectives:

The Power of Simplicity in Investing

Rachel Smith inquires why Collins emphasizes a “simple path” to wealth, especially given the complexity often found in financial literature.

Collins asserts that simplicity is more powerful and yields the best results. He specifically advocates for index funds, particularly broad-based stock and bond index funds. The advantages of simplicity include:

Collins notes that his blog attracts two types of readers: those who constantly want to “tinker” with their investments, and those, like his daughter, who understand the importance of investing but prefer not to obsess over finances. His writing is primarily for the latter group, demonstrating that a simple approach can lead to powerful performance and often outperform the vast majority of professional managers. He admits to wasting “a couple of decades” trying to find a better, more complex method before embracing simplicity.

Rachel Smith asks whether new readers should start with Collins’ blog (jlcollinsnh.com) or his book.

Collins recommends starting with the blog if you’re new to his work or the concept of simple investing. He suggests:

  1. Going to the “Stock Series” button at the top of the blog.
  2. Reading the introduction, which includes a link to what he considers the most accurate review of his stock series. This helps readers quickly determine if his approach resonates with them.
  3. Reading a couple of posts from the series.
  4. If interested, consider buying the book.

He clarifies that all the information in the book is also available on the blog. However, the book is more concise, better organized, and more polished in its writing, as the blog posts were developed organically over time.

J.L. Collins’ Investment Journey: Learning from Mistakes

Rachel Smith asks Collins about his early investment history and how he acquired his knowledge.

Collins reveals he learned through “trial and error,” spending decades trying various suboptimal strategies. He even reached financial independence before discovering index investing, primarily by picking individual stocks and active mutual fund managers. He emphasizes that while these methods can work, they are “more expensive, more time-consuming, and not as effective as indexing.”

He notes the irony of this journey: Jack Bogle (founder of Vanguard and inventor of the first public index fund) launched his fund in 1975, the same year Collins began investing. Yet, it took him 10 years to even hear about index funds and a “disturbingly long time” to embrace them. He jokingly attributes his knowledge to having “made just about every mistake you can make in investing.”

Overcoming Obstacles and Understanding the “Average” Return

Rachel Smith asks what worked for and against Collins during his learning process.

Collins identifies the financial industry (Wall Street) as the primary force working against individual investors. He describes it as an industry that:

He acknowledges the allure of believing one can be “above average” but clarifies that index investing, while providing “average” market returns, actually outperforms 80% to 85% of active managers over 15 years, and less than 1% over 30 years. Therefore, “getting the average performance of the market, you’re actually getting the best performance that you can expect by a long shot.”

What worked in his favor was his continued curiosity, experimentation, and research. He admits that index investing is “counter-intuitive,” especially for smart people, who often believe they can easily “outperform” by avoiding “obvious dogs” or simply buying top performers. However, he points out that “today’s dogs are sometimes tomorrow’s great turnaround success stories,” and there’s “no way to know what is going to happen with specific stocks.”

The Specificity of J.L. Collins’ Advice

Rachel Smith highlights the specificity of Collins’ advice compared to other vague financial guidance.

Collins explains that his advice is specific because he initially wrote his blog as a series of letters to his daughter. He never intended for it to gain a broad audience or become a business. His goal was simply to archive the financial lessons he wanted her to know: his mistakes, what worked, what didn’t, and “what I think specifically she should do.” This personal motivation naturally led to highly concrete and actionable advice.

Rachel shares her own experience of friends being surprised by the simplicity of her investment strategy, which she learned from Collins’ book: a single sentence on exactly what she’s doing. Collins jokes about a podcast interview where, asked what he’d do with $100 million, he replied, “I’d put it in VTSAX.”

“Why Your House is a Terrible Investment”: A Controversial Stance

Rachel Smith brings up Collins’ controversial blog post, “Why your house is a terrible investment,” and asks why it generated so much feedback.

Collins attributes the controversy to the perception of homeownership as “the American religion.” He humorously illustrates this by contrasting vilifying religious leaders (which people ignore) with suggesting homeownership isn’t perfect for everyone (which incites strong reactions).

He clarifies that he is not anti-homeownership and has owned homes himself. His point is that it’s often not a good financial decision, but rather a “great lifestyle decision.” He advises those considering buying a home to:

  1. Understand it’s a lifestyle decision, not primarily an investment.
  2. “Run the numbers” to understand the exact financial implications (he has a blog post on “buy versus rent” to guide this). This helps individuals understand the cost of their lifestyle choice, even if it’s more expensive than renting.

Rachel shares her own anecdote of preferring to rent in Chicago, citing Collins’ advice and the convenience of not being responsible for home repairs.

Beyond the homeownership post, Rachel asks if any other blog posts have generated significant feedback or controversy.

Collins confirms that “Why your house is a terrible investment” is the most controversial. Other very popular posts include:

Rachel Smith shifts to the current year (2018) and the common confusion among people with 401(k)s and emergency savings but unsure what to do with extra cash. She asks how they should begin to understand their options beyond just savings or checking accounts.

Collins uses the analogy of a “banquet table” laden with various financial products offered by the industry. He advises sweeping most of it away because “none of that matters.” He emphasizes that only a “very small sliver” is truly necessary for wealth building: broad-based stock index funds and broad-based bond index funds.

He reiterates his preference for Vanguard’s Total Stock Market Index Fund (VTSAX) but notes that the S&P 500 index fund is also perfectly acceptable and very similar. For bonds, he suggests total bond market funds.

He addresses the challenge of 401(k)s and 403(b) plans not always offering specific Vanguard funds. In such cases, he advises looking for any broad-based stock index fund (e.g., S&P 500 equivalent) from reputable providers like Fidelity or T. Rowe Price. A key indicator for finding these funds is their low expense ratio.

Getting Started: Education and Understanding “Buckets” vs. Investments

Rachel asks how someone overwhelmed by options like HSAs and 529 plans should get started in 2018 for a “simple year.”

Collins advises starting with education, suggesting his blog or book as a starting point. He highlights a common point of confusion: conflating “investments” with “buckets.”

He explains that within a 401(k), for example, you choose from a list of available investments. If his approach resonates, you would look for a broad-based index fund within that list, often identified by the lowest expense ratios.

Self-Management vs. Financial Advisors

Rachel asks why some people manage their own investments while others outsource it.

Collins believes those who outsource are often convinced that investing is “too complex.” He acknowledges that much of what the financial industry offers is complex, sometimes intentionally so. However, he stresses that “we don’t care about that, because we don’t need any of that.” Once this realization sets in, managing investments yourself becomes “much more attainable,” even for those with no particular interest in finance. He concludes that getting a few financial things right can “profoundly change your financial life without having to dwell on it,” freeing you to focus on more important aspects of life.

Biggest Investing Mistakes

Rachel asks about the two to three biggest mistakes people make when investing or managing money.

Collins identifies two primary mistakes:

  1. Trying to pick individual stocks or actively managed mutual funds: He calls it “hubris” to believe one can emulate someone like Warren Buffett, whose success is “extraordinarily rare.” He shares his own experience of this “stumbling block,” where occasional correct picks reinforced a false belief, but overall, the few wrong picks significantly dragged down his performance.
  2. Trying to time the market: Collins asserts that “nobody knows” where the market is going, despite media predictions. He cites Fidelity Investments research showing that dead people outperformed all other investors because they didn’t tinker with their investments, and the second-best group were those who forgot they even owned a fund. This demonstrates that “time in the market is more powerful than trying to time the market.”

Investing in a “Raging Bull” Market

Rachel asks for advice for someone with cash who is hesitant to invest because “the market’s the highest it’s ever been” and they’re waiting for a dip.

Collins dismisses the idea of waiting for a dip, stating that this sentiment could have been expressed almost every month since the market bottomed in March 2009. He refers to his blog post, “Investing in a raging bull,” which dispels the notion that P/E ratios or other indicators can predict market drops.

He also critiques dollar-cost averaging for large sums, arguing that it typically leads to “giving up gains rather than avoiding losses” unless the market conveniently drops during the investment period. He emphasizes that “nobody knows where the market is going,” and relying on market timing is simply “luck.” His core advice remains: “The best time to have invested was yesterday, and the second best time is today.”

Key Takeaways for Financial Order in 2018

Rachel asks for key takeaways for those with a New Year’s resolution to get their financial house in order, especially those with significant cash in savings and checking due to overwhelm.

Collins’ advice is:

  1. Educate yourself: Start with his blog or book, or other reputable sources, to build a foundation of knowledge. He notes that starting from “ground zero” is an advantage as there’s “nothing you have to unlearn.”
  2. Accept market volatility: Understand that the market will go down at some point. This is a certainty, “not if, but when.”
  3. Do not panic sell: When the market drops, “selling is not an option.” He stresses that while it will be “ugly, painful, and scary,” panicking and selling at the bottom is the only way to truly lose.
  4. Leverage volatility to your advantage:
    • Wealth Accumulation Stage (earning income): When the market drops, celebrate, because your regular investments allow you to buy more shares “on sale.”
    • Wealth Preservation Stage (retirement/no income stream): Add bonds as “ballast.” When stocks plummet, bonds will typically hold their value or increase as a percentage of your portfolio. You can then sell bonds to buy more stocks at lower prices (rebalancing). When stocks recover, you sell some to replenish your bonds. This strategy means “you no longer have to care whether the market is going up or down.”

Audience Questions

Question 1: Future of Financial Advisors and Systemic Risk of Indexing

An audience member asks about the future of financial advisors given the simplicity of index investing, and whether there’s a systemic risk if everyone embraces indexing.

Collins responds:

Question 2: Diversification Beyond S&P 500 and Role of Financial Advisors

Another audience member asks about diversifying beyond the S&P 500 (e.g., global markets, bonds, commodities) and in what scenarios a financial advisor would be helpful.

Collins replies:

Question 3 (Dory Question from Stephanie): Holding Google Stock Compensation

Rachel poses a Dory question from Stephanie (a Googler) about holding significant compensation in Google stock versus immediately diversifying.

Collins advises against holding a disproportionate amount of wealth in company stock, despite the “emotional” connection to the company’s success. He emphasizes separating emotions from investing.

He uses the example of General Motors in the 1960s (which was so dominant the government considered breaking it up) to illustrate that even seemingly invincible companies can face challenges from competitors. He cautions against putting “all of your eggs into the same basket where you work.” He reiterates the advantage of owning the S&P 500: you don’t have to guess which company will win, because you own all the major players, and the index continuously updates to reflect market success.

Target-Date Retirement Funds and Financial Advisors (Revisited)

An audience member asks for Collins’ thoughts on target-date retirement funds and additional scenarios where a financial advisor might be helpful for reassurance.

Collins addresses these points:

The event concludes with Rachel thanking J.L. Collins for coming to Google Chicago, met with applause.

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