When you cover a topic for many years—like money, in my case—you begin to detect certain common patterns. For example, you start hearing the same advice—start investing early—strategies—use index funds—and even financial book recommendations that may be useful to you.
Many investors who reached the Financial Independence those I have spoken to cited The simple path to wealth by JL Collins as a required reading. Its immense popularity was so great that I even felt compelled to get a copy. It was time to see what all the fuss was about.
The pocket book It cost me 22 dollars —about 20 euros to change—. I read it for about three days, pen in hand, so I could take all kinds of notes and jot down my own reflections.
21 ways to earn extra money in 2024
Before writing it, The author had started investing in 1975, and financial independence came after 2011, when he left his job and obtained early retirement, which is known as the FIRE movement in the United States. He defined the term like this: “when you can live on 4% of your investments per year, you are financially independent.”
The same year he stopped working was when He began writing a series of letters to his daughter about money and investing. These letters would become the basis of his 2016 book.
It is written as if speaking to another family member. It is colloquial and informal, with the occasional joke from a father to a daughter. Like the concepts covered in the book, the writing is direct and simple. The chapters are short (the longest, a chapter on retirement accounts, is 13 pages) and tempt you to read “just one more page” before going to sleep.
The book is also repetitive, but in a useful sense.
I read the acronym VTSAX—Vanguard Total Stock Market Index Admiral Fund—so many times that I almost used it to start my Wordle game. Collins mentions Vanguard so frequently that it’s easy to forget that other investment companies exist (he explains why he prefers Jack Bogle’s brainchild, and the reasoning is sound).
The repetition reminded me of when I trained tennis. I heard “move your feet” and “keep your head down” so often during a workout that I rolled my eyes. But it was good and useful advice that I will never forget. Like any good coach, Collins incorporates the important things into the content of his work.
It has also experienced, having invested during the 1987 crash and “Black Monday”, the technology crisis of the late 1990s, the 2008 global financial crisis and many other “smaller crashes”. He is candid about the investment mistakes he has made—buying penny stocks—and the investments that have made him rich—VTSAX.
The key takeaways
1. As the title suggests, simplicity wins. Collins delivers on his promise to provide a simple path to wealth. His portfolio consists of two index mutual funds (VTSAX and VBTLX) and a money market or bank account to hold cash.
For younger investors in what he calls the “wealth accumulation” phase, the strategy is even simpler: buy shares through Vanguar’s Total Stock Market Index Fundd. (He only added bonds to his portfolio because he is now in the “wealth preservation” phase.)
Kathleen Elkins
2. A couple of smart financial moves can offset numerous mistakes. Collins explains that, despite the many investment mistakes he made, three decisions helped him achieve financial independence. They are the following:
- Save 50% of your income
- Avoid debt
- Invest in index funds
Please note that my only big “but” towards Collins’ text is his suggestion that saving 50% of your income is simple. While the concept may be simple in theory, I’m not convinced it is in practice when you combine basic needs like housing, transportation, and food with discretionary spending that makes life fun.
To be fair, he wrote this almost a decade ago, when life was less expensive.
Who is this book for?
Many different types of investors can benefit from the book from Collins: twenty-somethings who just graduated from college and have never heard of an index fund; the fifty-somethings preparing for retirement and looking to preserve their wealth; the skeptical investor who is nervous about putting his money into the market and needs a pep talk; and the investor profile like mine, I invested my money years ago without much guidance and could benefit today from reviewing my investments.
Who is this book not for?
While Collins covers personal finance basics like HSAs, RMDs, “F-You money,” debt payoff, and tax strategies, most of the text focuses specifically on how to invest in the stock market. For interested investors
on generating wealth through real estate, for example, this is not your book.
Collins’ general opinion on the subject is that “homes are an expensive indulgence, not an investment.”
But if you are looking for a simple way to increase your wealth and grow financially, for a handful of euros or dollars you can obtain solid financial education. Collins’ advice will prompt you to take action, even if all you do is review where you’ve put your money, like I did.
