Index Funds, How To Build Wealth & Financial Independence Wisdom With “The Godfather of FI,” JL Collins

Episode Number: 284

Episode 284- The Simple Path to Wealth and All You Need to Know About Index Investing with JL Collins REWIND

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Show notes

JL Collins 0:02

The market is very volatile, it will reward you handsomely over the course of decades. But in the short term, I tell people, if you don't stay the course, if you panic and sell when the market drops, and the market will drop, I'm not predicting it's going to do that tomorrow. I have no idea when it's going to happen next, but it will happen because that's the nature of the market.

Intro 0:27

T-Minus 10 seconds. Welcome to the journey to launch podcast with your host jameelah. So frogs as a money expert who rocks her talk, she helps brave juniors like you get out of debt, save, invest, and build real Whoa. Join her on the journey to launch to financial freedom in three to one.

Jamila Souffrant 0:57

Hey, hey, hey, journeyers. Welcome to the journey to launch podcast, it's the month of August. And if you have not been aware yet, maybe you're just first finding out about the podcast, maybe you've been listening for a while, in the month of August, we're just doing some rewind episodes of some of my favorite past episodes that I think you need to either hear again, if you heard it already. Or you can hear for the first time again, because this content is super still relevant, and relatable to wherever you are on your journey. This episode is from Episode 141. So this was originally episode 141. With Jay L. Collins. Now he wrote the book, The Simple Path to Wealth. And it has literally been where I send people when they asked me about how to get started with investing, I actually usually send them to his free blog first. Um, he has this great stock series on his blog that I will link again in the show notes. And it just allows you to understand like the concept of index investing, and then dive into index investing. So I do want to make clear like, we are not financial advisors, this is not investment advice. But I will say this, that for me learning about index investing, and how simple it was, was something that changed the trajectory of my wealth, because it's something that I heavily invest in, in terms of it's simple. It's low cost, and we have access to it. It's like you can access it. And you'll hear more about this in this episode. But I thought you know what, this is one of those staples that everyone needs to hear not once but twice. So buckle up, get your pen and paper out, take some notes and listen to this episode with JL Collins, where we talk about The Simple Path to Wealth, it doesn't need to be complicated, The Simple Path to Wealth, and all you need to know about index investing.

Hey, journeyers, I am so excited to talk to the legend. JL Collins j l wrote an amazing book called The Simple Path to Wealth. I always direct people to that book and to his amazing Stock Series and website, which just breaks down investing and reaching financial independence in a way that I just think most people need to like, see, because a lot of it can seem overwhelming. So jail, I'm so excited to be able to talk to you and then basically have you distill. So what I know be great information to my audience. So welcome to the podcast.

JL Collins 4:01

Well, Jamila, thank you for the wonderful introduction. And I am excited to be here and look forward to talking to you and by extension your audience.

Jamila Souffrant 4:09

Yeah. So I mean, there's a lot of things that like just I feel like I could like start with with your story. But in general, you said, which I thought was pretty neat that you actually reach financial independence and didn't know it. And I want you to kind of like take us there because it's like that everyone who listens to this podcast, that's what they want. They want to live a life where it's on their own terms. They can take breaks when they want and you were doing that without even knowing that you were doing it. So can you just talk about like, coming to realize that you were financially independent, and then we're gonna talk about how you got there?

JL Collins 4:41

Yeah, so when I was walking this path, and in my early years, I had no frame of reference. I had never heard the term financial independence. I'm not sure if it even been coined yet. Let alone the the term fire or financial independence retire early. I had come across the idea of fu money in the early 70s. That was out of a novel by James Cobell noble house by name. And there was a character in that novel that had a goal of accumulating fu money. And that crystallized what I was after. But it wasn't a concept of having enough money to never work again and retire, it was more a concept of having enough that you could leave any job you wanted to wherever you want it. But with the idea that you probably go back to work, at least, that's what was in my head. And that's, in fact, what I did through my career is, periodically I love my jobs, and I love my career. But I didn't want to do it all the time. So periodically, I took little sabbaticals on my own. And in 1989, I began the longest what turned out to be the longest of those, which was five years. And shortly after that, for a variety of reasons, my wife, Jane, left her job. And then in 1892, her daughter was born. So what happened to that five year period, we didn't have any income coming in. And at the end of each year, I would total up our investments and our expenses for the year and, and we had not changed our lifestyle. Now, to be clear, we were living a fairly modest lifestyle. But nonetheless, we didn't cut back when we gave up our jobs, we maintaining the same living that we had had before. And I noticed about three years in something remarkable. And that was that. Even though we were living that same lifestyle, spending the same amount of money every year, our net worth was higher than the year before. And I knew something amazing had happened. But I didn't have a frame of reference to name it. I didn't know about FYI, or financial independence. I'm not sure that toy that term had been coined at that point lit on fire, which is financial independence, retire early. And kind of embarrassingly I, a while I noticed this and thought, Wow, that's pretty cool. The ramifications of it never sunk in, it never occurred to me that this might mean that I never had to work again. I think part of that was that I liked working. And I was kind of looking forward to the next job at that point. But yeah, so I didn't realize what it was called when I got there. But I knew something remarkable happened.

Jamila Souffrant 7:24

But how did you get there? Right? So for so many people, you have very extensive like history and the different types of careers and industries that you worked in. But while you were working, how did you know to be so astute with your money at that point, because a lot of people will, could be in the same regard working working, they get to the point later on in life where they don't have the assets to be able to, you know, quit or take sabbaticals like that. So how did you get to that point? Without even knowing it? Was it just that you saved and invested here and there? Was there something along the way that happened?

JL Collins 8:00

Well, so first of all, i Someone once asked me how I know so much about this investing stuff. And my answer is, if there's a mistake to be made in investing, I have probably made it. So I have it's been a long, painful, very expensive education is like I blundered from mistake to mistake, but I did learn along the way. And I think what got me there was was a couple things. One, I did have this goal of having fu money. And of course, that meant saving and investing and fu money eventually grows into being financially independence level money. As a matter of course, and I think that's what happened. And that was the surprise thing I noticed around I don't know 1991 or so. But yeah, I started investing because I knew I wanted to have that that fu money and I always liked the idea of having the security and the freedom that having investments and having money working for me represented.

Jamila Souffrant 9:00

Right so can we talk a little bit about fu money because it's such a powerful concept and tool for everyone? And you have a wonderful video about it. So I'll link it in the show notes for this episode. But can we talked about what fu money is and what it allows for you to do?

JL Collins 9:15

We want to link to that I assume you're talking about my take off on on John Goodman's piece in the gambler if you're linked to that be sure to warn people by language.

Jamila Souffrant 9:27

Yes, yeah.

JL Collins 9:27

So fu money actually. It means different things to different people. And for a lot of people, it's synonymous with being financially independent that is having enough money that work is completely optional. For me, it was only having enough money that I could comfortably step away from a job if I chose to. So the first time I I considered myself as having fu money in the first time I stepped away from a job. I had a total of $5,000. But I knew that $5,000 was enough to allow me to travel to Europe, which is what I wanted to do at the time, and would provide enough cushion to get me into the next job. A lot of people would say, Wow, that's way, way too little. And that would be hard to argue with. But I was young and maybe reckless. And that was enough for me and it worked out. So I've always seen fu money as a stepping stone to full financial independence. Fu money is the money that allows you to initially buy your freedom to give you breathing room to step away from situations that might not be working for you anymore. But it's still allowing you to have that cushion to, to make the transition into whatever comes next.

Jamila Souffrant 10:45

Yeah, and I think it's almost like, you know, people have the concept of emergency savings. And that's in case anything happens. But if you'd like take it, put it like emergency savings on steroids, it's like, depending on how you look at it, it's it's more depending on your goals, a like heftier, bigger pot, possibly for the breaks that you need, which. So that's one of the things that I did when I quit my job to basically jump into entrepreneurship full time, we had to create a runway for ourselves some breathing room to allow for that. And so I consider us building up our fu fund along our way, like as I was working still to be able to take this leap. So I don't know a lot of people like when they think of financial independence, it's a big topic. Like for a lot of people, it can take a long time, depending on their starting point and how much debt they have. I think the concept of at least getting to a place where you have fu money to get some breathing room to take a break. And to have some more options like right to find another job or to take a sabbatical is really, I think most people can get to in their lifetime. So I think that concept will resonate with a lot of people.

JL Collins 11:48

Yeah, I think absolutely. Most people if if they understand it's a possibility that it's I mean, a lot of people are not even aware the concept of doing such a thing, but I think once people become aware of it, virtually anybody can do it, and it really doesn't matter what you call it. And it's it's not a a you know, it's not a final destination. I mean, the moment you start, the moment you start saving and investing money, you have begun the journey of building fu money that if you take my definition ultimately comes full financial independence, but each additional dollar makes you that much stronger, makes the chains that less tighter. And so even though it seems to Progress seems slow in the beginning, particularly against that that goal out there in the distant future. It's important for people listening to realize that each dollar each step brings you closer makes you stronger makes you freer.

Jamila Souffrant 12:51

Yeah, I love that loosens like every every dollar paid or going towards the right direction buys back a little bit more your freedom.

JL Collins 12:59


Jamila Souffrant 13:01

I know one of the reasons why you wrote the Stock Series, which is great, by the way, um, was to help your daughter out. So as you were, in terms of now, like taking sabbaticals and living this kind of semi FYI life, because you did enjoy working right. So you continue to work? How did you now then say, You know what, I need to start sharing this with more people. What made it more intentional for you where you said to yourself, this needs to be shared with the world more?

JL Collins 13:24

Oh, well, I. this is true confession time to be alive. I'm actually not that that generous, a person that thought never crossed my mind really, I, I had tried to persuade my daughter Jessica, to listen to this stuff. And I, I probably pushed it too hard, too early, and I turned her off. So at one point, I started writing these things down that the investment advice and knowledge I wanted her to have. And like against the day that she might be willing to hear it. And just in case when that day came by wasn't around to to have the verbal conversation. And I shared some of these letters that I'd written to her with a colleague of mine. And he said, You know, Jim, this is this is pretty interesting stuff. And you might think about putting it on a blog and sharing it with your family and friends. And the idea of sharing it with my family and friends was mildly interesting to me. But what appealed to me was what a great way to archive the information for Jessica, if and when the time came. And I had heard of blogs, but I joke that the first blog post I ever read was the first blog post I ever wrote. So I created this blog mainly as a way to archive the information for Jessica and then I did send it around to family and friends and of course they didn't care. Nobody listened to people who know your best. They're not the ones that listened to you. But then kind of to my amazement, it the blog began to to to To attract a broader audience of people who are not family and friends to people I didn't know. And over the years, it's it's grown to a rather remarkable size. And I now have this international audience and in a very gratifying way I have people pretty routinely tell me I have profoundly changed their lives for the better. But if I'm honest, that was not. And I'm thrilled by that, and I'm happy by it, I take satisfaction. But I would be lying to you. If I said, Yes, that was my grand plan to make the world a better place. I was just trying to get my kid to listen to me.

Jamila Souffrant 13:24

Yeah, and look at the result of that. So mean, let's get a little bit into like investing. That's what I think you do such a great job at breaking down index investing. So when did you discover someone you started when you were working and saving up for fu money? At that point? Were you needing to get out of debt yourself? Or were you always good with money for the most part? And so it was really about investing? What you had after expenses? And then were you directly investing in index funds at the time? Or how did you start investing in learning about it,

JL Collins 16:07

that's Jamila, you're bringing out all my dirty little secrets.

So first, first of all, I have never been in debt. I've never even had a car payment, other than I've carried mortgages on a couple of houses that I've owned over the years. But that's the only debt I've ever had. In fact, when I was working on the book, The Simple Path to Wealth, a Tim, my editor said, you know, we need a chapter in here about that. And I said, Yeah, I don't know anything about that. I've never been in debt. I've never had a wrestle with that particular demand. And so I'm not sure I'm the right guy to write this. But he was very insistent. And finally I said, Well, I'll tell you what, you outline it, because he had he, he had wrestled with that himself. I said, you outline what you think it will look like. And I will write it and, and that's what we did. And there's now a chapter on dead in the book. And, and the it's been it's been one of the more widely praised chapters of all, so I'm gratified that he pushed me to do that. So that was never really a problem. And the but the dirty little secret you're uncovering is that when I achieved FYI, I didn't again, Brown 1989. I was not an index investor. I did it by picking individual stocks and actively managed funds, which is something that that I am strongly against doing now. Now, it's important to understand that it's it's not that you can't succeed doing those things, because clearly I did. The problem is that it's a whole lot more work. And it's not nearly as powerful as indexing. One of the great ironies is Jack Bogle created the first group, Jack Bogle is the founder of Vanguard and, and he created the first index fund in 1975, which just coincidentally, happens to be the first year I started investing. I didn't know that that was happening at the time, and I would not have been wise enough to embrace it at the time. In fact, when I finally learned about indexing in about the mid 80s, let's call it 1985. I resisted the idea. And it took me an embarrassingly long time to, to really fully embrace how powerful it was and and to switch over and I want to say, Jamila, that was probably early 2000s, you know, 2000 2001 2002, somewhere in there. But yeah, I achieved financial independence before I embraced indexing. But I would have gotten there faster, and the portfolio would be bigger. If I had been smarter and embraced it sooner.

Jamila Souffrant 18:56

Yeah. And I think we probably should step back just a little bit. Because while we know what the index fund is, and maybe some people are really new to this, and we're just like, Okay, let's just quickly describe what an index fund is. So would you do us that honor to quickly tell us what an index fund is as it relates to us individual stock?

JL Collins 19:14

Sure. So before Bogle came up with the first index fund in 1975, if you were going to invest in the stock market, you either bought individual stocks, or you bought into a mutual fund that was actively managed by someone who selected individual stocks. And what Bogles great insight was, is that those ways of investing are inherently expensive, because of the transaction costs, and because of paying the managers to do it. And the research indicates that that they're not particularly successful in just outperforming a random selection of stocks, especially if that random selection of stocks was Everything in the index. Now what do I mean by index? When index is nowadays it could be anything, it could be all the stocks that are in real estate investment trusts, for instance, or all the gold mining stocks or all the technology stocks. But what I recommend and what mogul first created was a broad based index fund of US stocks. His first one was the s&p 500 Index Fund, which simply meant that it bought every stock and every one of the top 500 companies in the United States. The fund that I prefer that came later is the total stock market index fund, which buys every single publicly traded company in the United States, which is around it varies, but it's around 3600 companies. So you're broadly diversified. And the research over the years is more and more confirmed that that broad based index, whether it's the s&p 500, or the total stock market, soundly outperforms the vast majority of active managers who are trying to pick and choose individual stocks that will do better than other individual stocks. And there you go, and at a much lower cost, which means that it's much much harder for those individual battered managers to compete, even if they're pretty good stock pickers, because their cost structure is just higher.

Jamila Souffrant 21:30

Yeah. And then Rex helps. It's a great explanation. And I think it's wonderful. Because before I came across this concept, and knew what this was, I had no clue about index investing or what it was. And that's primarily how I invest now. And I think so for so many people, when they think about, okay, they want to invest, they want to do all these things, the first thing that they think of, or maybe they don't know about is index funds. So they think about individual stocks, like that actually seems like the more it's more complicated, but it seems to be like the first thing that comes to mind when people think of investing. And there's this whole other avenue for people where it's not as complicated to me. And as time doesn't take as much time, it's not as expensive, doing it via index investing. And I think it's a way in which when people know about it, and then use it as a tool for them to reach their financial goals and investing goals. It's amazing, but I have so many people who say to me, like, I have no clue, I don't even know that this was a thing or that you can do it. So I think it's great that we are bringing more light to index investing?

JL Collins 22:30

Well, and I think it's that surprising that people hear about investing in individual stocks or actively managed stock funds, because those are the things Wall Street promotes. Those are the things that make Wall Street rich. So Wall Street is never going to turn around and promote index funds, because there's no money in it for them. There's money in it for the investor. And that's, that's that's what matters. So at least matters to us and to your audience. But, you know, the you're never gonna see ads and Money Magazine for index funds or, or I wouldn't think you would, because those fund companies are much better served, if you buy they're actively managed funds that they're going to charge you a lot more money for the brokers are better served. If you're buying and selling stocks that they're making Commission's on then if you're buying an index fund and holding it for a long term, but if you want the best results, for the least cost indexing is, is pretty clearly the way to go.

Jamila Souffrant 23:32

Right? And you can invest in index funds via your retirement accounts. So if you're with a company that has access to index funds, and has that as an option, you can actually do that through your retirement accounts. And then of course, be a taxable account. So things that are not related to retirement accounts, you can also invest in index one. So I want to make that clear, because then some people will ask, okay, so how do I get started? With where do I go? And the first step for me is to make sure that if you have an employer sponsored retirement plan for anything, give you a company match, go and look to see if they have options to invest in index funds. And then even in your series, you say if they don't have the option of index funds, there's a way you can creatively simulate one, you know, you have that in your series.

JL Collins 24:14

Yeah, you know, it's when you when you talk about company sponsored plans, like 401 ks and four, three B's and that sort of thing. I think it's gotten a lot better initially, they tended not to have index funds, and I think more and more, they are offering them because people are demanding it. But I tell people that if you look at the typical 401 K 403 B plan, you know, they offer an incredible number of different funds to choose from, which I think is a disservice for astrologers makes things confusing. But if you want to find easily find the index funds in that 20 3050 list of various funds, a simple way to do is go find the column that shows As the ER or expense ratio, that's how much they're going to charge you on an annual basis for it. And the lower that number, the better because the lower that number, the less you're being charged to hold that fund. If you run your finger down that column, and identify the absolute lowest numbers in that column, which should be something like point 04 2.07, those will be the index funds. And then you can just look at, and there'll be maybe two or three, four, and then you can zero it and look at those and see exactly what the index is, is the s&p 500 isn't the total stock market. And that'll help you identify easily identify the index funds in your plan.

Jamila Souffrant 25:49

Yeah, yeah. And like literally, so this is really taking a more active approach, you go again, and logging in to see what's available in your current retirement account. And then if you're at the part where you're now or you're investing in, you know, like a Roth IRA, you have that option, you have more leverage, because you could do that outside your company. So you should pick where you, you know, you take that money to, or if you're doing after tax investments, you can begin to like, see your options, because there are options out there, you just have to do the research a little bit. But I think a good start is index funds, like,

JL Collins 26:20

Yeah, and if your your point well taken in Jumilla, if and just to emphasize that if you're if you're investing in an IRA, whether it's a traditional or a Roth, you get to choose what investment company you go with. My preference is Vanguard for a variety of reasons. And you get to choose what fund, so you're not limited in your choices. So that's, you can easily fund those with index funds. And of course, if you're opening a taxable account, the same thing applies, you know, you get to make all the choices, the funding company you go with, and the specific funds you go into.

Jamila Souffrant 26:57

And so for a lot of people, right, the concept of investing, so to me, like saving, I was ever taught much about money growing up, I mean, the thing that my mother and grandmother did instill in me is to save. So we were always kind of good savers where we put money away, and at least we have it for something that we wanted to do. But that doesn't bring you wealth, right? Because especially if you're putting it in a traditional savings account, it's getting your your gains are getting eroded by inflation. And so for a lot of people, they're kind of stuck with even if they're doing okay, it's like a lot of their money is possibly in the savings account, or maybe someone's in a high yield account, if they have been so bold enough to say, Okay, I'm gonna like, take a risk. But part of things for a lot of people is scary. There's all this talk that you know, there's going to be a crash, there's, people have lost money in the stock market, obviously, as I think getting to talk, let's talk a little bit about that. Because I think that fear for a lot of people, holds them back. Well, what if I put this money in, and then in a couple of days, it's all gone.

JL Collins 27:54

So I point well taken. And first of all, I would like you, my parents didn't teach me about investing, they didn't know anything about investing. They did instill a appreciation for saving, and being willing to save and, and defer gratification and that kind of thing. And that's extraordinarily powerful. So let's just start there, if any of your listeners already have that saving discipline, they are several steps ahead. And it is difficult to take the step into investing in stocks because they are volatile. I just got an email from from a guy who attended one of our Chautauqua was, which are these annual events where we go off and get together with small groups of people when, and he was one of those classic individuals that you're talking about Jamila, who had been successful at a good savings discipline had accumulated a whole bunch of money in savings accounts. And, and he was really feeling kind of bad about that, that he had, that he had not deployed in the stock market, particularly because the markets done so well in the past few years. And I said, cow, that's the wrong way to think about it, you've actually been very wise and waiting until you understood what you want it to do and what the parameters and the risks involved in making that decision to move into stocks, we're better to do that better to sit on your savings and maybe miss a little bit of market gains, until you're absolutely comfortable that you know what's entailed in investing in stocks. That's one of the reasons that I wrote the book and and the stock series that you were nice enough to refer to, but nobody, nobody should listen to this and run out and buy index funds without being confident that they understand what it is that that means and the fact that the market is very volatile, it will reward you handsomely over the course of decades. But in the short term, I tell people if you don't stay the course worse, if you panic and sell when the market drops, and the market will drop, I'm not predicting it's going to do that tomorrow, I have no idea when it's going to happen next, but it will happen because that's the nature of the market. If you're not positive that you're going to stay the course that you tied yourself to the maths, so to speak, following my advice is going to leave you bleeding at the side of the road, because you'll panic when that happens. And you'll sell at the bottom because you didn't understand why it was happening. And more importantly, you didn't understand that it is a temporary thing. I was talking to Christy Sheridan, who is a friend of mine, and she writes the blog millennial revolution.

Jamila Souffrant 30:42

Yeah, they've been on a podcast a couple of times.

JL Collins 30:45

Well, there you go. You know, Christy and Christy is, is one of the speakers that our stock was and you know, there's research in human nature that's that's come out that basically says humans are more risk adverse than they are driven by the potential for for gain. So loss hurts more than gain feels good. And I said to Christie, you know, I just must be wired differently than most human beings, because the prospect of the stock market dropping doesn't bother me at all the prospect of me not being in it when it's rising and participating. That's what bothers me. So I just must be hard wired differently. And Christie said, now, now, you're not a special snowflake. You know, you're, you're wired the same as the rest of us. The only difference che Isle is that you understand that those drops are meaningless. You understand that the temporary at a deeper level than most people. It's not that you're more risk tolerant. It's just that you understand that there is no risk in the long term.

Jamila Souffrant 31:54

And I love that I would like to stick with that last part of what you said, there is no risk in the long term.

JL Collins 31:59

What there is, let me just jump in at that point. And because what there is, is volatility,

Jamila Souffrant 32:05

of course, yeah.

JL Collins 32:06

If you look at a in any of your listeners can do this. If you go online, and you take BTSA x, which is the total stock market index fund that Vanguard offers. That's the one I recommend the most. And you take V BTL x, which is the total bond market fund from Vanguard that I recommend if you need bonds, and you map them on a graph, you know, and they're online tools that will allow you to do this and you go back 1020 years, you'll notice something really interesting, the first thing you'll notice is that the bond fund has a very smooth and very gradual line going up over the decades. And it gets you to a higher place than where you started. But still a pretty low place, but it's a very smooth ride. If you look at the stock fund line, the BTSA X line, you'll notice it is has wild swings up and down. But at the end of 1020 years, it is at a much higher point. And therein lies the difference. You have to be willing to tolerate those wild swings, and they can be terrifying, make no mistake. But if you do if you are, instead of that where the bonds would take you without requiring you to endure those wild swings, you will be you have a much higher result at the end of the decades.

Jamila Souffrant 33:39

Yeah, and it's so and something clicked for me as you were talking and this relates to just life. And just the journey of reaching our goals, okay, including the financial goals we have. It's a long journey. And there'll be lots of ups and downs. And a lot of people when the downs hit or when things are not working out, it seems like things deter them or they stop or they give up. And it's the people who continue, despite the volatility in their lives, or when things right ahead of them don't seem that great when they're looking at the long term, what they're really working for. Those are the people when they you know, get to their end point or when they're looking back at like what happened for them. They're like, wow, I've gained so much I've gotten so much further. And so I just think it's good for people when they're thinking about how you know, maybe in their day to day, things seem a little more hectic or not as positive. It's like it's the long term that you're working towards. And it is improving over time. You just sometimes can't see it if you're in the thick of it.

JL Collins 34:31

Yeah, you know, I've often said if you are at the beginning of the journey, or even the early stages, even mid stages of your journey, one of the best things that can happen to you is a major market decline. Because if you're in the beginning to mid stage or even later part of your journey, you're continually adding money and if the market declines, any given amount of money that you're investing buys more shares, and so you are ahead of the game, so the best part little thing that could listen to could happen to your listeners, to your younger listeners, to your listeners who are early in the journey is for a major market decline where they can pick up shares at bargain prices. And then for us older people, that's when you bring in bonds. And that's the bonds are what smoother ride for us, for us older folks and allow us to have dry powder to take advantage of market drops when they happen. But for young people, you know, my daughter is 100% and BTSA. X and when the market goes up, as it is going up pretty relentlessly over the last several years. I think, Wow, that's good. For me, it would be better for Jessica if it were plummeting, because she's adding money every month. How's that for counterintuitive?

Jamila Souffrant 35:54

Yeah, no. And then I mean, you could think of it if someone you know, if you're thinking about this, it's like, think of when you're buying something on sale, like it's like, just think about everything goes on sale, but it's still the value is there, except for everything's on sale, and how like you'd be running to like, let's just say, to the stores that you love, when something that was once $200 Just now you can buy for $50. Knowing that again, like it's not gonna be on sale forever, I think the concept of like, you think it's gonna be on sale forever. So now the whole value and perception of the value is like, who cares, I don't want it anymore, because now anyone can have it. But knowing that, wow, this is like a flash sale, it's gonna be on sale, not forever, but it's gonna be on sale for maybe like a week, a day, whatever that is, right. And knowing that, like you'd run to that store, because you know that eventually, they're gonna mark this item right back up to where it was, or it might be more money afterwards.

JL Collins 36:43

Yeah, and if you happen to have bought that item, before the sale, I mean, there's no point in kicking yourself. But if you need more of that same item, and you certainly always need more in terms of investment shares, and now you can suddenly buy them for less, I mean, this is not a time to panic and cry, this is a prime time to be greedy and celebrate.

Jamila Souffrant 37:05

Yeah, and I love how you qualify, like, you know, you have to make sure you understand where you currently are like, you know, so if you are towards the end of your journey, or an end of your working career, and you need the investments right away, or soon, then you're gonna want to adjust your portfolio mix to be more conservative, versus someone who is in it for the long term, you don't need this money right away, you can be a bit more aggressive.

JL Collins 37:25

Right. So there are two things that smooth the ride as I as I put it, when you are working, it's not necessarily even tied to your to your age, but more whether you're living on your portfolio, or your or you're working and have earned income. And that tends to be when you're younger. So when you're working and have earned income, like my daughter, Jessica, at this point, you have cash flow, assuming yours, you have the proper savings rate, and you have an aggressive savings rate, you have cash flow from your earned income that you're putting in to your investments every month or every couple of weeks, or whatever the timeframe is. And that's the money that takes advantage of those drops. And that's the money that smooths the ride. Once you have enough that you don't have to have a job and you don't have earned income and you're living on your portfolio, most people want to have something else just smooth the ride. And that's something else are those very stable bonds that don't have a great return over time. But they don't have the volatility of stocks. So different tools for different points in your life to smooth the ride and to take advantage of those inevitable drops in the market.

Jamila Souffrant 38:42

Right. Right. Okay, so I hope that this is encouraging anyone who's not fully aware or comfortable with index funds to do their own research, right and um, take back some initiative to do like the what they need to do to get comfortable with it. And I love that you say we're not giving you investment advice here to like, go out and like just do what we're saying. But this is a good starting point for them. Now you to take this information, and do more research until you get comfortable. But these things are out here. And we don't know that they're necessarily out here because of who's in charge of what we see in media and who's selling us things. So I think it's that's where we come in to be curious and to take the like there's no risk and researching and looking things up.

JL Collins 39:25

Yeah, the other thing that I would put out there, and again, I'll use my daughter's an example I mentioned that I sort of turned her off to all this stuff. And when she was in college, she came home one time and I started up my lectures on investing in money and and she stopped me and she said, Dad, dad, I know this is important. I get it. I get it. I just don't want to have to think about it all the time. And that was an epiphany for me because suddenly I realized that Jamila, you and I are the odd ones out. We're the weird ones. most normal people don't obsess about investing, you know, they have better things to do with their with their lives. But if they're like Jessica, if they're smart, they realize that it is important to get the investment side of your life, right? Because as Christie, who we already talked about Christie Sian millennial revolution says it's a great line. If you understand money, life is really easy. If you don't understand money, life is really hard. The good news is what Jessica, and by extension, everybody listening to us needs to know is really very, very simple. You can take all those other offerings that Wall Street wants you to buy, because it lines their pockets and commissions and sweep them off the table onto the floor. And what's left are these really simple, inexpensive index funds. And so when you say do the research, I absolutely agree with that. But I don't want your listeners to be intimidated thinking, Oh, my goodness, I'm gonna just have to go so deep in the weeds with this stuff, and I'm just not interested. You really don't have to go that deep in the weeds, you just need to understand a few basic things and then implement them. I tell Jessica, the fact that she doesn't care about this stuff isn't a sense of superpower. And what I mean by that is because she doesn't care. And she does this one thing, right, which is investing in BTSA x index fund as much money as she can whenever she can, and otherwise ignoring it, she won't be tempted to tinker with it. She won't be scared and panicked. When it drops, she'll be off doing the things that are more important to him in her life. Whereas people like us who are watching this stuff all the time, we're the ones who who are always tempted to tinker, and always are keenly aware of what the markets doing. And therefore we're always the ones who are more tempted to panic when things drop. So any of your listeners should understand, yes, they've got to do some research. They've got to understand a couple of basic things. But once you get those things, right, your lack of interest actually works in your favor.

Jamila Souffrant 42:19

Yeah, yeah, the lack of interest. And also like, like, I always say, like, I'm a lazy investor, I don't want to like pick individual stocks, I just want to like, set it and forget it, honestly. And I think it's like the easiest thing. It's so easy. Like, once you come to find out about this, and you like you get comfortable enough and you realize you like this, you'll realize how easy it actually is. So one of the things that you do, say, in your blog, and in your writings is and you know, I want to know if you still feel this way, but you say a house is a terrible investment, is that. And it's funny because I'm Christiane Bryce, when they were on my show early on, they've been on twice. So the first time they were on, they talked about a house being a turbo investing investment, and then how they skip buying a house and it allowed them to retire early. And I have people who are on the podcast who talk about real estate investing, right? And I think obviously, you guys are talking about it from different angles, because if someone's like pouring all their money into a home that is not being looked at as an investment it, it possibly is not the best thing for them. Who knows, right? But like leveraging and investing in real estate has brought a lot of people financial independence or freedom. So I'd love for you to discuss your views on real estate and home ownership.

JL Collins 43:32

Well, that's a that's a broad subject. So yes, so let's start with your personal home, your personal residence, and then we'll talk about investment, real estate. So the house you buy to live in, and I wrote the most popular post on my blog, is a post that I that I wrote, kind of I just dashed it off, as is kind of a funny little thing. And it was called Why Your house is in terrible investment. And I listed, I don't know 1012 reasons as to why that was the case. I never anticipated the firestorm of attention that it would attract. It's generated the most hate and also the most love depending on which side of the of that particular debate the people reading it are. But what confuses people is I'm not against owning houses, I most of my life I've I've owned houses most of my adult life. But I'm against the idea that it is a always a good or even commonly a good investment which the real estate industry likes, likes to push. It's not it's a lifestyle choice. So when I owned houses, I owned houses that I could easily afford. And I own them because they provided the kind of lifestyle that I wanted at that particular point in my journey. So I Real with the idea of owning a house, I relished the idea of being fooled, that this is a good investment. If your goal is financial independence, you want your living accommodations to be as inexpensive as possible. And most of the time in most markets, that means renting now not all the time and not in all markets. And we got to kind of look at that individually and run the numbers. But houses are by and large, expensive things to own. And there are lots of stories about people in Colorado and California bought their house and a few few years later sell it for two or even three times what they paid for it. People forget the stories of the people own houses in Detroit, or in Cleveland, where it didn't work out quite that well. So you owning a house is is potentially a very risky thing to do, and it ties you to one location. Now, if you can easily afford a house, and it provides the lifestyle that you want, then that's a spending choice, you're making that an investment choice you're making. Now, when it comes to investment, real estate, that's an entirely different animal. And investment. Real Estate, as you pointed out, has made lots of people very, very wealthy. It's also brought lots of people to ruin. And the difference is, the people it's made wealthy are the ones who have taken the time to study and understand and are careful and methodical in how they they deploy their money in their investments. It's a job, it can be a part time job, but it is a job. And so when you're comparing results, if you compare it to something like an index fund, which takes little or none of your time, to investing in real estate, which takes a fair amount of your time, especially early on, there are people who managed to make it fairly friends of mine actually managed to make it fairly turnkey and easy. But it takes time to get to that point, you would expect you're gonna get better, you better hope you will get better returns with your real estate investments, because it's not only deploying your money is deploying your tie. And if that's how you want to deploy your time as a side gig or even a full time thing, then that's great. And real estate can be a very powerful wealth building tool. But you have to compare it against Mike and going something like BTSA X and not have to worry about it at all and have a whole nother career. Or, you know, if I have a career and I'm investing in BTSA x and I want to do something on the side, well, I could do real estate. But maybe if I did something else on the side, it would be even more lucrative. So that's the comparison you're making. And it's a very personal choice at that point that only the individual looking at it can decide,

Jamila Souffrant 48:06

yeah, I'm so happy you broke it down like that and make those distinctions because I think it is important that and just think of it as it can be a spending decision. And if that's like what you're consciously doing, you know, you're saying I want to buy this house and I'm willing to, to spend this much and have this much debt as a part of my life because of it. If you can't, you know, Biden, Biden cash, then that's a conscious decision you can make. But like you said, Don't get fooled or tricked into thinking every like thing is just going to be an investment just like investment. That's not the case. Most times.

JL Collins 48:39

Yeah, and the other thing that kind of concerns me is when I hear people saying, well, you know, I'm paying $2,000 a month in rent, and I found a house and you know, if I buy the house, my house payment is $2,000 and I own it. So obviously it's the better choice Well, you know, your your mortgage, your house payment is just the tip of the iceberg as to what that house is gonna cost you. There all kinds of expenses associated with the house that you don't have when you're renting an apartment. So you have to be very clear eyed and take the time especially if you're a first time homebuyer to really understand how much additional expense there is for repairs and maintenance. Very few people buy a house and don't remodel it in some fashion. That's one of the attractions of houses you can make it yours. Well, nobody's going to spend a bunch of money to put a new kitchen into their apartment. But people spend 10s of 1000s of dollars to put a new kitchen into into their their houses. So there's there's a whole nother level of spending that goes along with houses everything from remodeling if you choose to do it to basic maintenance and repair which you have to do. So. Yeah, look at the whole range.

Jamila Souffrant 49:57

You do you do. Okay, so you Right now I'd love to know like what you're currently up to you talked about Chautauqua and I'd love for you to describe like what that is one day, I hope to join you guys. But yeah, what do you currently do with your time? So you're still like, are you working just on the blog? And just a finance, personal finance related things are? What What's your life like nowadays?

JL Collins 50:21

Well, to the extent that I work at all. i Yes, I, you know, the blog is has become sort of a small business and, and fortunately, it doesn't take too much time or too much effort at this point. You know, when I'm in the mood, I'll take her I'll tinker with a blog. But I'm pretty old guy at this point. And I kind of laugh when I see you know, my friends like Christie and Bryce. They're interviewed on our market watch, because they have a great, great story. And they retired so young, and it's like, you're not, nobody's going to have me on MarketWatch say, Wow, great story, man, man retires a 61. I mean, that's, there's no real real story there. So yeah, I'm kind of at a traditional retirement age. And we do the Chautauqua has, which is something I created in 2012. We did the first one in 2013. And basically, the idea behind Chautauqua is to go to a cool place to hang out with cool people, and to discuss fun cool things. While which to find his what I think of cool places, and who I think are cool people and what I think is fun to discuss. And of course, the cool people come from the FIE community and when they choose to join us, and we started out doing them in Ecuador. Let's see in 2017, we did the first one in the UK. And then we did two in Greece last year. And we did three this year one back in the UK, which I love that particular venue. And then we went to Portugal for two weeks. Each talk was a week long, by the way, and we limit the number of attendees to 29. And we have four speakers. So it's a very small intimate group and we have a we have a great time together in a cool place and hanging out with cool people and and discuss some cool stuff.

Jamila Souffrant 52:20

I've seen when people go and their responses or reviews of it. And it looks like it is like just a nice break and a time to like get together and discuss the things that like people we talk about, like talk about with people on the podcast, or just in general like in person in real life. And that's like my biggest thing is that recreating like the online space is amazing way to relate and connect with other people like otherwise without this, you know, internet, you wouldn't be like hearing my voice right now. Right? Like so it feels like there's so much of a wealth of information. And but we don't want to lose like that in person connectivity and way people really know each other, right? When you wish you can only know sometimes by looking at someone face to face. So I just love the concept. And it sounds like a wonderful kind of time.

JL Collins 53:05

Yeah, no, we do have a great time. And without exception, people who have come have come up to me and said, this has been one of the best weeks of my life, a fair number of them have come up and said this has been the single best week of their life, which is obviously very gratifying for me to hear. And, and the thing that that makes it so powerful is that they get to hang out with each other. I remember the very first Chautauqua I, I could tell towards the end of the week that everybody was having a really great time. And I made it a point to walk around. And individually ask each of them, you know what their favorite part was? And what was kind of half expecting them to say, well, this is really a cool place where we're staying or the excursions really great. Or, you know, I really liked the talk that the speaker that speaker gave, of course, I was hoping they would say, Jim, it was your talk, you know, JL yours was. But nobody said that. What every single person said, at that first Chautauqua and that's continued to say and every subsequent talk by his that I get to hang out with people who get it. In my day to day life. There's nobody who understands this journey I'm on and it's it's such a struggle that to talk to people by the neck come to talk, but and everybody is on the same page and they can have these incredible conversations with people who get it. And Jumilla what's amazing to me, is on every other human level, the diversity of people who come to Chautauqua is amazing, but they have this thing in common. We have racial diversity, we have obviously gender diversity, we have age diversity. We have diversity of people depending on on wealth with what point of their fit journey they're on diversity and sexual orientation in virtually any The way that you can think of humans being diverse. It's representative Chautauqua we had in the UK this year, our first transgender attendee, at least first, as far as I know, she told me in our one on one session, and yet they have this one thing in common, and no matter how different their backgrounds, they, they get along famously, because, you know, they have this ePHI journey thorough on site. It's just an amazing and wonderful thing to watch.

Jamila Souffrant 55:30

Yeah, yeah, it sounds amazing. So, what would you so what would you tell someone listening to this right now? What's like the one thing they can do? Because I have people same kind of like, you know, as you talk about diversity of people who join you, at your event, it's like the same people kind of diversity. I mean, are people who listen to this podcast, different, varying levels of background and starting points and how much they earn. And you know, some are well aware of index funds, and already in already doing it, some are not, and are just like, wow, what is this and it will be now I'm sure, like trying to get into it. So if there was one thing someone should do, after listening to this to take action on, what would that be, or what would be your best advice for someone who wants to do something different after hearing this?

JL Collins 56:18

Well, so I'm going to cheat, I'm not going to give you one thing, what I'm going to say is, it kind of depends on the individual. So if somebody's listening to this is in debt, job, one is getting out of debt. And that means that you have to reduce your spending. So you have surplus capital, and that capital needs to be poured into blowing out that debt, and getting rid of it. That's not easy. But the good news is, if you do that, the discipline of saving up spending less, and creating capital to put against that debt, and then every month sending that money against that debt and paying it down. It'll be very satisfying as the debt shrinks. And then when that debt is gone in place, you have the discipline of saving money. And all you need to do is take that money that you were using to pay down the debt, and now shifted to building your assets to investing. So that's what I'd say to the people in debt. To the people who are just beginning the journey, I would say, understand, take the time to understand what index investing is, what investing in the stock market is all about, understand and appreciate the volatility of it, make sure you're willing to tolerate that. And then begin investing in index funds, and put as much money as you can in whenever you can, and let it ride and enjoy the benefit. The third group of people I would say is there are people and I get a fair number of the metro taco when I do the one on one sessions with attendees who have been investing for a while and who might actually have a pretty hefty net worth. But their investments are incredibly complex, they own far, far too many different things. And I would say for those people, again, you need to explore index investing, appreciate the simplicity of it, and to begin to consolidate all these diverse investments that you've picked up along the way into a much simpler and inherently more powerful plan. So

Jamila Souffrant 58:28

amazing. Okay, but I have to I just have to because no one's taking us in their head. When you've talked about the first group of people being in debt. No, I have my own kind of what I tell people. But I want you to say it could be it's fine if it's different. But if people are still in debt, but one of the questions that I get from them is should I still invest? What are your thoughts on that?

JL Collins 58:47

So that's, that's somewhat of a complex question. So broadly, and very generally speaking, my take would be to blow out the debt first. And then worry about investing, it doesn't make any sense at all, for instance, carry credit card that 1518 22% to invest in a volatile stock market that over time might give you eight to 10%. So absolutely want to blow up the debt first. Now, are there exceptions yet your home mortgage, assuming you've got a pretty good, pretty good rate, you don't have to pay off your home before you start investing? Do you have a student loan and an exceptionally low rate? And by exceptionally low, I'm talking two and a half percent or less? Yeah, maybe you want to hang on to that invest instead? So those are where the nuances come in.

Jamila Souffrant 59:40

Yeah, and I know it's like a complicated question. You can't just like answer in a minute, but I appreciate you like kind of going a little deeper there because it is something a lot of people who like are listening are currently still in debt. And so it's one of the things that they face but I agree with you to tackle your high interest rate debt like aggressively as possible and like you said, you gave it in your advice like that means you're gonna have to make some changes, like it changes the way you spend, make that sacrifice so that you can pay off the debt faster. That way you can start moving to swing the other way to start creating net worth and assets. Oh, please tell everyone where they can find you. I'm going to link a lot of the articles that we mentioned that you wrote in the episode shownotes, but just let people know directly where they can get in touch with you and find out more about what you're doing.

JL Collins 1:00:26

My blog is JL Collins NH, which stands for New Hampshire where we were living when I created it. JL Collins and everything kind of goes from there. I'm on Twitter and Facebook. And if you if you search JL Collins NH, you'll find me on both those places if you care to.

Jamila Souffrant 1:00:49

Awesome, thank you so much jail. This was amazing.

JL Collins 1:00:52

This was this was a blast. I had a I had a lot of fun that Jamila, thank you so much for inviting me. I'm honored to be here.

Jamila Souffrant 1:00:58

All right, I hope you enjoyed that episode with JL Collins The Simple Path to Wealth and everything you need to know about index investing, if you know someone in your life that also wants to understand or is getting into investing, or like to do things the complicated way, you know, we maybe all have a family member or friend that like the latest craze or latest new thing that happens like crypto, all these NF T's which nothing, nothing's wrong with those investments. But they're not even investing in the baseline meaning they're not investing in their retirement accounts. Or they're not doing the simple things to build wealth, they want to kind of like leap frog into the more complicated things. If you know someone like that this may be a good episode to send them and even for you, you know, so I really hope that this helped expose you and or help, maybe just reassure you that it's okay that you want things to be simple and easy when it comes to building wealth. I know I like it that way. That index investing and doing your research into things like this is a way to go. So hope you enjoyed the episode. If you did learn something or were inspired by it, please tag me at journey to launch take that screenshot on your phone. And let me know what you think. I love reading your messages, reposting them and connecting with you.

Don't forget you can get the episode show notes for this episode by going to journey to Or click the description of wherever you're listening to this. And you can still grab your jumpstart guide for free to help you on your journey to financial freedom by going to journey to

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Your path to financial freedom and wealth doesn’t have to be complicated. This week’s Journey to Launch podcast episode lifts up the veil of overcomplicated investing strategies to show you a more simple path to wealth. Well known author and blogger, JL Collins, is on the show discussing his path to Financial Independence through index investing and his successful book, The Simple Path to Wealth

JL Collins went from working in an ice cream parlor for $1.25 an hour (he was 13) to accomplishing Financial Independence & Retiring Early (FIRE) before it was even a thing. In this episode, JL Collins breaks down the stock market and everything you need to know about investing in index funds. 

In this episode you’ll learn: 

  • What is F-you money and why you need it
  • Ways to enjoy breaks or sabbaticals throughout your career
  • What are index funds and tips on investing in the market
  • Why your house is a terrible investment (his words, not mine)
  • What is a Chautauqua, and so much more

I'm listening to Episode 284 of the #journeytolaunch podcast, The Simple Path to Wealth and All You Need to Know About Index Investing with JL Collins!) Click To Tweet

Other related blog posts/links mentioned in this episode:

Like what you heard and want to learn more about JL Collins? Check out some of his most popular blogs on this website

Check out JL Collins’ book, The Simple Path to Wealth

If you liked this podcast episode, you might also like:

Episode 11- Rejecting Homeownership, Traveling the World & Retiring by 31 Years Old

Episode 105- How To Quit Like a Millionaire So You Can Stop Working & Start Living With Kristy & Bryce

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