The Simple Path to Wealth by JL Collins is one of the most celebrated and influential books on investing in the financial independence community. With its focus on simplicity, low fees, and passive index fund investing, The Simple Path to Wealth lays out a compelling framework for building long term wealth.
In this comprehensive book review, we’ll take a deep dive into The Simple Path to Wealth, examining the key insights, strengths, and critiques of Collins’ approach. We’ll analyze how Collins’ strategy can be applied by beginner investors, those seeking financial independence, and even non US investors.
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The Simple Path to Wealth delivers a powerful message: that a simple, low cost, long term approach to investing in the stock market is the most reliable path to building wealth over time. By eschewing complex strategies, market timing, and high fee actively managed funds, Collins argues that investors can harness the power of compound growth and come out ahead.
In a Nutshell
- The Simple Path to Wealth offers a straightforward, low cost approach to investing for financial independence
- Focuses on simplicity, passive index fund investing, and minimizing fees
- Advocates saving aggressively and investing in total stock market index funds like VTSAX
- Emphasizes ignoring short term noise and staying the course for the long term
- Provides advice for both wealth accumulation and preservation stages
- Offers guidance for beginner investors and those seeking financial freedom
- Can be adapted for non US investors with some modifications
The goal isn’t more money. The goal is living life on your terms.
Chris Brogan
Uncovering the Core Insights of The Simple Path to Wealth
At the heart of The Simple Path to Wealth are a few key principles that Collins hammers home throughout the book:
Spend Less than You Earn and Invest the Difference
Collins emphasizes aggressive savings, with a particular focus on maxing out tax advantaged retirement accounts. The more you can save, the quicker you can reach financial independence.
Passive index funds beat active investing
Citing abundant research, Collins makes a compelling case for investing in low cost passive index mutual funds and ETFs instead of trying to beat the market through stock picking or timing.
VTSAX and Chill
For US investors, Collins specifically recommends investing in VTSAX – Vanguard’s low cost Total Stock Market Index Fund. He advocates holding 100% stocks during the wealth accumulation phase.
Ignore Short Term Noise
Success in investing is about playing the long game. Collins recommends tuning out meaningless short term market movements, talking heads, and media hype. Focus on what you can control.
Minimize Fees
Every fee you pay eats into your long term returns. Collins relentlessly focuses on minimizing investing fees by using low cost index funds and avoiding expensive advisors.
What Makes The Simple Path to Wealth Stand Out
The Simple Path to Wealth manages to pack immense value into a highly readable package. Here are some of the book’s greatest strengths:
Beginner Friendly and Accessible
Collins has a gift for explaining investing concepts in a way that’s easy for beginners to grasp. He breaks down terminology without getting bogged down in technicalities.
Convincing Case for Index Investing
Collins marshals data and research to make what feels like an airtight case for the superiority of passive index investing over stock picking and market timing.
Passionate Focus on Cutting Fees
Collins passionately argues for cutting investing fees to the bone. He clearly demonstrates how even seemingly small differences in fees can enormously impact your long term wealth.
Focus on Freedom and Flexibility
What sets The Simple Path to Wealth apart from some investing books is its emphasis that Financial Independence is about freedom, options, and flexibility more than a traditional retirement.
Adapting The Simple Path to Wealth for Non US Investors
While The Simple Path to Wealth is geared towards a US audience, many of its core lessons remain applicable to investors worldwide. Here are a few adjustments international readers should make:
Finding your Local Equivalents of VTSAX
Non US investors should seek out their local equivalents of low cost, broad total stock market index mutual funds or ETFs.
Adjusting for Retirement Accounts and Tax Laws
The specific US retirement account types like 401(k)s and Roth IRAs don’t apply internationally. Research your country’s analogous retirement and tax advantaged investing accounts.
Adding International Diversification
Collins’ “100% VTSAX” approach is very US-centric. International investors may want to diversify globally, including US and international stock index funds.
Potential Critiques and Limitations of The Simple Path to Wealth
While The Simple Path to Wealth gets a tremendous amount right, the book is not without a few weaknesses and potential critiques:
Heavily US-Centric Examples and Advice
From the focus on VTSAX to the emphasis on Social Security and US retirement accounts, much of the book’s specific advice is tailored to American investors.
Optimistic Return Assumptions
Some of Collins’ examples assume future annual stock returns around 11.9%, based on historical data. More conservative investors may prefer to plan around lower return assumptions.
Light on Non Stock Asset Classes
The Simple Path to Wealth focuses almost exclusively on stock index funds, without much discussion of other asset classes like bonds or real estate.
Wrap Up
The Simple Path to Wealth by JL Collins is a personal finance classic for good reason. It offers a simple, powerful approach to investing that’s accessible enough for beginners, yet compelling to even more experienced investors.
With its focus on passive index investing, minimizing fees, and long term patience, Collins provides a framework for giving yourself the greatest chance of investing success. While the book is heavily US focused, its core principles can be adapted by investors worldwide.
If you’re looking for a straightforward strategy for growing long term wealth and eventually reaching financial independence, The Simple Path to Wealth is an excellent starting point. By keeping your investing simple, controlling what you can control, and harnessing the power of compound growth over decades, Collins provides a roadmap for building wealth available to anyone.
FAQs
Financial independence is often defined as having 25-30 times your annual expenses invested. So if you spend $40,000 per year, you would need between $1-1.2 million invested to be considered financially independent. However, this is just a general rule of thumb and the actual amount will vary based on your specific lifestyle and circumstances.
The 4% rule suggests that you can safely withdraw 4% of your portfolio value each year in retirement without running out of money over a 30 year period. For example, if you have $1 million saved, you could withdraw $40,000 per year. The 4% rule assumes a specific portfolio composition and historical market returns, so it’s a general guideline rather than a guarantee.
While a higher income makes it easier to save and invest more money, it’s still possible to work towards financial independence on a lower income. The key is to focus on keeping your expenses low and consistently investing as much as possible, even if it’s just small amounts. Building good financial habits and taking advantage of strategies like employer-matched retirement contributions can help you make steady progress.
One of the best ways to teach children about financial independence is by modeling good financial behaviors yourself. This includes talking openly about money, budgeting, saving, and investing. You can also involve children in age-appropriate financial decisions and encourage them to save and spend their own money wisely. Many successful investors also recommend teaching children about compound growth and encouraging them to start investing small amounts as early as possible.
Some of the biggest obstacles to financial independence include high living expenses, debt, lack of financial literacy, and emotional spending decisions. Overcoming these challenges often requires a combination of education, discipline, and long term planning. It’s important to learn to live below your means, prioritize saving and investing, and avoid taking on high interest consumer debt. Developing a long term vision and the discipline to stick with it is key.
Absolutely! The path to financial independence doesn’t have to be about extreme frugality or deprivation. It’s about being intentional with your spending and focusing your money on what matters most to you. By cutting out unnecessary expenses and optimizing your spending on the things you truly value, you can enjoy life now while still making progress towards your long term goals. It’s all about striking a balance that works for your individual situation and preferences.
Achieving financial independence offers many benefits, both financial and psychological. Financially, it means you have the freedom to choose how to spend your time without relying on a job for income. This can provide immense peace of mind and reduce money related stress. It also gives you the flexibility to pursue work you find meaningful, travel, spend time with family, or volunteer for causes you care about. Ultimately, financial independence is about having the freedom to live life on your own terms.
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