Here you go: The book “A Simple Path to Wealth” by JL Collins is filled with timeless wisdom and knowledge to help anyone improve their unique path to financial independence (FI).
Financial independence (FI) is about having options, not necessarily about retiring.
The book defines “FU Money” as the ability to be financially free from the demands of others, to negotiate, and live life on your own terms.
The path to wealth has a simple formula:
1. Spend less than you earn
2. Save and invest the surplus
3. Avoid debt
Although there are unique variables involved when following these steps, it is so refreshing to zoom out and realize this is really what it takes.
Collins describes debt as “the single most dangerous obstacle on the path,” reminding us that debt is not the ticket to building wealth. US culture says debt is normal, but it destroys wealth-building potential and is a psychological prison.
He proposes the avalanche method as the rational debt repayment approach, prioritizing paying off the debt with higher interest rates.
Collins says to avoid financial advisors. As he mentions the downsides (commissions, AUM, underperformance), I realize he is specifically describing investment managers.
Long-term, buy-and-hold index fund investors have historically been rewarded, with the book referencing the 40-year period between 1975 and 2015.
He suggests keeping investing simple with three tools:
1. Stocks
2. Bonds
3. Cash
Avoiding both fear and greed when investing, focusing on simple, low-cost index funds beats most investment strategies.
The book teaches us that the stock market index is self-cleansing. Companies fade away and are replaced along the way. Rinse and repeat.
Investing in individual securities is deciding to predict the short-term future. Investing in broad market index funds is deciding to predict the long-term future. The market WILL CRASH, but it has always recovered.
Your asset allocation should be based on your tolerance for risk (temperament) and your unique goals.
Consider all of your investments as a total portfolio when allocating and rebalancing. Each account may be invested differently for tax optimization, diversification, and liquidity, but they should complement each other. Different roles, same game.
The book was not meant to cover every financial planning topic.
For example, it does not include: Insurance and risk management (beyond emergency funds), employee benefits, estate planning, short-term savings and spending, education funding, and tax planning (beyond buckets).
