June 15, 2022

Bogleheads® Chapter Series – Q & A with JL Collins

JL Collins, author of "The Simple Path to Wealth," answers questions on creating your own road map to financial independence and a rich, free life.

Hosted by the "Starting Out" and "Mid-Career Accumulators" Life Stage Chapters. Recorded on June 15, 2022.

Due to a technology interruption at 1:06:25, our connection with JL Collins was discontinued at that point.

Chat from the recorded meeting can be accessed here.


Bogleheads® Chapter Series – Q & A with JL Collins

Gouri: Welcome to the Bogleheads Chapter Series.This episode was hosted by the Bogleheads Starting Out and Mid-career Life Stages and recorded June 15, 2022. It features a conversation with Q&A on personal investing with J.L. Collins, author of The Simple Path To Wealth. Bogleheads are investors who follow John Bogle's philosophy for attaining financial independence. This recording is for informational purposes only and should not be construed as personalized investment advice.

Hello everyone and welcome to another Bogleheads Chapter Series event. Today's session is jointly hosted by the Starting Out and Mid-career Accumulators Life Stages Chapters. And today's session is being recorded as already discussed. As most of you know, the bogleheads are investors who follow John Bogle's philosophy for obtaining financial independence.

And a quick shout out, as Miriam mentioned, to Mel Lindauer who's in the audience. Mel is a founder of the bogleheads and also a co-author of The Bogleheads Guide To Investing. So it's great to have you here, Mel.

Our special guest tonight is J.L Collins, author of The Simple Path To Wealth. J.L. is well known to many bogleheads and has often praised the work of Jack Bogle. J. L.’s  career is long and varied, and his wisdom is timeless. His gifts include  distilling sometimes complex topics into very digestible user friendly guidance. His books and blog, including the stock series on his blog, are known for doing exactly that. And more recently, apart from authoring The Simple Path To Wealth, J.L. published another book called How I Lost Money In Real Estate Before It Was Fashionable. We'll touch on lessons learned there later. You can learn more about J.L. on his blog by googling JL Collins. 

And a friendly disclaimer before we start. Today's session is for informational purposes only and should not be construed as personal investment advice. So now back to our program.J.L, you should know we have a global audience, so if you ever want to highlight a similarity or difference of living or investing abroad, feel free.

And on that note we'd specifically like to wish a warm welcome to our Japan Bogleheads Chapter and I'll share a quote from a Japan chapter member about you J.L. So the quote is, his book is very popular in Japan. The number of reviews at Amazon are over 1,000.

I'll now cover the format of what to expect tonight. J.L. and I will have a conversation covering a range of topics, including questions submitted by the Boglehead community via the RSVP survey questionnaire. Feel free to submit questions via the chat during the meeting, and later in the evening probably around a quarter to nine Eastern we'll pause the primary conversation and we'll turn it over to Miriam and Lucas to take questions from the chat.

So  one more thing I'll mention about J.L. Folks who are familiar with him and folks who aren't will learn tonight his voice is incredible. It's mesmerizing. So this next specific suggestion, it's timeless, but it's specifically relevant  these days, and that is J.L. has a recording on YouTube called A Guided Meditation For When The Stock Market Is Dropping. It's just under 11 minutes; it's got over 70,000 views, and I along with many others highly recommend it. Another note, J.L. has many interviews on YouTube. He's done many podcasts. They're easily available online, in addition to the content on his blog.

So while we want to make sure tonight's session covers intro material for everyone, we also want to make sure we cover info that J.L. might want to speak about, that he's spoken about less often. So that we cover a wider range of topics, in doing so, we'll probably alternate between typical personal finance and we may go from practical to philosophical at times. So with that, let's begin. Welcome, J.L. 

Gouri: Yes it's so great to have you. So J.L., you and I met in Ecuador in 2014 at Chautauqua, which was a gathering about financial independence that you helped conceive and host and continue to bring to life. Interestingly, we had a question from the community about how you got involved with the financial independence movement, so it would be great if you could elaborate on what Chautauqua means to you and how it helps folks. And similarly can you tell us a bit about your own financial independence journey and how you connected to the broader FI movement.

J.L. Collins:  Well you covered a lot of ground there. So let me start with how I connected, I guess, with the FI movement in 2011. I had started writing a series of letters to my daughter, who was then in college, about financial things, about investing specifically. Because in my view, if you get that right, your life is infinitely better, and you have far more options. If you get it wrong it's a much more difficult path. So like all parents I wanted the best for my daughter and I wanted to impart this information to her.

But I started way too early and I pushed it way too hard. And I managed to turn her off to all things financial. So I thought I'd better start getting this stuff down on paper against the day where she might be ready and willing to hear it. So I started writing a series of letters to her, and I shared some of these with a business friend of mine, and he said, you know this is pretty interesting stuff. You ought to put it on a blog.

Now at the time I'd heard of blogs, but I'd never actually seen one. And I had no interest in starting a blog. But it struck me as a great way to archive the information. So I figured out how to build a blog and I started putting this stuff up. And as my friend suggested I sent her, sent it around to my family and friends. And as I figured none of them really cared. But then amazingly and slowly over time I started to build this audience that's now international in nature.

And then around 2012 I started looking around saying, you know I like this stuff and it’d be kind of fun to speak about it. And there were no venues in those days, at least none that I could find. And so I decided to create one. And what I created was this  Your Talk where you attended the second year.

The very first year was 2013. It took about a year to pull it together and Chautauqua's are our retreats where we, I like to say, we pick a really cool place, we gather a small group of cool people, and we talk about cool stuff. And when I put the first one together in 2013 I had no idea if anybody would show up. But they did and they all had an incredible time. And so we did again in 2014. And with a little hiatus because of covid in the last couple of years, we are now back this year and we'll be in Columbia for two weeks back to back. Each To Talk was a week long. So I think I covered your questions there.

Gouri: You did and  that's phenomenal. So since then, is your own experience in early retirement, you mentioned you're nomadic and you'll be in Florida for a period. Can you tell us about your nomadic lifestyle. How it's been. What are some examples of how you spend your time, and maybe some great and not so great surprises from being nomadic.

J.L. Collins: Well, so we've been nomadic for I don't know, since about 2016 -  2017. We have a little cottage on Lake Michigan in Wisconsin where we spent summers. That's where I am at the moment. This past winter before we came back to Kibanda, which is what we call our cottage. Before we came back to Kibanda we were mostly wandering around out in the western United States. And so we'll be back here for June, July, and August, and then in September we go down to Columbia for the month. And of course in the middle of that month was of the To Talk.

And then we'll be back here for a month in October and then we'll go south towards Florida, the southeast, for next winter. But at various times, in 2019 I think it was, we were in Europe for the better part of the year and we had To Talk in the spring and in the fall one in the UK and a couple in Portugal. So that's what drew us there. And then of course when covid hit, that grounded us, as it did a lot of people. So we spent 18 consecutive months here at Kibanda. But that's kind of what that looks like.

Gouri: Okay, and on the surprise side of things, any highlights. Great, great things that happened  that you didn't expect and maybe for folks who are looking forward to retirement or being nomadic, any lessons learned that you'd want to share.

J.L. Collins: Yeah. Well a couple things I think on the plus side. We live-- just traveling around in the US, which is what we've done the last couple of years--we live in an amazingly beautiful country and with incredible people. You know you turn on the news, and they tend to see more news when we're at Kibanda than when we're on the road. And it's pretty horrific, and you know, if you just watch that you would think that these were not the kind of people you'd want to go out and meet. But the truth is, at least in our experience, the people you meet traveling on the road are incredible and wonderfully warm people. And it's a drop dead gorgeous country.

The difficult part of it is, at least as I'm getting older, I don't think I had so much trouble with this when I was younger, but because we move a lot, every time you're in a new hotel room or a new Airbnb you have to learn a whole new series of things. From anything, from how to turn on the television and how to work the stove  and the heating and air conditioning to where the local grocery store is. So it's kind of a pain over time.

It's nice to settle down for an extended amount of time and I think when we go to Florida,  we were talking a little bit before the show started, we're going to try to pick one or two places where we settle in and use that as a home base.

Gouri: Okay, sounds great. So you mentioned the news and how it can really drive you bananas. We had two related questions from the community. I'll read them both. How do I stop my addiction to financial news and what do you think is a key for tuning out the noise of the market slash news cycle and what information sources are worth the time?

J.L. Collins: Well, so I think that breaking your addiction to the news cycle, I guess I haven't broken mine because I do still tune it in. I think what I've chosen to do is just create a certain psychological distance from it and to recognize how much of it is nonsense, particularly around financial predictions. So there's no end of people predicting what the stock market's going to do. And the course that's presented as if these people really are clairvoyant or they really have some special knowledge base or insights that the rest of us don't have. 

But of course that's nonsense now because there are so many people making so many predictions almost anything that the market can possibly do is being predicted by somebody. So somebody is correct not because they're clairvoyant but just because somebody has to be correct. Kind of like lottery winners. You know when somebody wins the lottery we don't all sit back and think, oh Corey won the lottery, he's figured out how to pick winning lottery numbers. No, we're smart enough to sit back and say Corey won the lottery. He got exceptionally lucky, he beat enormous odds and happened to pick the right numbers. When you see somebody predicting what the market's going to do and they turn out to be right, that's the frame of reference I think you ought to have. 

Gouri: Okay, sounds good Any particular trusted sources that you'd like to mention that might resonate with the bogleheads community for news programs.

J.L. Collins: Yeah, yeah. Not so much, I'm always a little struck by the fact that when I watch the news and we like Shepherd Smith for instance on CNBC because we like his style, we like his presentation, but when I watch the news most of it is about stuff that I don't know about but I can't help but notice and  I 'm not just picking on this show, but in general when they start reporting about things I do know about how inaccurate they are. And it's striking to me as I've mentioned this to friends, that they all say you know I notice the same thing when they start reporting on my area of expertise. You know if they're a doctor or a lawyer or whatever. Whatever they know about how inaccurate the reporting tends to be. And I think once you recognize that then you I think you learn to take everything with a grain of salt.

Gouri: Makes perfect sense. Thank you. So as you know we have a lot of retirees in the audience, in the boglehead community. Switching to specific practical insights,you can approach this in both hypothetical and actual. So your own practices as well as a broader general application, can you share thoughts about rebalancing portfolios in retirement, thoughts on withdrawal rates, and also thoughts on keeping an emergency fund.

J.L. Collins: So again, that's kind of three things I may need you to help me remember them as we go along. So I think the first was allocations, right, rebalancing right. Rebalancing your allocations.

So in my world, when you're working and you have earned income you should be living below your means. And that frees up a cash flow that you can channel towards your investments. And my fund of choice is VTSAX [Vanguard Total Stock Market Index Fund]  which not every group I talk to is familiar with it, but I’m sure this group's very familiar with it.

And as I tell my daughter, just put in your set amount of money every month. We don't pay any attention to  what the market's doing and when you do that, when the market plunges like it has been of late, you're taking advantage of that drop. You're buying more shares for that given amount of money. And that, of course, is helping smooth the ride. I also tell her and young people, or people accumulating wealth that a market drop is a blessing. It's a gift as long as you don't panic and sell and continue to invest.

Now at some point when you want to live on the portfolio, it seems to me that you want something else to smooth the volatility of stocks in the way that earned income cash flow did. And of course whatever allocation you choose is up to your tolerance for volatility, with the understanding that the more bonds you add the less volatile your portfolio is likely to be. But also the lower performance you'll have over time. So that's the trade-off that only you as an individual can decide.

What the right balance is for your own tolerance for volatility, with the important caveat that if you let your stock portion drop below 50% you are endangering the long-term survivability of your portfolio as you begin to draw from it.  Now in terms of withdrawing, so rebalancing is just a function of keeping whatever percentage you have decided in sync. So if  you're 75% stocks and 25% bonds, as I happen to be, when stocks drop as they have recently, you might shift some of those bonds over into stocks to bring that balance back into place. in fact I just did that myself two days ago.

In terms of withdrawal there's a lot of discussion, unnecessary for the most part in my view, around what's become to be known as the four percent rule. And I think it's that word “rule” that gets people all concerned. If you change it from rule to guideline I think you have a brilliant guideline to inform your thinking about how much money you need in retirement, or conversely, how much you can withdraw from your given portfolio and expect it to last. But this idea that four percent, or any other percent is something you want to choose and lock in and have it adjusted every year for inflation and never pay any attention to it is a little bit insane in my view.

You're obviously going to want to pay attention to what the markets are doing while you're withdrawing this money for two reasons. One is that according to the Trinity Study, in the 30 years they looked at, while four percent is an extraordinarily conservative and successful number,  in 4% of the time it  fails. It doesn't last for the 30-year period that they measure. So you certainly want to pay attention so you don't run out of money which is everybody's fear.

But that's actually the smaller of the two reasons it seems to me to pay attention, because it's the one that is least likely. The one that is most likely and happens most times when you look at the Trinity Study is that if you withdraw four percent from a given portfolio over the course of 30 years, at the end of 30 years you will have a phenomenally larger amount of money than you started with because of the power of the stock market.

So you certainly don't presumably want to just wind up with a whole bunch of money in that 30 years. You want to enjoy it along the way. So for those two reasons I say use four percent as a great guideline and then as you monitor it as you go along, in the unlikely event you hit a really bad sequence of return year when you first start out, and you need to adjust, and for the much more likely event, that is you start accumulating a lot of money that you could enjoy rather than just let it accumulate.

Gouri: Okay, great, Sound advice. And then the third part of that question was can you talk about your thoughts on keeping an emergency fund. 

J.L. Collins: Oh, right. Thank you for reminding me. I think emergency funds depend largely on your situation. I don't keep one myself because I only have a small cottage, I have a relatively new car,Ii don't have a lot of things in my life that could suddenly cause me a big expense that I couldn't handle out of the normal course of money flowing through my checking account.

On the other hand if your savings rate is low, and I doubt that applies to too many people in this group, but if you're living pretty much paycheck to paycheck, maybe you have an older house that needs chronic repairs, maybe you drive an older car that might need unexpected repairs, and I think that's the time when you want to really think about an emergency fund. 

But for a lot of people, and particularly I think people in the FI community, I think emergency funds are probably less important than they might be for somebody who is not as fiscally responsible as I'm guessing the people listening to this are.

Gouri: Yeah okay. Great advice. I  think you're spot on in terms of this a media crowd, but I think within the bogleheads community everyone's got friends, relatives, colleagues, who come to them for advice on saving more efficiently, investing better. So the the broad spectrum  of guidance is definitely welcome here. So you mentioned home repairs as something a lot of people face. That's a great segue into real estate. We mentioned the second book you authored on real estate with the funny title. Can you elaborate on your thoughts on when you think real estate's appropriate, when it's not, and your own phrase, of wings versus roots. and how has your philosophy evolved over time even if it's not in a single direction.

J.L. Collins: So I kind of cringe at the concept that your personal residence is an investment. In my view, if your goal is to maximize your journey or  to accelerate your journey to financial independence, you are probably better off renting just the space you need and diverting that money into something like VTSAX. I think people convince themselves that their house is a great investment because they want to own a house.

In my world the way I think about it--and I've owned houses, to be clear, most of my adult life-- but I've never seen them as an investment. I've made money on some of them, but I've always seen them as an expensive indulgence. Something that I only bought when I could easily afford it. And because I felt for whatever reason at that point in my life it enhanced my  lifestyle and I was willing to spend the money to do it like any other indulgence. Investment real estate, of course, is a different kind of animal.

You mentioned  the second book, which is How I  Lost Money In Real Estate Before It Was Fashionable. That's the story of the very first piece of real estate I bought. Finally I can see the humor in it so it's written to be a humorous story, almost a little bit of a miniature novel. And you can learn from my mistakes,

The subtitle on that is a cautionary tale because if you made a list of all the mistakes you could possibly make in buying real estate, well I would have checked off all of those things in this particular purchase. And for the sake of the story it has the advantage of having in the process of owning it--because I couldn't get rid of it--morphing from a personal residence into a rental. And if you want to invest in rental real estate that's great. But probably backing into it because you can't sell your personal residence is not the way to go.

Gouri: Sounds good. So you mentioned learning the hard way. We had a question from the community. So let's say real estate lesson aside, what are other financial lessons you had to learn the hard way.

J.L. Collins: Well I think the hardest lesson and the one that I wish I had corrected soonest  is I was very slow to  embrace index investing. I started investing in 1975, which of course is a little bit ironically the year that Jack Bogle brought out the first index fund. Now I can't regret not buying that fund because I didn't know about it at the time. In fact it was 10 years before I heard of indexing. It was introduced to me by an old college buddy of mine, and that would have been 1985. And that's when I should have embraced it, and if I were smarter and less stubborn and what have you, I probably would have. But I was a stock picker and I was reasonably good at it, and I was making money at it. In fact, I achieved financial independence doing that in 1989. So I was kind of stubborn and a little bit arrogant I suppose. And so I was very slow to embrace it.

And there is something I think counterintuitive about the power of index investing, because you think if I only avoid the bad companies I could certainly outperform the index. Or just focus on the clearly  best companies and they'll--well of course we know the research teaches us that those best companies are sometimes tomorrow's Enrons and those dogs are sometimes tomorrow's exciting turnaround stories. So actually outperforming the index, especially over any period of time is extraordinarily difficult. 

But at least for me that felt very counterintuitive. So it took me a long time to embrace it, and again, I think part of the problem is it's not like picking individual stocks doesn't work,,or sometimes it doesn't. But it does work. So you're not comparing something that doesn't work to something that does. You're comparing something, two things that work, one of which just works better and with a whole lot less effort. And, of course, that's index investing. 

So I wish that I had first heard of Mr. Bogle's creation in 1975 and been smart enough to embrace it. And failing that I wish that I’d embraced it in 1985 when I first heard about it. My investment road would have been easier and more profitable.

Gouri: Understood. Yeah, that definitely resonates with this crowd. So we had a question from the community about overcoming cognitive biases. So can we explore a bit more what you just spoke about. So apart from the kind of intellectual information like higher probability of index investing like you said, can you talk about overcoming cognitive biases.

When most people, almost by definition, don't know when they're wrong. They wouldn't consciously intentionally have a wrong view. Can you talk about how folks make this journey, or in your own experience, from having bad information or being misinformed, transitioning to a better understanding or seeking or embracing disconfirming information.

J.L. Collins: Yeah I'm not a psychologist so I'm not sure that I'm qualified to talk about that. My personal observations in listening to people--I remember in my business career I had the occasion to go to Las Vegas on a regular basis for shows and conventions and what have you--and of course when people go to Las Vegas they gamble. And it was remarkable to me that almost everybody in these are my customers. And my colleagues would report that they made money in the casinos,  that they won on a consistent basis.

And I'd look up at these billion dollar casinos and think, wow, a whole lot of people are smarter than I am because I didn't win in the casino. Now to be clear, occasionally I did because the casinos are set up so that people do win on a regular basis. But nobody I think wins consistently. But they fool themselves because the sensation of winning is so intoxicating that you tend to block out the times when you lost.

I think that's true of picking stocks. In fact, for me at least, it was even more true. Casinos have never particularly appealed to me because it's so biased in favor of the house. But there is nothing in my experience, or very few things in my experience, that are more intoxicating than researching a company, deciding that yeah this is worth buying the stock and being proven right and letting it ratchet up. So I think I'll take some pride in the fact that I was always clear-eyed enough to recognize my mistakes, and to realize that even though I picked some winners and maybe I can even go so far to say the winners did better than the losers because as they say, I did make money doing it. But I was always aware of the drag the losers represented on my portfolio. And sometimes when I talk to people, whether it's about their gambling in Vegas or their stock portfolio, I wonder about their memory.

Gouri: Makes sense. So on a related note. Within financial independence, and you spoke about saving and investing and doing well with stocks, ultimately Jack Bogle famously wrote a book called Enough. Can you share with us your concept of enough. Like we have a lot of people who work indefinitely, they save and invest indefinitely. They may have trouble spending and not working. Can you elaborate on your idea of enough?

J.L. Collins: Yeah. So I might at least to some extent fall into that category. And I'm not sure that I don't say that it's as in that it's a good thing necessarily, but I personally, I've just never been enamored with owning things. I guess I've never been particularly materialistic. So in my business career when  I wasn't driving as fancy a car as my peers in the business world were driving, I sometimes, for the sake of my career, I thought that was a mistake on my part.

But that's just not something I wanted. We lived in a very nice house, but it wasn't necessarily the fanciest house that we could live in, or the house that my peers in my business career were living in at the time. So I was a little bit always out of step with that. I always liked work  and to this day, and I think that's one of the reasons I'm very grateful that I found this FI world.

And then I just by happenstance started this blog and then the talk was, and then I wrote the book. I find work extraordinarily satisfying. I am frankly better at work than I am at play. And that caused a little psychological stress at times because there is a drum beat that you should prefer to prefer play and relaxation. So you know you combine those things and you do wind up accumulating money.

My solution is to give it away, which is satisfying in and of itself. But I think that I'm not recommending this path. I think the better path would be to have more balance than perhaps I’ve had in my own life, and recognizing that there is a certain point where, depending on your own particular situation and needs and how you feel about things, where you have enough money and accumulating more money doesn't add anything to your life. And as the old saying goes, you can't take it with you. So I  am absolutely  a believer in the concept of enough. And I think it's a healthy way to look at things.

Gouri: Excellent. So we've spoken about retirees a bit. The crowd here also has some newcomers to the space, so they're just beginning their journey. Think about the title of your book,  The Simple Path To Wealth. Can you elaborate on this idea that the simplicity of it has its own appeal. But it's not just the simplicity of it that's the appeal. The powerful result of being simple that may not be intuitive to folks new to this space.

J.L. Collins: Right. So as I mentioned, I think, earlier in the conversation, I basically wrote the book for my daughter. And she came home from college one day and of course I was still trying to engage her in conversations about these things even though I managed to turn her off to it with pushing too hard previously. At one point she said to me, you know Dad I get it. I understand this is important stuff but I don't want to have to think about it all the time.

And that was an epiphany for me because I realized that I love thinking about this stuff all the time, but she, like a lot of people, had more important things to do with her life than think about investing, in money. And the wonderful thing about investing is the truth is that if you do the simplest things you will get the more powerful results.

 And if you identify those few simple things and you put yourself on that path and set it on autopilot and then otherwise forget about it, that's a super power. My daughter, for instance, probably doesn't even know the market's down 20% because she just doesn't care. But she's on the path. She puts money into VTSAX every month and that's her super power. Her lack of paying attention to it is going to keep her from panicking and selling. It's going to save her from the temptation to constantly tinker.

And if the research is indicative of anything it's the more you tinker with your investments the less well you will do. It's kind of remarkable when you think about it because I don't believe there is anything else in our life where if we put in less effort we get a better result.If you want to be a woodworker the more effort you put into it the better woodworker you will be. That's true of almost anything we can think of, but with investing the more you tinker with it the worse your results are likely to be.

I liken it to imagine if you had a banquet table that was just filled with all kinds of exotic dishes on it and in one tiny corner of that table were the core nutritious foods that you really need, that are good for you, that your body needs. Well that's analogous to all of the the investment products that Wall Street offers, a lot of them are extraordinarily exotic and difficult to make, and of course that's by design so you're driven into their arms for high fees to sort through all that stuff. Well the truth is just like with the food on the table. You put your arm down in front of those handful of very simple foods and sweep everything else onto the floor because you don't need it. 

And you can do the same thing in the world of investing and sweep everything on the floor except for broad-based low-cost index funds which is the great gift that Jack Bogle gave us. And it's the reason that I call him a fiscal saint. Jack Bogle has done more, and I know I'm preaching to the choir with this group, but Jack Bogle has done more for the average investor than anybody before or since because he created the the only thing that that we really need to get outstanding results and ironically with the least possible effort it is it is amazing and ironic.

Gouri: You mentioned the market went down. So the question is what are three of the biggest financial challenges you see facing retirees today?

J.L. Collins: Well I think that the biggest one, at least for anybody who is going to follow my approach that The Simple Path To Wealth, is staying the course. You know when I started writing in  2011 the market really has done nothing but march straight upwards.It dropped a little bit in covid, but it recovered almost instantly. This drop that seems to have everybody in a panic is it's 20%. That's a very mild bear market, at least so far.

And I think that there are a lot of investors out there who really haven't experienced a sharp decline and they don't perhaps fully appreciate the fact that nobody can predict them with any accuracy and that they are a very normal part of the process. If you are going to reap the benefits of investing in stocks then you have to accept the fact that periodically the stock market is going to plunge. It's a volatile, it's not a smooth ride, it's very volatile. And you have to stay the course.

If I tell people, if you're going to, when the market drops and it will, if you panic and sell, you do not want to be following my advice, it will leave you bleeding by the side of the road. You have  to stay the course. And so I think that's probably the biggest obstacle is whether people can just hear somebody like me say that and take it to heart and endure the volatility, which of course is very unpleasant, it's very scary, or whether they actually have to live through panicking, selling, watching the market turn around and leave them behind and having to get in later.

But I tell people it's like living in Florida and being surprised when hurricanes come. Hurricanes are unpleasant, they're potentially very dangerous and destructive, but you shouldn't be surprised that if you're going to live in Florida that you're going to have to deal with them. It's the same thing investing in the stock market with bear markets.

Gouri: How do you suggest people learn their true risk tolerance to the extent they can,  in advance of a market correction?

J.L. Collins: Yeah. So I don't know that I have the answer to that question. That's kind of what I was saying, or trying to say is I don't know how many people can read about it and take it to heart. And I think you're correct that a lot of people, especially when all you've experienced, and there are a lot of adults that have come of age and only experienced this last 10 years. I think it's one thing to intellectually say, well of course I can handle it when it drops. But it's one thing to know in your head. It's another thing to know it in your gut.

And I think what it requires--I mean the advice I would give to people--is to really sit back and think about it. And I think a lot of people kind of dismiss and say, okay I can handle it. For instance if you go back to  2007- 2009, that debacle I remember as of course we know historically that the market hit bottom in I think March of ‘09, if I’m not mistaken,  and it was at 666, which is a memorable number of course. and it had lost, I don't know, 50% of its value at that point. So it's easy for people to look at that and say, oh okay well I think I could handle losing 50% of value of my portfolio. Wouldn't be happy about it but I could tolerate that.

 But now understand this. That in March of ‘09 all of the smart people I was talking to thought the market was going to go much lower. I mean they were talking about it dropping another two thirds. Nobody that I heard was saying, oh now we're at the bottom. So think about it this way. Let's suppose that you had it with a portfolio million two and in March of ‘09 the market's been cut in half and your portfolio is now six hundred thousand. What you're hearing is not that it's the bottom, it's going to turn around and get better. What you're hearing is the market's going to continue to go down another two thirds which means your million two is potentially going to be 200,000. Walk that scenario through your head and say would I stay the course.  And I think maybe that's the only sobering way I can think about looking at this short of going through it yourself.

Gouri: Okay thanks for that, A great exercise.So as mentioned i'll turn it over now to Miriam and Lucas who will share questions from the chat. But before turning it over I want to thank you again for sharing your incredible insights and timeless wisdom.

J.L. Collins: I appreciate it. As I said at the beginning, I appreciate the invitation. You asked some really interesting questions that I haven't gotten before. So I thank you for that.

Gouri: Sure and you know they're largely sourced from the bogleheads community. So thanks for the feedback so Miriam or Lucas turn it over to you.

Lucas: Sure so I’ll ask the first question. J.L.Collins, thanks for coming on. By the way, big fan. So the first question is when do you stop living like in your 20s, which is spending very little, with lots of delayed gratification, and start -quote- living like you want to. I'm always torn between being frustrated for delaying gratification  for 10 plus years but also worrying if I start spending that something will go wrong, for example a recession leading to a job loss. So any thoughts on that.

J.L. Collins: Yeah. So I think that again this is going to be a very personal decision for each individual. So probably the best way I can talk about it is how I did it. And remember when I started on my journey I had no concept of financial independence. I was wandering in the wilderness, if you will. But for whatever reason I decided that financially I wanted to have--I'd come across the concept of having money-- which was not enough money to never work again but enough money that I could make bolder decisions. That I could always leave a job if I wanted to go do something else. or if I just didn't want to work for that company or that particular boss.

So that was the goal that I had, such as it was, so I decided out of college, when I got my first professional job, I was going to  live on half of my income, and that's what I did. My first professional job paid me $10,000 a year and I lived on $5,000 dollars a year and I invested the other $5,000. But then as my career progressed, of course I started making more money. But I kept that ratio the same. So my lifestyle did inflate. So in a few years when i was making $20,000 a year, well now I'm investing $10,000 but I'm living on twice what I was living on before.

And that worked out well for me. And right up the march, where I was making 30, 40, 50 into six figures. I was still doing the half and half thing and my material life expanded with it. But again this is coming from somebody who never has had a very high regard for material things. Other than travel I guess is where I spend money the most. But I also kind of cringe at this idea that you're not living your life if you're not spending money. I've just never felt deprived when I was going through this. I think most people would say well if I'm not spending, there's half of my money, my income that I'm not spending, that feels like deprivation. It never felt like deprivation.

Because again, when I came out of college $5,000 a year was a lot of money and then it kept growing on the spending side. So I think if there's somebody listening who thinks that there's no satisfaction to be had in life unless they're spending as much money as they possibly can, I would urge them to think about that a little more deeply.

Miriam: We have a question about bonds. And the question is why bonds as a ballast when the return is so poor, not much better than cash. Is there some alternative you would recommend instead of bonds to use instead, And then I have an adjunct additional question to that. Because I understand that you recommend mostly stocks for young people, when would you add bonds to the portfolio. What thinking would you have in relation to this question bonds as ballast versus bonds as return.

J.L. Collins: Right. So bonds as ballast has not been working out real well in recent history as I think we all know. I mentioned earlier in this conversation that a couple of days ago I just shifted some money out of bonds and into stocks and I don't remember the exact numbers, but the bond portfolio was down 10%, 11%; but the stock portfolio was down 22%.

So would I have preferred that the bond portfolio was up a little bit, which would be the ideal situation with ballast, or even flat, obviously. But we're in kind of a unique economic environment and right now bonds are getting hammered at the same time the stocks are. But not quite as hard. And so I still think of them as being ballast although it's not performing as well as I would like. 

In terms of what else to use I honestly don't know the answer to that question. Considering that I believe in playing the long game. In the long game if you own bonds and select the total bond market fund that Vanguard offers, it's of course gotten hurt pretty badly, but what you need to understand is that is a portfolio with thousands of bonds in it of all different maturities. And at any given time some of those bonds are coming due and that money will be reinvested in new bonds at higher interest rates. So slowly but surely that bond fund, along with all bond funds, will be paying more and more interest, and it'll recover in that fashion.

So I kind of see it as a rockier road than I would have hoped for with bonds. If you told me a few years ago that we're going to have the kind of inflation we're having, I would have said, yeah that's the road that bonds have ahead of us,but I don't have a crystal ball in terms of when to add bonds. Again this depends a little bit on someone's risk tolerance.

If someone is less willing to roll those dice, and what I would say is we'll start edging into whatever bond position you're in, over the course of five years, before you're going to be needing to live on in the portfolio.

Lucas: Thank you. Okay, so the next question that we had is in regards to mutual funds versus ETFs. So earlier you were speaking about the total bonds mutual fund, right, and then also VTSAX versus VTI. Advantages, disadvantages. What are your thoughts there? 

J.L. Collins: So I, you know I'm an old guy, and when I started investing in these things there were no ETFs and so I think in terms of VTSAX, I think in terms of the mutual fund. I was a little resistant to ETFs when they first came out because there were some trading costs associated with them and my understanding is they were created specifically to make trading these assets more easier and more effective and I‘m not a trader. I mean when I buy VTSAX my holding period is literally forever. I mean the only time I would ever sell it is to sell off a couple of shares perhaps to make ends meet if I'm living on the portfolio.

So I see absolutely no value in trading and I have no need for it. So the ETFs, just there was never any reason for me to switch to them. Now having said all that, the trading costs have come way down. As I understand it, you can of course get, if you're new to the game and you have relatively little money to invest--I think the minimum on VTSAX is $3,000 these days-- you can get into VTI for the cost of a share. I have no idea what a share of VTI costs these days but it’s considerably less than $3,000 so perhaps it's a little easier entry point.

I guess the bottom line is it doesn't really make any difference as long as you're going to hold either one for the long term. Whether you own VTI or VTSAX,  you have exactly the same portfolio, and the bottom line is that's what matters.

Miriam:  We have another question from the chat. It is should we be doing anything different in anticipation that the US may experience an extended period of high inflation. For example 10 years of 8% to 10%  inflation. And may I add that I'm an old lady and when we bought our first house, my husband and I our mortgage was about 16% and my first IRA Ii opened in 1981 and I put it in a regular money market fund and it was paying about 16%, 17%, 19%.

J.L. Collins: Right. Well I lived through those days as well and I remember those money market fund rates and those interest rates as I had both of those myself.  I think that if you're in this for the long term, and in my view that's the only way you should be investing in stocks. And as I've said a couple of times now, I own VTSAX forever. You know once stocks get through the shock of the Fed raising interest rates, and the potential that that will trigger a recession, which it probably will, and that will slow down the economy and slow down the sales and profits of companies. Once companies get past that, just like once the bonds get past the shock of the fast rising interest rates and begin  to buy the new bonds with the higher rates, and provide those higher interest rates on the fund You're going to find that that stocks are actually a pretty good inflation hedge because you're not just buying pieces of paper or bits on a computer that are just there to be traded, you are in a very real sense are owning pieces of real genuine active businesses that have assets, that have products, that have services, that have pricing power that can serve you well in keeping pace with inflation.

So I look back in the 1970s, which is when I came of age and first began investing and that was a very difficult time for the market. It was a time of very high inflation, as Miriam  was just pointing out, but it was also a wonderful time to be to be adding to something like VTSAX--which VTSAX didn't exist in those days--but adding to the S&P 500 fund that Mr. Bogle had first created, would have been a wonderful time to be accumulating shares. You know the old saying goes you want to be buying when there's blood in the streets. There was certainly blood in the streets in those days.

Now you had, I  think it was Business Week that 1978 had a kind of a famous cover called The Death of Equities, and if you ever see a magazine cover like that I think you could be pretty sure you're near the bottom of whatever terrible thing is going on. So no, I'm very comfortable continuing on the same path that I've laid out, that I've been on for decades. And in fact, if anything, over time I think it'll be even more powerful because this is a wonderful time to be accumulating shares in VTSAX.

Lucas: Thank you. Yeah, and along those lines, that kind of segues into a question from one of our friends over in France. So what, in your opinion, is the best way to attract younger people in their 20s and 30s to more of a saving mentality, and this is asking for a friend.

J.L. Collins: Yeah. So again I think that's a question that's kind of above my pay grade. I don't quite know how to do that. I think that it is remarkable to me, watching what has happened in the FI world since 2011 when I first launched my blog, and then with bogleheads. The sources of information that are available are just extraordinary. And you know I think about when I started on my journey and I was kind of wandering in the wilderness, and frankly it all felt wrong, it felt like I was doing things wrong because everybody else was living paycheck to paycheck and spending all their money.

But now, if you have any inclination to consider a different way of living, a different path, the amount of role models you have out there, the amount of information that you have out there, is really unlimited.

So I suppose if I were trying to persuade somebody, and I'm notorious for saying I've never tried to persuade anybody but one person, my daughter, of anything along these lines.And by the way I've succeeded, so I feel good about that. But  if I were trying to persuade somebody, I suppose I would be self-serving here, to steer them to my blog. To the stock series  or to the book. But at that point it's going to be up to them.

But yeah, I'm certainly not an expert trying to persuade people. I think the people who I've influenced are people who have come to my work and for whom it resonated, and they've continued on on their own.

 Lucas: Great. Well you've influenced me. I'll tell you that much.

J.L. Collins: There you go.

Miriam: We have a question about I-bonds and whether you own I-bonds. Would you add those to your portfolio?

J.L. Collins: So it's interesting. I feel that that question  must be on my Facebook today, and maybe a week ago I fielded it on my Twitter account. I-bonds paid an extraordinarily high interest rate on these government issued bonds. Just so everybody knows what we're talking about you can only buy $10,000 worth of them. So my answer to the question depends on how important or how big a portion of your portfolio $10,000 is. If it's a meaningful portion of your portfolio then by all means. You're not going to get a guaranteed 9% or whatever it is elsewhere. But if you're further along in your journey than $10,000 is probably a rounding error. So for that I think you need other tools for your heavy lifting. Then, of course, no matter where you're on your journey, I suppose if you want to make the effort even for $10,000, why not?

Lucas: Great. There was another question that we received in the chat. You mentioned giving your money away. What do you choose to give, who do you choose to donate to?

J.L. Collins: Well I don't know how deep we want to go into that, and I kind of consider it a little bit private.But interestingly I did another interview earlier today and was asked the same question.

Gouri: I'll insert just to clarify, and I respect that you're keeping the details private, but if you can talk about how you make philanthropic decisions, because I think the crowd here as retirees, that's a growing interest for them.

J.L. Collins: Well I'm happy to talk about this. This one particular charity, because I did in this other interview earlier today. So there is a charity based in Salt Lake City called Adopt A Native Elder, and most of their work is done on the Navajo reservation. Poverty levels on reservations are by and large extraordinarily high, as one of the most impoverished groups in the country, and the elderly on the Navajo reservation tend to be deeply in poverty. They tend to be living far out in rural areas with very little access. They tend not to have running water or electricity or things like that. And this organization reaches out to those people with things like food and firewood and water and also materials. They could be wonderful crafts people, and so yarn for weaving rugs that then the organization will help market and create a little bit of cash flow that way. 

So that's a charity that I'm very fond of and I put a fair amount of support behind. Interestingly enough, I started supporting them a number of years ago and they were not rated on any of the charity rating organizations. And so it was a little bit of a gamble, I guess, for me because I'm the kind of person who likes to analyze everything to death, and so I was a little uncomfortable that  I couldn't find them on any of those organizations, but I chalked that up to the fact that they were pretty small and probably didn't have the resources to go through the paperwork, and I just liked the way they talked about the work that they did.

Well now they are rated on charity navigator and have been for a few years, and I was delighted when I first saw that because they have absolutely top-notch ratings when it comes to efficiency and what have you. So if anybody is looking.


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