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Bogleheads on Investing with JL Collins: Episode 53

Post on: December 28, 2022 by Rick Ferri

For our 53rd Episode of Bogleheads on Investing Podcast, host Rick Ferri interviews  JL Collins a popular personal finance blogger, a leader in the FIRE movement (Financial Independence -Retire Early), and the author of The Simple Path to Wealth. The book has sold over 500,000 copies and is published in multiple languages. His second book, How I Lost Money in Real Estate Before it was Fashionable, highlights his experience as a landlord and provides a cautionary tale for people considering direct rental property as an investment. JL's upcoming book, Pathfinders, will feature success stories from 100 followers around the world.

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Rick Ferri: Welcome everyone to the 53rd edition of Bogleheads on Investing. Today our special guest is J.L. Collins. He is the author of the best-selling book "The Simple Path to Wealth" and a leader in the FIRE community.

Thank you. Hi everyone my name is Rick Ferri, and I'm the host of Bogleheads on Investing.  This episode, as with all episodes, is brought to you by the John C Bogle Center for Financial Literacy, a non-profit organization that is building a world of well-informed, capable, and empowered investors. Your tax deductible contributions are greatly appreciated. Visit boglecenter.net where you will find a treasure trove of information, including transcripts of these podcasts.

Today our special guest is J. L. Collins.  J.L. has been publishing his blog on jlcollinsnh.com since 2011, and in 2016 wrote the international best-selling book "The Simple Path to Wealth: Your Roadmap to Financial Independence and a Rich, Free Life".  So far, a half a million copies have been sold worldwide. He's also written two other books: one is a book on real estate and the other is to be published in 2023. I greatly enjoyed my conversation with J.L. and hope you do too.  So with no further ado, let me introduce J.L. Collins. Welcome to the Bogleheads on Investing podcast.

J.L. Collins: Rick, thank you for the invitation. I'm delighted to be here.

Rick Ferri: Well it's great to finally have a chance to sit down and talk with you about your books and all the work that you've done on simple investing and with the FIRE movement, which we'll get into in a little bit. But before we do that, you and I are close to the same age and let's say that we're on Medicare. And so before either one of us got into talking about investment things and finance things we did other things. So could you tell us a little bit about your journey and what brought you to this career and what you did before then in your younger days.

J.L. Collins: You're talking about my professional career in my younger days.

Rick Ferri: Your professional life before you became a financial guru.

J.L. Collins: Wow I cringe at the term guru.

Rick Ferri: But oh okay, well I take that back.

J.L. Collins: Yeah. I thank you for it. That's a nice compliment. No, I was in the magazine publishing business until 2011 when I finally left my last corporate job in business to business magazines. I started on the sales side and then I became a publisher and wound up my career back in the sales side of things.

Rick Ferri: And you were an English major back in college.

J.L. Collins: I was an English major, absolutely.

Rick Ferri: Well that certainly comes out in your writing because when I read anything that you wrote it's so crystal clear, unambiguous. You have a really great talent for writing, making very complex things simple.

J.L. Collins: You're very kind to say that. I actually would say that I got my start writing I suppose as an English major, but if to the extent that I have any ability in writing I think it was a skill I developed in business, writing business letters and proposals and that kind of thing where you do have to be clear and succinct. And so yeah, I think that's to the extent that I have that ability, I actually honed it in my decades in business.

Rick Ferri: You wrote The Simple Path to Wealth and you've sold half a million copies and it's still selling strong. I found myself the other day, when a client of mine asked me, my young son has just graduated from college. Can you recommend a book? The first one that came out of my mouth was a Simple Path to Wealth because it's so easy to read. It's a great book for people who are just getting started. It clears up a lot of misconceptions. In fact when I read all of the accolades in your book from the various financial bloggers out there, everyone said the same thing, that you were able to take something that was very complex and make it very simple for somebody who is new to all this and overwhelmed by all of the acronyms and terms and all the stuff that Wall Street throws at you. You're able to cut through all of that-- just get right down to the bottom line with the way you write. And that comes out very clearly in The Simple Path to Wealth which we'll get into in a minute.

Before we get there I do have some more questions about the earlier background, and I'd like to hear about how you ended up coming to the altar, if you will, of index investing and all of the mistakes du jour that you may have made prior to getting there.

J.L. Collins: Yeah. Well, the answer to that question is kind of embarrassing. Strictly by chance I started investing in 1975 and that was of course the year that Jack Bogle brought out the very first index fund. My excuse for not investing in it right away is that I just didn't know that, but about 10 years later in the mid ‘80s a friend of mine who was a financial analyst and I were talking and he was the one who introduced me to this whole concept of indexing investing, efficient markets, and all that kind of stuff.

I was a stock picker in those days and by extension I would pick actively managed funds that were run by stock pickers, and actually I did pretty well. In fact my dirty little secret is I achieved financial independence doing that, not through indexing, so that the key is it's not like picking stocks or active management doesn't work, it's just that indexing works better. More easily and it's a whole lot less expensive.

So I learned about it in the mid ‘80s but I was not smart enough candidly to make the change. Then it took me another probably 15 years, not until 2000, before I switched over to indexing and it was a slow transition. I think pretty quickly, once I embraced it, indexing was doing the heavy lifting but probably--I'm trying to think of the last individual stock I owned- was probably as recently as 2013, somewhere in there. so I had the disease, I had and have the disease. I'm kind of a recovering stock picker.

Rick Ferri: You know it's interesting that you said it took you about 15 years. It's not unusual--and I hate using double negatives – for someone to hear about indexing and not right away have that “aha” moment. It took me--I mean I worked in the industry for eight years before I had my “aha” moment. And prior to that I was also trying to figure out which mutual funds were going to outperform, and I had my bout of picking bad stocks and all of that. You know you hear about indexing. Okay it's there. It doesn't really mean that much--kind of go on to the next thing and then you circle back.

In fact I didn't really embrace indexing until I had read every other book out there on investing and finally the last book on the bookshelf at Barnes & Noble was Jack Bogle's book Bogle on Mutual Funds. And that was in 1996. And then I picked up that book and finally read it and then finally it dawned on me. I had my “aha” moment. It's like hey yeah, wow! This is a pretty powerful stuff. I was a financial advisor at the time and you must have worked with some financial advisors during your lifetime as well, correct?

J.L. Collins: Nope, I never have.

Rick Ferri: Oh good for you.

J.L. Collins: Yeah, yeah that's one disease I've never had. 

Rick Ferri: Okay. Well you have some things to say about financial advisors in your book and it all centers around the same things that I talk about--and I am a financial advisor--been for 35 years. But you talk about the complexity of the industry and how that might be intentional. Can you elaborate on that?

J.L. Collins: Well yeah. I think that just in general one of the reasons that most people are intimidated by investing is that there's a lot of jargon surrounding it. And Wall Street is filled with genuinely complex investments. I mean they've created investments that notoriously--when led up to the ‘08-’09 crash--that they didn't understand themselves. And they were still selling and marketing to people who obviously didn't understand them either. And these were professionals.

And I think that happens for a couple of reasons. One, the more complex an investment is the more you could charge for it, and the more you can convince people that you just need to go with the program and pay our fees and we'll take care of it, and don't worry your pretty little head about it. But I contend that the vast majority-- in fact not the vast majority--I'll go so far as say a hundred percent of those complex things, you can put your arm on the table and sweep them all onto the floor, and leave only that corner with the simple broad-based low-cost index funds because that's all you need.

Yeah, I've been asked in the past why is your advice so specific and it's because I'm writing for my daughter. This is exactly what I tell my kid to do. It's about what kicked me in the ass and what's worked.

Rick Ferri: You just recently wrote another book though on real estate investing and harking back to your previous investments it was titled, How I lost Money In Real Estate Before It Was Fashionable. And you wrote that back in 2021. And it talks about your trials and tribulations in the rental real estate market, buying real estate and as a landlord. Tell us why you wrote that book and what were some of the main points of it.

J.L. Collins: So I wrote that book because it was kind of fun and it's Illustrated with some humorous illustrations. So I wrote it to amuse myself, but also the subtitle is a cautionary tale. It's a story of the first piece of real estate I ever bought, which was a condominium, and it was an unmitigated disaster from the moment I bought it until the moment I finally got rid of it. And in that period of time it was my personal residence initially, and then for a variety of reasons it was time to move on from there. I was stuck with it because the condo market in Chicago had crashed and so then it became a default rental. And there are few worse ways to get into rental real estate than by default .So it was hemorrhaging cash every month in what I've learned since, was called an alligator. An alligator is a real estate investment that's eating you alive. 

Real estate can be a wonderful investment done correctly and if you know what you're doing and you operate it as a business. But I cringe at some of the advice that's out there and this common attitude that it is easy and that it's a slam dunk. And it's not. I mean real estate can be deadly to your wealth. But if you take the time to learn how to do it properly and you go into it intentionally, looking at whatever you're buying as an investment that meets certain financial parameters, then yeah that can work out very well if you did it the way.

I did it that first time not so much. And in my defense--by the way I did learn from that experience and I continued investing in real estate for a little while and did much better on those things--but eventually I decided it's just way too much like work for my taste, and I haven't owned investment real estate in decades.

Rick Ferri: A lot of people become interested in real estate because they hear that you can get really great returns from rental properties and that it is a diversification, which it's true. Both of those things are true. But when I ask them, “So do you want to be a landlord?” They say,”No, not particularly.” And then I say, “Well okay. I mean have you ever been a landlord?” And they said “No, never have.” “How good are you at fixing plumbing?” “Not at all,” right? And I said, “Okay, well you might want to think twice about getting into real estate just because it sounds like it's a great investment.” 

And there are other ways of doing real estate through syndicated deals, and you could do Real Estate Investment Trust mutual funds. So I mean if you really want to be in real estate there's other ways. But I do have these conversations a lot with people who, in my opinion, when I talk with them I don't really think they should be getting into that industry. And a lot of them do have to back into it. Like you said, there's a piece of property that didn't get sold, usually in a different city. Sometimes in a different state. And they're trying to manage this piece of property and it's just--it can be very difficult to do.

J. L. Collins: Yeah that wound up being exactly my case with this condo. I also wound up for job, career reasons, moving away from Chicago. So suddenly I own this thing that at the time was unsellable. I couldn't even get a real estate agent to take the listing. Anything about real estate, you know that real estate agents fall all over themselves to take a listing. But the condos in Chicago were so depressed in those days that they wouldn't even take the listing.

Rick Ferri: What you just hit on with the fact that the market and real estate was so bad that you couldn't even get a real estate agent to take the listing. You write a lot to the FIRE community and they're generally younger investors, people who are in their thirties, perhaps forties, even their twenties, and they're looking to become financially independent, not necessarily retire early. But they hear the stories and they've seen only a really bull market in real estate for the past 15 years after the financial crisis. And haven't really seen what you saw where there are real estate markets where there's no market.

J.L. Collins: You're absolutely right. And of course what you typically hear out there from people touting real estate, is the places in the country where it's done really well. Obviously if you bought San Francisco 10 years ago you've done well. If you bought Detroit, not so much. And there have also been times in history like Chicago back in the late ‘70s, early ‘80s--when I had this condo--where the condo market in particular just didn't exist. Younger people don't necessarily have the experience or even the awareness that that has happened in the past and can happen in the future.

Rick Ferri: Let's move on to your writing. You started your blog in 2011 and it was because you were trying to give your daughter good financial advice. But why start the blog though to do that--I mean couldn't you just hand her a piece of paper? 

J.L. Collins: Well, are you handing her a piece of paper, or more specifically a series of pieces of paper. Actually the plan--I had managed to turn her off to all things financial when she was young. I just pushed it too hard and too fast because it's so important if you get this stuff right, your life is so much better. It's so much easier. You have so many more options.

If you get money wrong in our modern world your life is real hard. So obviously, like every parent I want the best for my kid, and I just pushed it too hard. So I found that she'd stop listening to me, and I had started to write this stuff down so it would be available to her even if I wasn't at some point in the future when hopefully she would be able to hear it. And a friend of mine that I shared it with said, “You know, this is kind of interesting. You ought to put this on a blog and share it with your friends and family.” 

And I had never actually seen a blog before. I'd heard of them, so I kind of knew what they were. But what appealed to me was not sharing it with my friends and family--although I did that--this is a great way to archive this information in a way that will be readily accessible to her, to my daughter, when the time comes. Okay, so that's why I chose to put it on a blog and I never in my wildest dreams did I think that people who didn't know me would become my audience for this material.

When I put the blog up I sent a link to it around to friends and family and of course none of them cared. But then it started to develop traction with the wider world and I still am amazed by that. But it's been a very gratifying journey.

Rick Ferri: Well, yeah. Your followers, many of them from the FIRE movement as I said earlier, Financial Independence Retire Early. You and I are alike. I think that financial independence is so important, but retiring early, not so much important. I mean you're still working. I'm still working. But the FIRE movement, like we said, or a lot of younger people, and they took everything you wrote and they adopted it- or it was already being adopted and you just added some fuel to the fire, pardon the pun. How do they find you? I mean, all in all, of the people who wrote comments in your book were all young FIRE enthusiasts like Mr. Money Mustache and so forth. And they found you and they started touting you and publishing you, or republishing and telling people about you. It must have been interesting for you to become involved with these young people when that was all going on.

J.L. Collins: Yeah it's been wonderful. but I now have friendships with many of these people and I don't think there are very many people my age who have friends who are in their twenties or thirties or forties. So it's been an incredibly gratifying journey. It's also led to my third book which I just finished the manuscript on a week ago, and that's Pathfinders. We can talk about it later if you want.

Rick Ferri: Sure.

J.L. Collins: But yeah, it's been an incredible journey and one that I didn't anticipate. I think the main driver of the blog developing an audience was when I started writing my blog I started paying attention to some of the other blogs that were out there and I came across Mr. Money Mustache and I liked  his work and I would make some comments on some of his posts and evidently he liked the comments because one day he reached out to me and he asked me if I would do a guest post on his blog. And to give you an idea of how ignorant I was of blogging and the whole concept, my initial reaction to that was--I didn't say this to him but I'm thinking “of course not, if I'm going to write a post I'm going to put on my blog--why would I suppose to put it on your blog, right.”

And I know that displays an appalling level of ignorance. But there you go. And that's where I was. But finally I  reached out to him. I said,”What exactly do you have in mind?” He said, “ Well you know you're older than most of the people reading this and you've already walked the path and maybe just sort of talk about that. And the title of my guest post was It's Never Been About Retirement. To our previous thing, because for me it never has been about retirement. And I think that guest post--well I remember I sent it to him and I said, “Is this kind of what you have in mind? He said, “ Yeah, this is great. I'm going to put it up on Sunday.” And this is probably on a Thursday and I emailed him back and said, “Great. “

And then Monday it suddenly occurred, oh I wonder if Pete ever put it up on his blog and I logged onto my blog. Well my traffic had exploded, and then suddenly I realized why it's a good idea to do guest posts on incredibly popular blogs if you're offered the opportunity. But yeah, I think that was the beginning of my blog getting extended traction in the wider world.

Rick Ferri: And then you had more and more followers and it grew and grew and then I just decided I had enough material, I need to put together a book. And so what would be the idea of this paperback book, what was the idea of doing that?

J.L. Collins: I think the idea behind that was twofold. One, my overarching goal for all this is to have this information available to my daughter. So I had a lot of this information on the blog that it kind of developed organically and I thought, Wow! I do have the material for a book. And I can pull this book together and make it more concise, better organized, to polish the writing a bit. And now I can have a book that I can handle, in addition to access to the blog.

And the other factor was I'd always harbored an ambition to write a book, probably since my days of being an English major at University. And suddenly I had the subject and the material todo it. So there you go.

Rick Ferri: Yeah. It's great. Books that are personal finance books tend to maybe sell, if you're lucky, five thousand copies, and you've sold I know at least a half a million.

J.L. Collins: I never dreamed it would be as well received as it was. I was just hoping my daughter would read it.

Rick Ferri: Have you sold the movie rights yet?

J.L. Collins: No, and nobody's offered to buy it. Okay, I hope to sell the movie rights because Brad Pitt keeps bugging me to the lead role and I keep telling Brad just because we look alike doesn't mean you're the right--

Rick Ferri: Okay in preparing for the podcast, of course I go back and take a look at all the notes that I took--and as I started to redo the book again I realized I didn't have to go very far. I mean you very conveniently put the key information in the first three pages which I really appreciate. Do you not want people to read this book because all I have to do is read these pages? It tells me everything.

This is not good marketing. I mean you're not supposed to do this. You're supposed to wait to the last chapter to find out what the conclusion is. I mean as I've read through these, it occurred to me very clearly that your ideas and Bogleheads ideas are very much aligned with everything starting out right from the beginning. We have this 10 things that make you a Boglehead and you can see it on video. You can see it on the boglehead.org website, on boglecenter.net. It's just these 10 things. And all 10 of those things are in your list.

So we are right in line with thinking. But the first thing you have--and I just want to go over a few of these, and you could elaborate on them--is there's a few key things that make you good with money. And I think that the very first one you put up here is to spend less than you earn. Invest the surplus. Avoid debt. Now there's three different things there, right. Comment on your first point and then we can go to other points.

J.L. Collins: Yeah. I mean that's the formula and I say in the book that if you do just those three things you'll wind up wealthy. And not just in money, you'll wind up wealthy in life if you live below your means, invest the surplus and avoid debt. And of course, avoid debt is the first step. And then– but yeah that's the formula–

Rick Ferri: And then put something in here that needs to be said, although a lot of people would never say it. Like I think the benefit that we have of being in our Medicare and over age is that we can say things and people let us get away with it, right. But you put here “avoid fiscally irresponsible people, never marry one, or otherwise give him or her access to your money.” That was brilliant. I mean I don't know even today if I would actually say that, but I guess I could, given my advancing age. But tell us about this.

J.L. Collins: So first of all I appreciate the comment that it’s brilliant. To me it just seems painfully obvious. And the idea that it would be controversial to say it strikes me as odd. But you're not wrong. I have gotten pushback on that very comment. There was one woman in particular-I forget what format it might have been on my blog, or probably was a comment on the blog-- but  she said something effective, ”You lost me immediately. You know the only reason to get married is for love and money should have nothing to do with it.” Or something like that. She was very incensed. 

But of course the truth is that if there are problems in a marriage money is most often the most common of all causes of that. If you and your spouse are not on the same page when it comes to how you spend and invest your money it's going to be an incredibly difficult path. And if God forbid you're married to someone who squanders your money, that's a leaky bucket you're never going to be able to fill. I said it. I stand by it. Certainly it's the advice I give my daughter, and it's the advice I would give anybody. But it's not advice that everybody wants to hear or agrees with.

Rick Ferri: The next one is something that I agree with even though I am one and I've been one for 35 years. It says avoid investment advisors. Too many have only their own interest at heart. And then you go on to say by the time you know enough to pick a good one you know enough to handle your finances yourself. It's your money and no one will care for it better than you. Absolutely true. I mean you're not going to hurt my feelings. Go ahead and tell me about investment advisors.

J.L. Collins: Well I think that pretty much summed it up. One thing I will add is during that the big crash in ’08-’09 one of the arguments for investment advisors that I've heard from investment advisors, not surprisingly, is that well okay, maybe we're expensive and maybe we're not offering Investments that you couldn't do less expensively on your own, but boy when the market crashes you know we're going to be the one holding your hand and telling you to stay the course and keeping you from making a mistake.

Rick Ferri: Well absolutely, yeah, you better pay us a lot of money to do that.

J.L. Collins: But it turns out, at least statistically speaking, that's not true investment advice. Investment advisors actually panicked more readily than their clients.

Rick Ferri: I am shocked. 

J.L. Collins: So yeah, So now I'm going to go a little bit positive on investment advisors. If you have a specific issue that you're dealing with and you want some professional advice, then an advisor can be useful. I think you should find one that charges by the hour and pay for the advice that you want.

Rick Ferri: That was not a paid advertisement.

J.L. Collins: Not a paid advertisement at all. I've got a lot of advisors to tell me, J. L. this hourly thing is, you know, that's a good idea and maybe that's best for the clients. But the clients don't like it because they see that when I send them the bill, if I'm charging them a fee, that comes out. It might be a lot more money for me, but they don't see it and they're more comfortable with it.

Rick Ferri: No, that's a bunch of nonsense.

J.L. Collins: Oh I sort of understand with the advisors saying well I can go for this. I can charge fees that the customer really doesn't see, that puts a lot more money in my pocket, or I can charge an hourly amount that's less money to the customer, but that they do see and that they can complain about. So I mean I can kind of see it from the advisor's point of view too. But I'm not writing for advisors. I'm writing for the clients.

Rick Ferri: Well sure you're writing for individual investors and by the way I mean the whole Bogleheads is about individuals managing their own money, basically, although there are some who will use an advisor, and some who need an advisor for various reasons because they need to have a professional by the trust document or whatever particular document is driving those investments. Or maybe they've come of age where they can no longer manage their own portfolio. You don't feel comfortable. There might be some cognitive decline there, and they're worried about their spouse or their family managing the money. So they find an advisor that is reasonably priced. Maybe a flat fee advisor who'll manage the money for a low fee, using the same ideas that they have. So most people probably listening to this podcast are going to do it themselves. But there are reasons why people hire an advisor. But they do need to look for the one that fits their needs.

J.L. Collins: Right.

Rick Ferri: Let me go out to the next thing. You own the things you own and they in turn own you. Now a lot of people talk about boats, but I think you're talking about a lot of things. Can you elaborate on that one.

J.L. Collins: Owning things takes time and energy and the more things you own, the more of your life they occupy. And you know the title of my book is The Simple Path To Wealth. I believe in simplicity in life. In organizing my finances the way I have, when I pass on it will be a lot easier for my wife and my daughter because I don't have multiple houses. I don't have boats. I don't have all this stuff.

I had a friend of mine who was a client of mine actually back in the day and he liked to go out and to pick things and buy things and he had a barn that was just full of stuff that he'd found and bought in the store. And I remember I said to him at one point. “Do you ever sell any of this stuff?” And his reply was “theoretically.” And I said, “What's going to happen when you die?--by the way he has passed away since-- “when you die”, I said, “ Well what's your wife going to do with this, what are your kids going to do with it?” He said, “Well that's their problem.” 

But it is a problem. I mean I just want my life as simple, as unencumbered as possible. Now having said all that, I mean I know people who own lots of stuff and as far as I can tell are perfectly comfortable with that arrangement. It doesn't seem to bother them at all. Maybe they--- I don't know how they do it, it would drive me up the wall--but yeah I think that when you own things then they're part of your life and they wind up owning you.

Rick Ferri: So I saw a cartoon recently and it was a picture of an older gentleman standing in front of a storage unit, and the storage unit was open and all of this junk was in the storage unit--broken lamps, paper, and books--all this stuff's flowing out of the storage unit. And it's clearly just junk. And he's talking to his son and he says to his son, “Someday son this will all be yours.” And this is the look on the son's face as he's looking at all this. You could have all of this stuff when you're alive but please get rid of it before you die because it's going to end up, you're just creating a real mess for whoever has to clean up your estate.

Yeah, very good. Anyway, all right next thing you put in here savings rate, and you talk a lot about savings rate in your book. And you wrote, “try saving and investing 50% of your income with no debt, this is perfectly doable.” And I'm assuming you meant 50% of your after tax income. You put down “the beauty of a high savings rate is twofold. You learn to live on less even as you have more to invest.” Yeah, so comment on a high savings rate and the extra benefit of a high savings rate.

J.L. Collins: So first of all, this is another thing that I get a lot of pushback on. I mean I've had people say that I don't put any credence in this book, The Simple Path To Wealth. You know he lost me the moment he said save 50%. Nobody can possibly save 50% of their income. So there is a contingent of people who come across that idea and just dismiss it out of hand as being impossible. By the same token, especially in the FIRE community, I have people routinely say to me “50% that's way too low. I save 60%, 70%,  80 %. I mean you're setting your sights way too low, J.L.”

So certainly 50% is absolutely doable. I've done it. There are lots of people who tell me that it's much too modest because they're doing a considerably larger percentage. It's just a matter of how you organize your life. And you know when I got out of college and I got my first professional job in the ‘70s I  was making ten thousand dollars a year and I thought to myself you know there are people out there living on five thousand dollars a year and there's no reason I can't do that. And that's what I did, and I had a perfectly good life doing it. Not as extravagant as some of my friends who are spending all their money. But I had a great young adulthood and then I invested the rest of it.

And then as my income grew and I was making twenty thousand now my lifestyle also doubled because I'm spending 10 and my investments doubled. So I think 50% for me is a sweet spot. But again, I get it from both directions that nobody can do that at all, and nobody should only save 50% they should be saving much more. So I'm caught in the middle.

Rick Ferri: Okay. So I'm going to deviate a little bit from this list and talk about how much is enough. So you're saving 50% and it's accumulating. You're putting it in index funds. It's growing. You're reaching this financial independence stage, but how much is that?

J. L. Collins: Well that's a very individual thing. So as you mentioned, when you're talking about the savings rates, one of the beauties of having a high savings rate, as you learned you're living on less and you figure out--at least I did-- that you can have a very enjoyable life. Let's say you're making a hundred thousand dollars a year and so you're spending fifty thousand dollars. You can have a very enjoyable life spending fifty thousand. I did back in those days and that also means that fifty thousand is now, if you want to continue having that same life, that's the amount of money you need in retirement.

And it's a whole lot easier, of course, to have enough money to generate fifty thousand than it is a hundred thousand. The basic formula is what's come to be known as the four percent rule which says if you have enough money that you can live on four percent of that drawn each year then you are financially independent. So if you have a million dollars and you can live on four percent, which is forty thousand, you have enough, you're financially independent. Or you turn the math around and you say I'm living on forty thousand, how much do I need? You multiply that by 25 you get a million. It's the same thing, So that's the basic formula.

Rick Ferri: Let me ask you about Social Security. I'm not taking it yet but you are there and you're married. So your wife is getting Social Security also, either on her own or a spousal benefit. I believe Social Security is going to be around for us who are at Medicare age and older, but a lot of young people have a belief that it won't be there. It's going to be non-existent, everything that we paid in is just going to be a tax, or it's going to get cut so considerably that I can't even factor it into my retirement program. I think that's a little overstated. How do you feel about younger people saying it's not going to be there, or it's not even going to be enough to make any difference in my retirement.

J. L. Collins: So I actually wrote a post about this a number of years ago and it's a chapter in the book. So my post had to be before 2016. And I would say the same thing today that I said in  that post, which is when I was young I also had no confidence that Social Security was going to be around and I invested my money assuming that it wouldn't be and if it was that it'd just be kind of a nice benefit. Well now I'm drawing Social Security as is my wife. And so obviously it is around and I'm surprised candidly at how generous it is, and you were never intended to live on Social Security by the way.

But we have a pretty modest life. We do a lot of traveling. If you pulled that travel off and we have a paid for house. We probably live on Social Security without a problem. So I'm kind of stunned by how generous it is in my retirement. My advice to young people would be--and I guess I'm kind of conservative in some ways--would be to do what I did, which is to invest assuming that it's not going to be around. But my bet would be that it will be in some format because doing away with Social Security would be such a politically difficult thing to do because old people vote.

Rick Ferri: Oh yes absolutely.

J. L. Collins: And the thing the politicians care about is keeping their position, their job.

Rick Ferri: They're just staying a politician

J. L. Collins: It's staying a politician and because those are pretty sweet gigs, and most politicians don't want to give them up--and if you start talking about doing away with Social Security or severely cutting it, even if that's the right fiscal thing to do for the country, you're going to lose your job.

Rick Ferri: Absolutely.

J. L. Collins: Or there's a high likelihood of it. So that's my guess, is somehow we're going to figure out how to keep Social Security going. So my advice is, hey assume it's not going to be there. My guess is like me, when the time comes you'll be pleasantly surprised.

Rick Ferri: I agree with what you just said and I believe that number one, at least for people who are, say over the age of 50, Social Security is not going away 

J. L. Collins: Oh absolutely, yeah.

Rick Ferri: It may change a little bit but not much. But there are just way too many people in this country who that's all they have is Social Security. So it's not going anywhere. But for younger people, if you want to calculate a 20% or 25% reduction in what you would get today, I think that's reasonable. But I work with a lot of young people and they put down zero, none. We're not going to get any. And I think that is a little unrealistic. You are going to get something. It may not be exactly the generous benefits that are given today and they are quite generous, as you said, especially if you have a spouse who doesn't have a work history and can get a spousal benefit.

It's kind of amazing. You look at it. I get my regular Social Security and my spouse who didn't work enough quarters to get it herself, she's going to get 50% of my full retirement amount when she hits full retirement age, and so where does this money come from. She didn't put any money in. I didn't put any extra in. Where does it come from? And so it comes from other people.

J.L Collins: If I can make one final comment, my--and this is probably going to be germane to the sort of people who'll be listening to this podcast-- and I think it's a little bit of bad news. My best guess is the way they will solve Social Security in the future is if you are wealthy they will take it away from you. And so the kind of people listening to a podcast like this and who read my book and what have you, they are probably going to wind up pretty wealthy when they retire because these approaches work.

And already, if you look at what Social Security, what they do with Social Security--and I feel this myself--if you have been successful in your life your Social Security is going to be taxed. So you're going to give back some of this money, that was your money that was put in. They're going to take, they're going to confiscate from you in the form of taxes. 

Your Medicare payment will be adjusted depending on your income. If you make more money, if you have been successful and you go into your retirement prosperous, you are going to pay a whole lot more for your Medicare, which is taken right out of your Social Security than otherwise. And I expect that that's the trend that will continue, and it could be very likely that people like you and me, thirty years from now hitting their retirement might indeed have no Social Security because the law being written in such a way that if you are too rich, quote-unquote, then we're just going to keep your benefit and distribute it to somebody else.

Rick Ferri: Well it already is a tax for many people, who are, let's say, reached the point with the amount of money they paid into Social Security, in the amount of years that they've paid in, where they're maxed out, because it doesn't matter how much you pay in, there's only a maximum amount that you can get out. It's like, forty two hundred dollars a month if you wait till age 70.

J.L. Collins: Now that's a good point.

Rick Ferri: So no matter how much you put in, after that it's not going to change how much you get out. And so it's just a tax on top after that.

So you're working on a new book, Pathfinders. I have to tell you, you have some great titles for books. Pathfinders is something I would just pick up and start reading because gee, I want to find my path. It's like the book, What Color Is Your Parachute, when you're looking for your career, right? It's like just the title attracts you to the book and you read the book because the title is so good. I think that Pathfinders is a great title. So I wish you luck. But tell us what's in Pathfinders.

J.L. Collins: So the subtitle of Pathfinders kind of answers that question. The subtitle being Extraordinary Stories Of People Like You On The Quest For Financial Independence. Ever since I started writing the blog, but even more so once The Simple Path To Wealth came out, people have shared with me their stories about how they've adapted the principles to their own unique situations and lives. And I wrote this book, as we mentioned earlier in the conversation, for my daughter. Now my daughter is an American and she's at the beginning, or was at the beginning, of her financial journey. And The Simple Path To Wealth kind of reflects that.

But most people who read that book are not at the beginning of their journey. They're not in college or about to come out. Most of them are in their twenties, thirties, fourties. They've already followed other investment ideas and paths. Or maybe they've gotten  themselves into debt or a lifestyle they need to unwind to proceed, to pursue financial independence. Many of them--I have an international readership--so I have a lot of readers who are not in the United States and who have different investments available to them and different kinds of investment vehicles. And I've always been fascinated at how all these diverse people with their unique situations have successfully taken the concepts in that book and made it work for them.

And so this has been an idea that has kind of tickled around in the back of my mind ever since I came out with The Simple Path To Wealth. And a year ago, a little better than a year ago a Harriman House, the publishers of Morgan Housel's book, The Psychology Of Money--a great book by the way--and they were the publishers of that. And they reached out to me about doing something, and we started kicking around an idea that was not quite as fleshed out as what I just described. It took us some time to get there. But then they were very helpful in that process, and so anyway we last year we came to terms. And in the spring I sent out a request on the blog to my readers and said, “Hey, we're putting this book together and if you have a story you want to share.” And we got a huge response.

Rick Ferri: I saw that post that you made asking for people to contact you.

J.L. Collins: Yeah. And we got a wonderful response and some incredible stories which we've then edited. And I think we've done a really good job of keeping their voice while editing it for space and content, what have you. And so it's a collection of just under a hundred of those stories. Interestingly, and I'm going to be putting up a couple blog posts come January--samples of these. We have a story from a guy in Ukraine that's about how do you stay the course on the simple path to wealth when your country's at war and it's been invaded. And we also have a story from a guy in Russia who's like how do you stay on the simple path to wealth and stay the course when your country’s become a pariah in the international community.

I'm going to publish those two stories separately as blog posts. Again because they've just--they're ripped out of the news, right. It's just incredible. And so yeah, that's what Pathfinders is all about. Pre-orders are going to be available in the very near future and I'll be announcing that. And then the book itself will come out in October of this coming year.

Rick Ferri: Well that's great. The book that I've been working on for a long time is called A Few Good Funds: The Majesty Of Simple Investing. And I break down the way in which you get to a simple portfolio as having the philosophy, which is what you write about in your book- low fee indexing, so forth--as having that low fee philosophy. But the second part of that is strategy, and what strategy is is using the philosophy, as you wrote in your book. How do you apply it to your situations, which sounds exactly about what this book is about, right? How do you create a strategy based on where you are and what you have available to you. Say the person in Russia, the person in Ukraine, they have very different things available to them than what we have available to us here in the United States. So how do you take the philosophy and apply it to your situation? And that is your strategy. And then the third thing is discipline, which is to stay the course. So those three things. Have the philosophy, come up with the strategy, and then stay the course. It's really going to be interesting to read that book because it's all about how each one of us has to come up with our own way, or our own path to get to where we need to go. But at least you have a North Star, a guiding light to follow this direction.

J. L. Collins: The other thing that I find inspirational about reading these stories is--we've talked about this a little bit earlier in our conversation--people who say it's just not possible. Normal people can't do this. And then you read these stories and you realize that it absolutely can be done. And you don't have to be a tech engineer to do it. People from very modest circumstances, from very difficult circumstances, are able to do this.

And so it just really drives home the point that there's no excuse other than you don't--you choose not to do it--and that's fine. I mean if you choose not to move towards financial independence, it's your life, it's your money and that's--I have no problem with that choice. If you tell me it's not possible to do it, I have a problem with that assertion because it's absolutely possible.  And I can guarantee that anybody who says it's not possible, there's somebody who has a much more difficult road than you who is currently doing it, or has done it.

Rick Ferri: So one last question. And this has to do with passing it on. We at the Bogleheads are very big on education as a non-profit organization. We are trying to educate people and a lot of times parents are trying to educate their children, or aunts and uncles are trying to educate their nieces and nephews. And they're trying to introduce them to this idea, and it's difficult right? Because they don't want to listen to you, or they have other things on their mind, or maybe they just bought Bitcoin and it went up five percent in one day and they sold it and this is how you make money. Or what. So as the reason, the whole purpose for your existence on the internet and with the books is to educate your daughter, who did not want to listen--after a while heard too much of it. Could you pass on some advice to the parents and the aunts and the uncles who are trying to help their younger generation understand this.

J.L. Collins: Oh, I don't feel like I'm qualified to do that because the whole reason that the blog and the books exist is because I did such a poor job of that myself. Now my daughter likes to tease me now. She says, “You know Dad, if I'd listened to you when I was young there'd be no blog. There'd be no books.” She's absolutely right. If I had been more skilled at delivering the message to her when she was young so she could listen to it without being turned off, then you and I wouldn't be having this conversation. I would not have started. I wouldn't have started the book.

So I guess my only advice would be don't do what I did, which was to push it too hard too fast. Yes, one of the things that's very gratifying to me and parents will tell me all the time that they are gifting The Simple Path To Wealth to their kids. And obviously I'm gratified by that. I don't know candidly how many of those kids wind up reading it. What's even more gratifying is when I hear from young people themselves who say that they have read the book and that it resonates with them. And you know you and I talked about how long it took us to come to indexing. Well I'm hearing from people in their late teens and twenties who have read my work and the work of other people, who are investing in their index funds now at that age. And I think to myself of all the decades I wasted-- sounds like the decades you wasted--sounds like probably a lot you listening to this--the huge advantage that it's going to be to these people coming out in their late teens or twenties, who embrace this stuff early and don't wander through the wilderness making the mistakes that I made so that's what's really gratifying when I hear that.

Rick Ferri: J.L., thank you so much for joining us on Bogleheads on Investing, and we greatly appreciate your insights and your stories.  And you're a wonderful writer and a great storyteller.

J.L. Collins: You're very kind. I appreciate it and I'm honored to have been asked, and it's been a lot of fun chatting with you today.

Rick Ferri: Well thank you very much and good luck with the new book coming out "Pathfinders".

J.L. Collins: Thank you.

Rick Ferri: This concludes this episode of Bogleheads on Investing. Join us each month as we interview a new guest on a new topic. In the meantime visit Boglecenter.net, Bogleheads.org, the Bogleheads Wiki, Boglehead's Twitter. Listen live each week to Bogleheads Live on Twitter Spaces, the Bogleheads Youtube channel, Bogleheads Facebook, Bogleheads Reddit.  Join one of your local Bogleheads chapters and get others to join. Thanks for listening.

About the author 

Rick Ferri

Investment adviser, analyst, author and industry consultant


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