Book Review: The Simple Path to Wealth
Feb 25, 2018
Being better with your dosh is all about education. You can sit down with your bank and they will educate you, that’s a surety, but is it the type of education you should be seeking out? Although I spent many years getting qualified for all sorts of random things, getting qualified to be good with money was never one of them. That is a fact that most of you reading this can relate to, of that I am certain. “Thank goodness for Google” is all I can say because it has lead me down a pathway/rabbit warren of learning that I never could have anticipated.
I spoke to Ronnie for my podcast (10. How come I’m not rich?) and I loved it when she said that she was fed up with struggling with money so she simply googled “I want to be rich” and this whole new world opened up on the screen in front of her and she began the long process of completely reinventing her financial world view. Well, for me, I’ve been on that track for a while now and every day I am reading and listening to a huge range of opinions about PF. I follow blogs, I listen to podcasts, I check out websites, I read books and most importantly I try to connect with people who have a different view to my own. It all adds to my knowledge base and that’s why at the bottom of every email I send out on a Sunday I always offer a few links to things I have been enjoying listening to or reading.
So, this week I wanted to share with you a book I’ve been reading from a writer I have followed for a while.
I like this quote which he had near the end of his book, but it’s one I would like to begin with:
““If you decide to pursue financial freedom you are going to have to choose to spend your money on investments. Somehow in our culture this has come to be seen by most people as deprivation. That has never made much sense to me. Personally, there is nothing I’d rather buy or own than F-You money. With it, the world’s possibilities are endless and you are faced with the delicious decision as to what to do with your freedom. The only limits are your imagination and your fears.””
I can’t recall when I first heard about JL Collins but when he was interviewed on the podcast Choose FI (019) JL Collins The Stock Series Part 1 I sat up and took notice. Because I read, listen and learn widely my journey with investing has been filled with ‘noise’ from all quarters:
“You should buy rental property”
“Buy shares in company XYZ”
“Don’t trust the share market”
“Trust the share market”
“Start flipping credit cards”
“Life is short, just go shopping”
It was difficult to be certain of my investing path in the early days but listening to things like this podcast gave me a lot of ‘ah-ha’ moments where he confirmed many of the things I had come to believe. Because, that’s the thing, I had actually absorbed the view that investing in order to become a millionaire was simply not an option for me as I thought I didn’t have the training, education of knowledge to pick the correct path. But I do.
Reading this book and then combining that knowledge with everything else I’m picking up actually makes me relax and feel more confident that I’m on the right track. A small fry like me can invest well AND prosper as long as I stick to the simple path:
Avoid Debt > Spend less than I earn > Invest the surplus
The author JL Collins (Jim) originally wrote a series of blogs that he called the “Stock Series”, a group of articles where he outlined what he called his “Simple Path to Wealth”. This was aimed at his daughter, a young woman who he was desperate to share his financial wisdom with (much like me with my own daughter) in the hope that she made good choices BUT he came to realise, because she told him, that she was just not interested in the complexities of investing AT ALL. Zero interest! But she said to him that although she understood the importance of what he had been harping on about all of these years, she just didn’t want to have to think constantly about it, she just had far better things to do with her time thanks Dad! So his goal was to give her information and actionable advice as quickly and clearly as possible in a language she would understand. Simple.
Because he knew that if you can get yourself set up right for investing early, then you are set for life. Thankfully his daughter appears to have listened and now she just buys into a particular fund each month (VTSAX) and otherwise pays no attention to it. He tells her that if she holds this for a couple of decades she will outperform every other investor. Guaranteed.
I like his chatty style, the book is not a boring read on investing, it is written for people who don’t care much about investing, but still want to build wealth. There are parts of it which are specific to the American market but he knows he has a global audience so advises you which chapter to skip forward to. He also covers off bond investing and breaks it into chunks that get progressively more in depth - but advises you to skip forward just as soon as you get bored because he provides that detail for the boffins who are reading, the rest of us can skip ahead! Almost all of the information within it is applicable to the New Zealand market, except for when he is talking about taxes and retirement accounts which are unique to America.
He eloquently explains why investing in shares is not gambling, you are instead buying an ownership percentage of a company and that company is working to succeed and all of those people working within it are working to make a profit to share with investors.
But he is also clear in saying that none of us are the genius stock picker that Warren Buffett is and we should not even try to pick winners because we might succeed occasionally, but mostly we will fail. Rather his advice is to own a cross section of companies and you can do this by buying a broad based Index Fund.
And he explains that the beauty of index investing is that we don’t have to care about the details of each business because we own every company and every company is trying their absolute hardest. Remember that the index is made up of actual companies creating employment and products in an effort to make a profit. But still, some will fly and some will flop (remember that Kodak used to be mega huge, but where are they now?) but the thing is when you own them all the index is self cleansing and if they fall off the index they will be replaced by an up and coming company. Some companies will go broke and you lose 100% but a company on the up and up has no upside limit to its growth, 100%, 500%...
Mr Collins himself wasted not just years but decades trying to guess the market by buying and selling and he actively resisted the idea of Index Funds when he says he should have followed the advice he is giving you and I now! And his advice is to buy over your lifetime and enjoy the ride, because there are going to be peaks where everything is roses and lows when the market drops 50% or more. He shows great examples about how to be resilient and enjoy the ride and shows why investing in Index Funds will reward you for your patience. And he also teaches you how to remain calm and stay the course when the stock market plunges; because it will always recover, it always has, and it will go up again. The market always goes up over the long term.
He takes you through the wealth accumulation phase of life and then on into the wealth preservation phase and how you can start to withdraw and spend in your retirement. Throughout the book he weaves personal stories, backed by math, to emphasise his point and although he goes into detail it really does just help to hammer home the message of that fact that he made many mistakes, so we don’t have to do the same. At any stage or age of your financial journey you can tap into the knowledge in this book.
With my investing I was constantly aware to look for fish hooks, people trying to rip me off, people giving me dud advice, trying an investment only to discover it was a really dumb idea and I should have just lit a bonfire with my money instead. I wish I had found this book ten years ago because it does give a simple road map to follow and today I am investing in two ETFs via Smartshares: the US500 and the NZ Top 50. And I’m taking his advice, investing on a monthly basis no matter what the market is doing. His book of course follows his Stock Series that you can find on his website, but it makes it a far easier read when packaged into a book.
I really recommend tracking down this book and reading it and for my local readers you are welcome to lend my copy!
The Simple Path to Wealth GIVEAWAY...
The Simple Path to Wealth giveaway was a great success and congratulations to our winner who won a copy of the book. Thank you to all my subscribers who entered.
The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life
