‘The Simple Path To Wealth’ by J.L. Collins: Book Review

Introduction

In the realm of personal finance, where complexity is often considered an advanced strategy, J.L. Collins breaks the mold with his book, The Simple Path to Wealth. With a straightforward approach and a wealth of wisdom, Collins, also affectionately known as the ‘godfather of the FI movement’, guides readers on a journey toward financial independence and early retirement. In this review, I’ll explore the key insights of the book and summarize why it has become a cornerstone for those seeking financial freedom and one of my favorites.

Simplifying Investing

One of the most compelling aspects of Collins’ philosophy is its simplicity. He distills complex financial concepts into straightforward, actionable advice. Collins advocates for a straightforward investment strategy – investing in low-cost index funds, which provides broad exposure to the U.S. stock market. This simplicity is not only beginner-friendly but resonates with seasoned investors who recognize the power of keeping it simple.

The Simple Path To Wealth is the All-Weather Portfolio

Collins introduces readers to what he refers to as the “Simple Path to Wealth” – a strategy centered around the stock market. He discusses the concept of the All-Weather Portfolio, with the focus on using Vanguard’s VTSAX (Total Stock Market Index Fund) and VBTLX (Total Bond Market Index Fund) and emphasizing a long-term perspective and the importance of staying the course even during market downturns. This straightforward approach avoids the pitfalls many investors encounter, including chasing the hottest trend, timing the market, and the dreaded FOMO (Fear Of Missing Out) trade.  By promoting a buy-and-hold strategy, Collins aims to instill resilience in investors, helping them weather the storms of market volatility.

The FI/RE Movement and the 4% Rule

Financial Independence, Retire Early (FI/RE) is a movement that has gained momentum over the past 15 years or so, and Collins is a vocal proponent. He describes the 4% rule, a guideline established by the Trinity Study suggesting that one can safely withdraw 4% of their investment portfolio annually without depleting it prematurely. This rule is a cornerstone for those aiming to achieve financial independence and retire early. Collins not only explains the mechanics of the rule but also delves into the psychological aspects of early retirement, preparing readers for the mental shifts required to embrace this lifestyle.

Avoiding the Pitfalls

Beyond investment advice, Collins dedicates a significant portion of the book to addressing common pitfalls and behavioral biases that can hinder financial success. The book originated to provide his daughter financial guidance so a large part is him passing on his successes and failures from his decades of investing and saving.  From the allure of market timing to the dangers of trying to beat the market through active management, Collins provides a candid and critical examination of these pitfalls. This approach is invaluable, especially for those prone to emotional decision-making.

The Power of F-You Money

One of the standout concepts in the book is the idea of “F-You Money.” Collins argues that achieving financial independence isn’t just about retiring early; it’s about gaining the freedom to make choices based on your values and desires, without being beholden to financial constraints. This perspective empowers readers to envision a life where work is a choice rather than a necessity.

The Dividend Growth Investing Connection

I have been on the FI/RE journey for multiple years.  My goal is to retire early in about 8 years from now.  I can’t imagine working for wages until the standard retirement age and am actively investing to give myself the flexibility and options to stop working early.  Reading The Simple Path To Wealth was a breakthrough for me that retirement was not an age but a number.  I have decided to take a different approach than what is described in this book, I am striving for FI/RE with dividends instead.  

By using dividends to pay for my retirement, I do not have to worry about selling down my assets in retirement a la the 4% Rule, I can maintain my account balance and just use the dividends to cover my expenses.  Getting a 4% dividend yield that grows with inflation each year will afford me the income that is described in the book, but I will still maintain and grow my asset base as well, without having to worry about market fluctuations and sequence of returns risks.  I have detailed my plans in this video on my YouTube channel and in this previous blog post.

Conclusion

The Simple Path to Wealth by J.L. Collins is one of the best financial books written and should be a staple of all investors and those who are interested in financial independence. With its clear, no-nonsense approach, the book resonates with a broad audience, from those just starting on their financial journey to seasoned investors seeking to simplify their strategies. By emphasizing the power of index fund investing, a long-term mindset, and the pursuit of financial independence, Collins provides readers with not just a guide to wealth-building but a roadmap to a more liberated and intentional life.