The Long View: JL Collins - The Case for Simplicity

please stay tuned for important disclosure information at the conclusion of this episode hi and welcome to the longview i'm christine benz director of personal finance and retirement planning for morningstar and i'm jeff bettack chief ratings officer for morningstar research services our guest on the podcast today is author and blogger jl collins jl blogs about financial and other matters at jlcollinsnh.com his first book the simple path to wealth your roadmap to financial independence and a rich free life was published in 2016 and has been an international bestseller jl's latest book is how i lost money in real estate before it was fashionable that one came out in 2021 jl welcome to the longview thank you it's a pleasure to be here i appreciate the invitation well we're really happy to have you here today too we want to talk about your path to finding a simple path to wealth which is the title of your book how did you get started as an investor and how did you find your way to the minimalist investing path that you embraced today well that's that's kind of a loaded question there i i'll answer the second part first i i found my way to the path i espoused now by basically wandering in the wilderness for decades and making every conceivable mistake you can think of um i first started investing in 1975 actually and i had no idea what i was doing i had accumulated the princely sum of five thousand dollars and i was working in downtown chicago at the time and on my lunch hour one day i walked down michigan avenue to a brokerage office that i'd seen the storefront and walked in and i said i'd like to talk to somebody about buying some stock and they introduced me to the broker and uh he sat down and asked me what looking back on it now we're actually pretty good questions i i had no frame of reference to that point but he asked about risk tolerance and you know time horizons and all those those good things ask about and he put me in a southern company which was a uh utility serving the states in the south and uh in texaco which of course was an oil company that i think has since been been absorbed and we split the 5 000 and put in each of those two stocks and of course because i was a novice and didn't know what i was doing the moment those stocks moved and i honestly don't remember if they went up and i got greedy and grabbed the immediate profit or they went down and i got nervous and sold but i didn't hold on to them very long so mistake number one and what were the mistakes after that oh they're they're too numerous to name individually i guess but probably the biggest one is that it took me so long to embrace indexing there's an irony in that in 1975 was if i'm correct about this or close to it the year that jack bogle first brought out the first index fund at vanguard and of course i had no idea that he'd done that so i can't regret not doing something i didn't know about but i frequently think wow if i had known that and embraced it from the get-go how much easier my path would have been and how much further along i would have been on it at every stage but what i do blame myself for is a college buddy of mine in the mid-80s who was an analyst with duff and phelps introduced me to the concept of index funds and you know it took me a decade after that maybe a little longer to finally let it sink in it just and so it's it's there's an irony when i hear people arguing against index funds today it's my own voice i hear ringing in my ears because it's all the same arguments i made back in the day so that's probably my biggest mistake and so what was the breakthrough for you where you came to embrace indexing and minimalism i mean it sounds like it was a trial by error to a certain extent you probably became fatigued at making mistakes and sought an alternative but what was it about indexing and minimalism specifically that appealed to you at that time you know jeff there wasn't a road on damascus kind of moment it was more a slow gradual education i guess and understanding and one of the obstacles by the way is i actually achieved financial independence picking stocks and by extension picking mutual funds that were actively managed by stock pickers and so one of the problems for me at least with embracing indexing is it's not like what i was doing wasn't working it in retrospect was just much more effort and it wasn't working as well as indexing would have worked for me but it was still working if i'd been doing it and getting a negative result that in some fashion might have even been better because i would have been more willing to look at alternatives and more quick to change what was your career path prior to you becoming a financial blogger and what was the impetus for you to get started sharing what you had learned with a broader audience via your blog and your books what what were the things that made you want to communicate what you had learned well so the the first part of that i was in the magazine publishing business business to business magazines which of course have little or nothing to do with investing uh so investing was an avocation rather than a vocation for me what made me finally put this stuff down in the blog was i had tried very hard to introduce my daughter to these financial concepts but i tried too hard i pushed too hard too early i mean who knew that a four-year-old would want to go through the wall street journal with you but there you go and i turned her off to all of this stuff and i know that from experience not only my own but watching other people that if you get money right your life is far easier and more opportunities and rich and rewarding than if you don't get money right so it was just critically important to me that somehow i convey this information to her and finally i decided i better write it down against the day that she would be ready to receive it if i wasn't around and uh associate of mine said you know this is pretty interesting stuff i i shared it with him he said you might want to uh put this on a blog and share with your family and friends this was in 2011. and i had heard of blogs but i joked that the first blog post i ever read was the first one i wrote and uh but it sounded to me like a good idea to archive the information so as my daughter likes to tease me today says you know dad if i'd listened to you there'd be no blog there'd be no book i wanted to turn to recent times for a moment if i could and i'm curious whether there have been any aha moments so to speak for you with respect to financial matters during the pandemic period uh that's an interesting question jeff and i suppose it was more of a reinforcement i remember in 2020 i want to say around march when the market took its very short-lived but pretty dramatic plunge and my uh twitter feed began to find comments on the blog too began to fill up with people saying you know jl you're always saying stay the course and and uh you know don't panic and sell but this time is different you know this time it's it's a pandemic and my response was every market crash and market crashes in my view are something that are a normal part of the process you just have to learn to accept them if you're gonna if you're gonna be in the market and enjoy the long-term gains that it can provide you can't predict when they're going to come but anyway every market crash has something different and unique that triggers it and in my view the fact that it happened to be a pandemic while especially tragic because of the deaths it caused it was just one more kind of thing that can trigger a crash and of course i was proven right the market did bounce back and in stunningly uh short period of time which of course i had no idea that it was going to do and nobody else did either but i did know that the pandemic wasn't different than any other cause of any other crash it was just the reason du jour you alluded to indexing earlier and a key piece of advice that you given again and again is that people should start out by putting as much as they can into a total stock market index fund you usually reference vanguards and just call it a day and then maybe eventually add bond funds for ballast but what about something that's arguably even simpler or is simpler in my mind which is just to buy a target date fund and call it a day well first of all i agree with you it is simpler and i have a blog post on target date funds and i think i have a chapter in my book about them too i'm pretty sure i i have to look at that book again one of these days i included a chapter about them and the title of the blog post in the chapter is something along the lines of the simplest past the wall or what have you i'm not a huge fan of them because they are fun to funds and they own some funds that i wouldn't choose otherwise but you know there's some there's some subject matter topics that are just harder for some people to absorb than others insurance is a subject for instance that makes my eyes glaze over so i'm keenly aware of the fact that investing while i enjoy it is a subject that makes the eyes of a lot of people glaze over and i've written my book to be as simple as possible the simple path to wealth and one of the highest compliments i get from people is that wow you know i've tried to read a lot of finance books and finally reading yours this stuff makes sense so that's who i'm writing for that's my daughter basically who i'm writing for so anyway but i say you know if if you read my book or you try to read my book and your eyes are still glazing over and this is just not something you want to deal with then i think a target date fund is probably a pretty good solution but my book is pretty simple and it does seem to resonate with a lot of people who are otherwise disinterested in this stuff so if you can read my book and it makes sense you know the principles and approaches make sense then i think that's the better approach than target date funds but target date funds are are not a bad approach maybe to stick with target date funds for a minute if we could it sounds like maybe you feel like they overdo it a little bit not to put words in your mouth uh maybe just in terms of the number or type of exposures that are delivered through the funda fund structure could you elaborate a little bit on that things like if you had to draw it up wouldn't be a part of a target date fund because you don't really think that they're unnecessary or maybe the target date fund overdoes it in some cases yeah well for instance probably the biggest one of those kinds of things are the target date funds have international exposure and i'm not against international exposure but i just i don't see the need for it and again they're a fun to fund so some of those funds have higher expense ratios higher costs than simply a basic broad-based index fund so you're adding a little bit of extra cost and you're adding something that i don't at this point in our history i don't see a need for so i guess it would be the international stuff that's the i don't know the most obvious so just to follow up on that does that give you pause given that it seems like by most measures non-us stocks are inexpensive relative to u.s today you know i think when people say that what they overlook is the idea that it's not just the thing you are buying but it's where you're buying it so the fact that u.s stocks are more highly valued than stocks in other part of the world says something about the neighborhood those stocks live in so for instance there their article you can type into the internet and i've seen these articles on a regular basis of you know how much house does a million dollars buy in various parts of the united states and you know look at different locations in the united states and they'll show a picture of of a house you can buy in tennessee for a million dollars versus florida versus california versus new york and of course the house you get for that set price of money is dramatically different depending on where it's located so i think when people say international stocks are cheap uh compared to u.s stocks well that's true just like houses in tennessee are probably cheaper than they are in california but that's taking a little bit out of context because houses in california are in a different location than houses in tennessee and stocks in the u.s are in a different neighborhood than stocks in the rest of the world as much as you're a true believer in total stock market you've indicated that sometimes you feel a need to scratch an itch to buy an individual stock what kind of stocks are you attracted to and and how have you done with them well jeff that's i refer to that as as having the disease uh you know i i am as i think i alluded to earlier i used to be a stock picker and i in fact achieved financial independence doing that and there are few things in life that are more taxing than choosing a company buying the stock and being proven right and watching it go up that's a pretty addictive feeling and i i still have that addiction i haven't owned an individual stock oh probably since 2013 2014 something like that so i am sort of broken myself of the addiction and one of the reasons is that you know i look at it and i say well if i were going to buy an individual stock that you know i'm not going to put more than five percent of my net worth in it you know i'm not going to build a portfolio of these things because that's counter to my investment approach so i'd be just selecting one or two and because if i'm wrong i don't want it to move the needle too much of course the correlator of that if i'm right unless it's some huge gain or it's it's not going to move the needle very much otherwise to answer your question if i were to do it and again i haven't researched these but i am a big fan and very impressed with elon musk you know he just seems to be an incredible incredible guy in in what he's accomplished and depending on the price point and tesla i think has come down pretty dramatic recently i might be looking at something like tesla i'm also very impressed with zuckerberg i know a lot of people don't like him but when i listen to him being interviewed you know he strikes me as an incredibly bright incredibly thoughtful guy and i think that's another stock that's been beaten down recently and i imagine probably has some potential and of course both those stocks are they're not value stocks shall we say so they're kind of high flyers and i suppose if i were going to add some spice to my index funds i would want to look at that kind of thing but again i don't do it and the other thing is that i own facebook and tesla by virtue of my btsax if i can quick follow up on that i suppose given the success that you had in achieving financial independence through stock picking you could have made the choice to evangelize for the brand of stock picking that made you successful but you made a different choice can you just talk about you know how it is you concluded that the right path to try to lead people towards is sort of this more minimalist indexing centric approach that you you ultimately embraced well i think when when you look at the research and uh ever since index funds came index funds were not warmly received by the investment community primarily because the fees are so low and if you're an investment professional there's less opportunity to get a bigger part of the client's money out of them so there was a lot of pushback against index funds from the very beginning but then the longer they were around the more research about them came out and it just became more and more evident that it's very very difficult for a stock picker or a actively managed mutual fund to to outperform the index over time there's a certain percentage and i think it's like 20 or 25 percent that will outperform it on any given year but as you go out three years that percentage drops and by the time you go out 30 years there's less of one percent which is statistically zero so as jack bogle once said performance comes and goes but fees are forever and of course fees are one of the reasons that active management is at a disadvantaged index funds as well so um i've now forgotten your question jeff but maybe that answered it it did thank you what were your thoughts as you watched this whole meme stock phenomenon unfold over the past couple of years we saw all these younger investors jumping into the market but they were doing so by basically speculating in my opinion what were your thoughts when you were sort of watching that unfold well christine you and i share that opinion it i mean there's no question it was speculating and and of course i'm human so you know my first thought was wow i wish i'd bought gamestop six months before it it took off on its meteoric rise but of course i wouldn't have because i'm not a stockbreaker anymore and i'm not sure that's a stock that i would have been attracted to candidly at the time so my main thought was watching this is they're going to be a lot of tears for a lot of people there are going to be a few people uh who are going to make a lot of money which is always the case with speculation and of course the media is going to focus on those and it's going to sound like wow if only i'd gotten into that meme stock i would have made a lot of money it's the same reason i'm mentioned earlier that i'm in las vegas at the moment it's the same reason casinos have all the alarms go off when somebody hits it in the jackpot you know they the casino wants everybody in the casino to see people winning and uh but i think for most people it's going to end in tears it probably already has ended in tears and that's the case with with most speculations they'll make a handful of people rich and and the rest suffer so yeah i'm not a fan what's your view on how necessary mistakes are to ultimate success obviously it proved pivotal to the success that you've had here we have a category of investors that are clearly making mistakes and speculating in these junky stocks do you think the silver lining for them will be that it'll prove pivotal to their future success as it was to you or if not what sort of intervention do you think is needed to set them on the right path right so i imagine you know my father uh for instance when uh i remember when i was a child hearing that he had invested in some some stock based on a tip that he'd gotten and not surprisingly he lost money and he said man i'm never gonna do that again the stock market is you know it's it's just a way for you to lose money and i imagine that's gonna be the reaction a lot of these people who go into these meme stocks or or who just go into the stock market in general without taking the time to educate themselves and you know it's the the market will leave you bloody if you do that and most people are going to say wow that's a terrible thing that's just gambling i'm just i'm not going near that again so i think that's probably the reaction the good news is in this day and age there is so much great information out there about how to approach the market correctly and successfully and the right attitudes that you need to have to do that now as to whether people can learn you know i one of the things that i wrestle with in my own advice i've put it out there i started my blog in 2011 and since 2011 the market's done almost nothing but go up i mean there was the the pretty sharp drop during covet but that was over in a month or six weeks or something so there's a whole generation of people who've never experienced a crash and there are a lot of people who read my stuff and of course i talk about the wealth building power of stocks i hope they're also reading the part where i'm talking about you have to expect crashes uh crashes are a normal part of the process and you know it's very possible that one day you're gonna wake up and your stock portfolio is cut by forty or fifty percent and if you can't tolerate that and if you're going to panic and sell then you don't want to follow my advice because it will leave you bleeding by the side of the road now that's all easy to say and it's easy for people to understand in their head but it's a lot tougher to actually weather a bear market or or a crash when you're watching you're holding swindling value and i do sometimes wonder you know are the people who read my stuff going to be able to weather that crash just based on on having read about it or as i had to do are they going to have to panic and sell themselves and then sit on the sidewinds licking their wounds having locked in their losses while the market is as it always does turns around and goes back up i don't know the answer that question i hope they can learn just by reading you do counsel people to de-risk their portfolios as they get closer to retirement or whatever kind of goal that they're working toward so at what point do you suggest that people should add bonds to their portfolio what types of bonds how should they embark on that de-risking process to protect themselves against the kind of downdraft that you were just discussing so i write primarily for what's come to be known as the fire movement an acronym that stands for financial independence retire early i don't really like the retire early part of that because the people i know in this might quit their day job but they go on to do other productive things so basically in my world it's not a matter of age it's a matter of cash flow so when you're working and you have cash flowing in and if you're smart you're following my advice you're taking a significant portion of that and you're channeling it towards your investments that's what allows you to benefit from the volatility of the market because if you're putting money in on a regular basis as my daughter is as an example then when the market plunges well that's good for her because she's getting more shares for those same dollars she's buying them on sale so not only does she not have to worry about those market drops they can work in her favor in fact i say for young people the who are just starting out investing the best possible thing that could happen would be a major crash because now you're just buying things at a at a lower level but when you stop earning that cash flow and you decide to retire whether you're taking a sabbatical or you've come to the age where you're not going to work anymore then you need something else it seems to me to balance out the volatility of stocks and maybe to provide some dry powder to take advantage of the plunges and that's when i suggest that you add bonds to your portfolio but that could come when you're 30 if you've achieved financial independence as many people do and and you say okay i'm going to not work anymore for a while and well then you probably want to add some bonds to take the place of the cash flow that you used to have to smooth the ride and maybe five years later you wind up taking another job and then you cycle back out so it kind of depends on the phase of your life you're in at any given moment what are the shift and ask you about retirement income i think you've said that the four percent guideline can be a good starting point for people who want to decide if they've saved enough to be financially independent are you concerned that four percent could be too high in an era in which equity valuations are quite high and bond yields are so low you know i i think there's been a lot of hand-wringing about the four percent rule of late in the last few years and it kind of reminds me of a few hundred years ago theologians evidently were debating about how many angels could dance on the head of a pin i think the problem comes when people say four percent rule i think if you change that and said four percent guideline then you're good because you know four percent is not a hard and fast rule if you look at the trinity study of four percent withdrawal rate adjusters or inflation over 30 years is just one of the many scenarios that the study looked at it happened to be one that had a 96 success ratio and so it became very popular but the truth is when you look at that research four percent's very very conservative you know five six even seven percent uh withdrawal rates were successful on many of those occasions so i look at four percent rule and i say it's inherently conservative and by the way i don't mean to suggest anybody should start drawing seven percent from their portfolio at least not without looking at the trinity study so i think four percent is a pretty reasonable and fairly conservative number now having said that when i last hung up my my last corporate job i think my withdrawal rate was about five percent because my daughter was in college at the time and uh you know i was comfortable with five percent because looking at the trinity study five percent has an extraordinarily high success ratio but i was very careful to keep an eye on what the stock market was doing and fortunately for me during those years the wind was at my back as i mentioned earlier the market's done nothing but rise for the most part over the last decade and i benefited from that had the market turned around and plunged again then i would have adjusted that withdrawal rate in the heartbeat and so i don't think anybody would and certainly nobody should say i'm going to withdraw 4 or 3 for that matter and i'm going to just do that automatically and i'm never going to think about this again because there is a risk inherent in it you know the four percent rule even before the current environment you're describing did fail four percent of the time no connection to the two numbers uh so you're never going to want to do any percentage withdrawal and just set it and forget about it not only because you might run out of money but even more importantly and more likely your money is going to grow far beyond that withdrawal rate and if you don't pay any attention you can wind up 30 years later with a huge pile of money that you could have enjoyed along the way so you not only want to monitor it so you don't run out you want to monitor it so you get the maximum benefit from your holdings so one area where you run counter to the conventional wisdom is that you're not a big fan of dollar cost averaging you note that the market usually goes up so you're just better off getting that money to work in the market as soon as possible that makes sense for people with long time horizons but what about for people who are closer to drawdown or financial independence whatever you want to call it who do come into a large sum of money are they better off kind of dribbling it in over time to protect themselves against the risk of like plowing a bunch of money to work into the market at precisely the wrong time so christine first of all i let's let's and you've alluded to this already but let's be clear that when i was talking about my daughter and she's putting money in on a regular basis and that smooths the ride that's a form of dollar cost averaging and i'm very much in favor of that but the kind of dollar cost averaging you're asking about and and you did make this clear is what if you wind up with a lump sum of money for whatever reason and in that case is you correctly say i am not a fan my thinking about it is is this if you dollar cost average it's only going to work for you if for whatever period you choose to deploy that money the market goes down because if the market goes up that means that every additional amount of money you put in you're going to get fewer shares for that so let's say make the math easy you have a 120 000 that your rich uncle has left you and you say i don't want to take the risk of putting this hundred twenty thousand dollars in all at once because tomorrow might be the day the market crashes forty percent so i'm gonna break it up into ten thousand dollar chunks and i'm gonna invest it over over the next year well if the market goes up the second month you invest you're getting fewer shares for your ten thousand and the third fewer and fewer so you will wind up with a less good result at the end of the day by the same token if the market just stays flat your result will be less because it took you longer to put that money to work the only time that you benefit is if in fact the market drops whether it drops suddenly or or just drifts lower over that year then then it will work in your advantage so now we have to sit back and say well okay we have to make a choice you know which of those things is more likely is the market more likely to go up over this year i'm going to do it or is it more likely to go down well the market goes up three out of four years now to be clear it doesn't go up three years and then go down a year and then go up three years and down a year it's not that reliable but on average so you have 75 chance of doing less well with your dollar cost averaging against a 25 chance of maybe it working out for you so that's one of the core reasons i'm i'm not a fan of dollar cost averaging but here's the kicker let's suppose that you dollar cost average and maybe the market drifts up a little bit maybe it drifts down a little bit but at the end of the day you know you've got your 120 000 deployed and then the day after that is the day the market drops 40 percent my point being you haven't protected yourself from that drop you fear at all because the moment you're invested whether your dollar cost average in or you lump sum you are always at risk of the market dropping and as we talked about a little bit earlier nobody knows when these drops are coming if you're going to panic and sell you don't want to follow my advice you don't want to be in the market at all you have to be willing to accept the fact that at any given moment the money you have invested in stocks has the potential of dropping dramatically and so dollar cost averaging doesn't protect you from that at least not in the long term and you should be investing for the long term i wanted to shift over to real estate if we could i believe you said that one of your most popular and controversial posts is about why homes are almost always a bad investment can you sum up your thesis on that yeah that that is jeff that is the post that has been the most popular in terms of views it's the one that's garnered me the most hate and it's the one that's also garnered me the most love and of course it depends on the on the person who's reading it you know homeownership is the american religion as james altucher has said a number of years ago and and that's not an accident that's by design uh you know during the 1930s in the depression the the government made a concerted effort to help people get into homes because they were concerned about political unrest and the feeling was that if people owned their own home they'd be more settled they'd be less likely to to be restive and so there has long been a push in this country to to own your own your own home it is the american tradition and there are a lot of stories kind of like the meme stocks of people who who buy houses and and the house goes up dramatically and and they do very well and the media loves those stories they tend not to talk about the detroits of the world right so there are lots of times when people buy houses and you know if you bought a house uh 20 years ago in san francisco you have a great story about how you made a ton of money if you bought a house 20 years ago in detroit you probably have a very different story now 20 years from now it may be that if you bought a house in detroit that's maybe this is the new renaissance city and and you'll be the one who's done very well and maybe if you bought a house today in san francisco 20 years from now for some reason san francisco declines and becomes the next detroit i'm not predicting either of those things to be clear just as an example so anyway there are always times when houses can be made to look like the best thing that you've ever done but the truth is that houses more commonly don't rise in value much over inflation and sometimes they struggle to do that they are always a drain on your financial resources not just with a mortgage but with the taxes and with the maintenance people rarely buy a house without wanting to upgrade it so that's a new expense and tends to be a big one uh you know you're going to furnish it and you're probably most people when they buy a house are buying bigger space than what they were renting you know and all of those companies that supply those those things like furniture and realtors and mortgage companies and appliance companies all of these all these people have a motivation to maintain the idea that owning a house is the best possible thing you could do i'm not against home ownership i've owned houses most of my adult life but i view them as a lifestyle choice not an investment choice i view them as an expensive indulgence if you will and there's nothing wrong with indulgences that's one of the reasons we work hard and save and invest money but i think that if you are young and your goal is to achieve financial independence one of the key things you want to do is keep your your housing expenses as low as possible and with very rare exception renting is far more powerful than home ownership and your lower monthly costs in that apartment over owning that house with all the expenses that come with it invested in index funds over time will probably make you much wealthier so a counterpoint is that the fact is that homes are really illiquid so that keeps people from raiding them which is something that you can't say of liquid investment accounts can you talk about that i know you've talked about this in your blog about how homeownership might actually make sense for people who would otherwise have trouble saving you know christine to be honest i don't remember talking about that on my blog but you may have looked at the vlog more recently i did i saw it there but i do agree with that and my own uh parents were a good example of that i think i mentioned a little bit earlier in our conversation that my my dad had dabbled with stocks based on some tips and and he got burned and that was the end of that and when he died and he died at a fairly young age of emphysema he was a cigarette smoker the only asset he left behind was the paid off house and of course that was salvation for my mother so a great example of of just what you're talking about and from that point of view for somebody who lacks discipline or doesn't even think about it like my parents owning a house long term can wind up being a valuable asset now of course in today's world it's a lot easier to take the equity out of your house there's a lot of promotion designed to encourage people to do that so it's less of a slam dunk from that point of view but my bigger objection to it is that it's not a very effective financial way to build wealth my father would have done better had he learned about the stock market than just the house and i always cringe a little bit with strategies that involve compensating for people's psychological shortcomings uh rather than the dealing with those shortcomings so they can do better and so the shortcoming in this case is someone who lacks the discipline and maybe the knowledge to save and invest and so okay we'll put them in this underperforming asset just because they can't get out of it easily but on the other hand i realized that you know there are a lot of people who are in that situation and maybe don't have access to the information get out of it and home ownership for them like it was for my parents might turn out to be a great blessing as you point out sometimes people can get lucky in the property market but do you think that with today's rapidly accelerating home prices that new buyers are apt to be especially unlucky with their timing you know that chef is a question that pertains to us personally you know we our life is nomadic and um we have a little cottage on lake michigan but other than that at this point in our life we with our daughter off on our own we uh we don't own a house and and we spend our time uh wandering around which is a great lifestyle but as i'm getting older i'm thinking you know i really do need to figure out where i'm going to settle down for the final chapter so we have begun in our travels thinking well what about this place what about this place and should we buy here should we buy there and of course as you alluded to you know housing prices have just have just exploded on the upside over the last couple of years and so you know i'm faced with that very dilemma thinking you know am i about to buy in at the very peak and particularly seeing is we're we're probably most likely to build a house and that's a 12-month process so am i am i about to commit to a very expensive indulgence and not even have access to it for the next 12 months only the buying was time to move in its value has been cut in half like you know 708 so yeah i i don't know the answer if anybody does i'd love them to share it with me so sticking with real estate for a second longer you mentioned that you're active in the fire community which is the financial independence retire early group many of these folks and jeff and i have interviewed several of them on this podcast they focus on passive income generating passive income especially from property ownership to help fund their living expenses what's your thought on that strategy you know i used to own investment real estate when i was a younger man and in fact my my latest book which came out last fall is titled how i lost money in real estate before it was fashionable lost being the operative word it's the sad tale of the very first piece of real estate ever bought which was a condo in chicago and you know if somebody sat down and made up a list of all the potential mistakes you could make buying real estate it's like i went through that list and checked them all off before i signed the papers but from that it was also uh while it was it was a brutal experience and a financially uh tough it was great education and i went on to own property investment property and and did fairly well with it but i stepped away from it because it just was too much like work and it was not the kind of work that i personally enjoyed and so i don't see real estate as being passive and i know that people make the case well you know i can get a property manager and what have you but for anybody who's ever had a job where you're managing people you know that managing people is not passive and if you have a property manager you're going to have to manage the manager so i don't see real estate as being a passive investment i think it can be a great investment it can be very lucrative investment but in my world you know you need to think of it also as a part-time job and whether you you try to find a property manager you manage it yourself and so that's really the comparison you're making is is this a good investment not only a good way to deploy not only my money but a big chunk of my time and or at least some truck of my time whereas broad-based index fund is only deploying your money it takes virtually none of your time but for those people who enjoy real estate and it's the kind of work they like it's great a lot of your readers look to you to share wisdom on how they should approach their financial lives where do you look for wisdom on an ongoing basis are there any columnists authors thinkers who you especially appreciate i know you mentioned jack bogle earlier so we can cross him off the list who besides jack bogle well you know i i uh jack bogle is certainly before we cross him off the list let me just say he's uh he's a fiscal saint the investing world for the average uh investor is far far far better because of jack bogle and what he did and i'm old enough to have lived in that investing world before jack bogle and fortunately after jack bogle actually as we talked about earlier mr bulgal brought out his his first index fund the same year i started investing but that didn't benefit me for the reasons we discussed soon enough but anyway so i've experienced both and from an investor's point of view the world is a far better place for virtual what jack bogle has done so far and away number one the other thing is you know there is so much great information out there these days that wasn't available when i was first starting i in the very beginning of a conversation i mentioned that i found my way wandering in the wilderness basically but there's no reason for people to do that and i've started working on uh or thinking about a new post where i'm gonna list some of the the key books that i like um but some that come to mind as we're chatting here today the psychology of money by uh morgan housel which came out about a year ago with a great book and i and i think it's a great companion to my book in terms of very different than my book but they make great sort of bookends another one that also i see is a great end to my own is is a fairly new one by brian ferroldi called why stocks go up and uh for somebody who's brand new to the stock market and just trying to understand what this is and what our stocks and what are bonds and and what's the federal reserve and he just does a an incredible job of walking through and explaining this stuff and uh again i think a great companion to my own book if i can say it and it's a book by the way that'll sit on my desk going forward just as a reference because there are a lot of things that people say you know what's what's the federal reserve jl and i think well you know i kind of blunder around trying to explain that because i've never really thought about it well you know brian gives a very succinct explanation of what the federal reserve is uh certainly more so than i could do off the top my head and then they're quite like a millionaire with a christie shen's book a great inspirational book a lot of for the fire movement there's a lot of pushback and people say oh you know that's that's only for people making a big salary and we're born to privilege and and uh when you read christie's story uh of you know growing up in china under the communists you know and she's now a millionaire it's not just for people born of privilege another book along those lines as i'm thinking about it is one that's not out yet but i had the opportunity to uh to read because they asked me to write a blog for it there's a blog called rich and regular who they're written by julian and kirsten a an african-american couple and they're bringing out a book called cashing out and it's targeted specifically to african americans and i think with the idea that you know there is a sense in some quarters that this whole pursuing financial independence somehow isn't available to african americans and their book talks about why it is and how it is and uh does a great job and i think it's certainly a great book for african americans to read but a great book i would say for anybody who is thinking about following a path like this and is wondering gee is somebody with my background that you know doesn't feel like it's typical is could i really do this so uh that's another one as i say that's not out yet in this i'm thinking about books that i'm i'm reading that aren't out yet i just finished a book called taking stock by uh doc g who does the earn invest podcast and uh he was a hospice doctor and it's uh talking about not just investing but how to live your your life well uh and it's sort of lessons from the dying and you know how to have perspective on not only saving and investing which is important as i said earlier can make your life infinitely better but also not letting it take over your life and recognizing the other kinds of wealth that are available to us that are not financial so those are just some that i'm sure i'm missing some other great ones and my apologies to those authors but but there's so much great information out there that uh i wish it had been there in in 1975 when i started now this is a great list i'm taking notes as you're talking and i'm happy to say that we have a couple of these folks already booked on the podcast for the coming months just to close i wanted to get back to your simple path to wealth i think if people have been listening they've concluded buy total stock market index add bonds as you go along avoid homeownership what are a couple of the other key precepts that run through that simple path to wealth well i would just clarify i don't i don't say avoid home ownership as i say i've i've owned them for most of my adult life but don't buy them as an investment buy them when you can easily afford them and they provide a lifestyle that you're looking for for instance when you have children and and that sort of thing and then in in some of the talks i've given uh you know i'm famous for saying that my investment approach is pretty simple it's by vtsax which is vanguard's total stock market index fund so buy vtsax buy as much as you can whenever you can and hold forever spend less than you earn avoid debt and invest the difference and those are the three keys you can't become wealthy uh if you're carrying debt and you know that is i have a chapter in the book called the unacceptable burden you can't become wealthy if you spend every dime that comes into your possession or more accurately when people say you know jail that sounds like deprivation having to set aside money that i can't spend in order to invest and and in my view i've never seen it as deprivation i've seen it as buying something that's more important in fact i've come to say these days that i've spent every dime that has ever come into my possession and i spend it almost immediately it's just that i've spent at least half of those times over the years buying the thing that was most important to me and that's my freedom that's my time and you buy your freedom and your time by virtue of having investments so that's why i diverted 50 of my income over the years to my investments i was buying what was most important to me i was spending that money it's just that my freedom was more important to me than a fancy house or a fancy car or anything else actually so well jl this has been a terrific thought-provoking conversation thank you so much for taking time out of your schedule to be with us well again thank you for the invitation i've had uh had a lot of fun hanging out with you guys and the time flew by we enjoyed it too thank you so much thank you for joining us on the lawn view if you could please take a moment to subscribe to and rate the podcast on apple spotify or wherever you get your podcasts you can follow us on twitter at christineunderscorebenz and at s youth1 which is syouth and the number one george cassidy is our engineer for the podcast and kerry gretchek produces the show notes each week finally we'd love to get your feedback if you have a comment or guest idea please email us at the longview at morningstar.com until next time thanks for joining us [Music] this recording is for informational purposes only and should not be considered investment advice opinions expressed are as of the date of recording such opinions are subject to change the views and opinions of guests on this program are not necessarily those of morningstar inc and its affiliates morningstar and its affiliates are not affiliated with this guest or his or her business affiliates unless otherwise stated morningstar does not guarantee the accuracy or the completeness of the data presented herein jeff patak is an employee of morningstar research services llc morningstar research services is a subsidiary of morningstar inc and is registered with and governed by the u.s securities and exchange commission morningstar research services shall not be responsible for any trading decisions damages or other losses resulting from or related to the information data analyses or opinions or their use past performance is not a guarantee of future results all investments are subject to investment risk including possible loss of principal individuals should seriously consider if an investment is suitable for them by referencing their own financial position investment objectives and risk profile before making any investment decision [Music] you

Channel: Morningstar, Inc.

Views: 34,307

Keywords: morningstar, investing, stocks, funds, etfs

Id: BII4Pf0QQgE

Length: 53min 54sec (3234 seconds)

Published: Wed Apr 06 2022