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Speaker 1

00:00

Please welcome J.L. Collins. Thank you. Welcome.

Speaker 1

00:20

Welcome. So, my first question for you, the title of your book is The Simple Path to Wealth.

Speaker 2

00:28

It is.

Speaker 1

00:29

And It's a roadmap to financial independence and a rich, free life. So what does wealth mean to you, and how is it tied to a free life?

Speaker 2

00:39

Well, I suppose we could look at that in 2 different directions. So if we think about the psychological part of it, To me personally, what wealth represents is security and freedom. So security to protect you from what the world can throw at you and freedom to chart your own path in a way that you couldn't do without the resource.

Speaker 2

01:02

On the financial point of view, I suppose, when I think about what the benchmarks are for are you wealthy or not, have you achieved financial independence or not, what has come to be called the 4% rule is a good guideline. That comes out of a thing called the Trinity Study. And without belaboring that point, it simply suggests that if you have enough assets that

Speaker 1

01:28

4%

Speaker 2

01:29

of that amount can cover your annual expenses, you can consider yourself financially independent. So you can work at it from 2 different directions. You could say, well, I have a million dollars, so

Speaker 1

01:40

4%

Speaker 2

01:41

of that is $40, 000. Can I live on $40, 000 a year or not? And therein lies the answer to your question.

Speaker 2

01:47

Or you can look at it from the other direction. You can say, you know, I need

Speaker 1

01:51

$40, 000

Speaker 2

01:53

to live on, so how much do I need to be financially independent? You multiply 40, 000 by, as it happens, 25. You get a million dollars and there's your answer.

Speaker 2

02:03

So it really depends on what your needs are.

Speaker 1

02:07

And why is it important to keep the path simple? I think there are a lot of folks tuning in or folks in the audience who have read financial independence books and maybe their eyes roll back in their head because they just can't make sense of it all. So why is it important to keep it simple?

Speaker 2

02:22

Well that's 1 good reason. But the reason that I prefer keeping it simple is simple is simply more powerful. Simple is what gets you the best results.

Speaker 2

02:34

And in this case, when I talk about simplicity, I'm talking about index funds and specifically broad-based stock and then bond index funds when you bring them into it. There are a lot of reasons that simplicity is an advantage. It keeps your costs low. It keeps your life simpler.

Speaker 2

02:51

It makes things, when the time comes, easier on your heirs. But the most important thing is it is the most powerful way to reach financial independence. People who come to my blog are always, I get 2 kinds of readers on my blog. People who are really into this stuff, and they always want to tinker.

Speaker 2

03:10

And that's not who I'm really writing for. I'm writing for people like my daughter, who knows that it's important, But she has other things that she'd rather do with her life than fixate on finances and investing. And so when you have a simple path, you can just get a couple of things right. You'll have a very powerful performance.

Speaker 2

03:29

You will outperform the vast majority of professionals out there. And I'm fond of saying to those people who want to tinker, if I thought there was a way to successfully tinker and do better, then that's what I would have written the book about. And in fact, I wasted a couple of decades trying to find that.

Speaker 1

03:48

So you have a blog, JLCollinsNH.com. If folks are interested in your content, should they begin with your blog or your book?

Speaker 2

04:00

Well, I would suggest that if you don't know anything about me or this concept, I would go first to the blog. And I would go to, there's a button at the top called Stock Series, and the blog is best known for my stock series of posts. And when you click on that button, it will take you to an introduction.

Speaker 2

04:20

And in that introduction is a link to what I think is the best review of my stock series that's been done. And not best because it's most favorable, but in my view, most accurate. So you can click over to that and read that brief review. And after reading it, you'll know very clearly whether this is going to resonate with you or not, and whether it's worth your time.

Speaker 2

04:40

So I'd start there. And then I would read a couple of the posts. And then If you like what you read, you can consider going on to the book. There is nothing in the book that's not in the blog.

Speaker 2

04:52

So you can get all the information just by staying on the blog. The book is more concise. It's better organized, because the posts in the blog came organically as they occurred to me or were suggested. And the book has the advantage of being better organized.

Speaker 2

05:07

It's more concise. And I spent more time polishing the writing. So I hope that the writing is more polished. But I'll let you make a judge of that.

Speaker 1

05:16

Got it. And thinking back to the early days of your own investment history, how did you learn all this stuff? How did you learn to invest?

Speaker 2

05:26

Well, I did it the hard way. I mean, trial and error. I spent, as I alluded to earlier, decades trying to do things that were not.

Speaker 2

05:43

What's seductive about this is that they were subpar, but not bad performance. I tell people that long before I discovered or embraced index investing, I had reached financial independence. So I reached financial independence by picking stocks and picking mutual fund managers, active managers, who could pick stocks or thought they could pick stocks So it can be done the problem with it is it's more expensive. It's more time-consuming It's not as effective as indexing so I would have been much better off if I discovered indexing earlier The great irony is the Jack Bogle who was the founder of Vanguard and the inventor of the first index fund available to the public, launched that fund in

Speaker 1

06:28

1975. 1975

Speaker 2

06:31

was the first year I started investing. I'd never heard of Jack Bogle or Vanguard or index funds when I started. It was 10 years before I heard of them.

Speaker 2

06:41

And then it took me a disturbingly long time to embrace it. And so I went down, and some people say, how do you know all this stuff? And it's, well, because I made just about it. If you can think of a mistake you can make in investing, I've probably made it.

Speaker 2

06:58

So to the extent that I know anything, it's from my mistakes.

Speaker 1

07:01

So speaking of mistakes, what do you think was working in your favor versus working against you as you were trying to figure this out on your own?

Speaker 2

07:09

Well, I think the main thing that was working against me at the time and that is working against Everybody listening to this is there is a large industry, Wall Street, whose drumbeat is counter to our best interests, and that is based on making this as complex as possible, putting out a siren song that you too can be Warren Buffett, you too can pick stocks, you too can outperform the indexes, only if you're willing to pay us for the privilege. And that's a very seductive message because everybody wants to think that they can be above average and outperform.

Speaker 3

07:51

But it's-

Speaker 1

07:52

You're in a room full of above average people.

Speaker 2

07:54

Well, right. But maybe not in investing.

Speaker 1

07:57

Okay.

Speaker 2

08:00

Now, the irony is if you invest in index funds and of course the slam that active managers put against index Investing is that you will only get average returns That's a little bit misleading because yes the index gives you the return of the market overall, but that return is far above average. Index investing, based on the research that has been done, outperforms depending on what numbers you look at, 80 to 85 percent of active managers over a 15-year period of time. If you research out 30 years, the number of active managers who can outperform the index is less than

Speaker 1

08:43

1%.

Speaker 2

08:45

That's statistically 0. So when you invest in the index and you're getting the average performance of the market, you're actually getting the best performance that you can expect by a long shot.

Speaker 1

09:00

Gotcha. And so what was working in your favor?

Speaker 2

09:05

I think what was working in my favor is I continued being curious, and I continued trying different things, and I continued researching. And indexing, which was first put in front of me in 1985 by a good friend of mine, there's something about it that is very counterintuitive. And I think particularly for smart people like the people in this room and the people listening.

Speaker 2

09:29

Because you look at it and you say, well, indexing says I buy every stock in the index. And yet, if I can only just not buy the obvious dogs, I'll outperform. I mean, outperforming seems like it should be so simple, But the problem with that, or even if I just buy the top performers and not even buy the mediocre or the low-performing ones, you know, obviously I'm gonna outperform. And yet you look at that research that says that doesn't happen.

Speaker 2

09:59

And of course The reason it doesn't happen is today's dogs are sometimes tomorrow's great turnaround success stories. And those that are flying high are the stories of how they crash and burn. So there is no way to know what is going to happen with specific stocks. And it is just way too easy to guess wrong.

Speaker 1

10:20

Got it. So 1 thing that struck me about your blog and your book is how specific the advice is. So in other books or websites I've tried reading in the past, The advice was always really vague, like invest in mutual funds.

Speaker 1

10:35

And it would leave me thinking, well, which 1 and how much? So why do you think other authors' advice is not very specific?

Speaker 2

10:45

Well, I'm not sure I can answer that because I can't put myself in the heads of other people. Maybe I can answer it by telling you why my advice is what it is. That's because I didn't write this blog to have the international audience that I have today.

Speaker 2

11:02

It never occurred to me that that would happen. I had started actually writing a series of letters to my daughter about financial things I wanted her to know. And I shared it with a business colleague of mine. He said, you know, Jim, this is kind of interesting stuff.

Speaker 2

11:16

You might want to share it with your friends and family, and a blog would be a good way to do that. And this is in

Speaker 1

11:22

2011.

Speaker 2

11:24

I like the idea of a blog because it occurred to me that it would be a great way to archive the information. But I didn't have a plan to create a blog as a business or as a successful way to reach a broader audience. It was just to archive the information I wanted my daughter to know.

Speaker 2

11:42

And that was basically what mistakes I've made, what's worked, what's kicked me in the ass, and what I think specifically she should do. And so I think that's why my advice is so specific. These are the things that I'm doing now. These are the things I wish I had done in 1975, or at least in 1985 when I became aware of indexing.

Speaker 2

12:06

These are the things that I want her to do and that I've got her started doing. So that's maybe why my advice is more specific than others.

Speaker 1

12:16

Okay. Yeah, I can't tell you how many times I've talked with a friend about how I'm on this new track where I'm investing. And they say, well, what are you doing? And I just send them 1 sentence of exactly what I'm doing, and that's what I read in your book.

Speaker 1

12:30

And they're like, that's it? And I'm like, that's it. That's all I'm doing. So aside from telling them to open their computer, start it up, and what clicks to make to log into their account, it's such simple advice.

Speaker 2

12:41

You know, I was, it was a year and a half, 2 years ago. I was interviewed by Farnoosh Tarabi on her podcast, and I don't know if anybody's listened to her podcast, but at the end of her interview, she likes to ask a question that says, if you were suddenly given $100 million, what would you do? And the typical kinds of answers she gets is, well, I'd buy this, that.

Speaker 2

13:06

I'd give this money away, I'd do that. And of course, she's interviewing me. We're talking about index fund investing, and specifically VTSAX, which is Vanguard's total stock market index fund, and the 1 I recommend the most and love the best. So when she got to that question, well Jim, you've got $100 million, what would you do?

Speaker 2

13:25

I'd put it in VTSAX. And she was, really, that's what you'd do?

Speaker 1

13:31

Nice. So 1 of my favorite posts on your blog is called, Why Your House is a Terrible Investment. And I know you got a lot of feedback from your readers about this.

Speaker 2

13:43

Yeah, feedback's 1 way to say

Speaker 1

13:44

it. So why do you think this post is so controversial? Why do your readers get so excited about this post?

Speaker 2

13:54

You know, somebody, not me, but somebody said, home ownership is the American religion. And you could go to Daly Plaza in downtown Chicago and you could set up your little soapbox and you could climb up on it and pick any major religious leader and begin to vilify that individual, Jesus Christ, Mohammed, Buddha, whoever, just vilify them in the most horrific terms possible, and people would just turn around and walk away. I mean, they'd ignore you.

Speaker 2

14:30

You get up on that same box and suggest that home ownership isn't the perfect thing for everybody to do and they start gathering rocks. So I think it's polarizing and the people who love their homes and love the idea of owning a home, that gets that response. And then there's another segment of people who don't like owning homes and see value in renting, and they muster to the cause. And that's what makes that post, to my surprise, because I kind of did it tongue-in-cheek.

Speaker 2

15:04

And I, by the way, I'm not anti home ownership. I've owned homes most of my life. I am anti believing the propaganda that it is always or even commonly a good financial decision. It can be a great lifestyle decision, and that's why I bought the houses I bought over the years.

Speaker 2

15:22

But I never once bought them thinking I was doing something that was financially astute. Because unless you happen to get lucky with a rising market, and that does happen, it's generally not the best thing you can do with your money if financial independence is your goal.

Speaker 1

15:39

And so for the person who's at the point where they're considering buying their first home or condo, What considerations would you advise them to make before they do that?

Speaker 2

15:49

Well, I think the first thing along the lines with what I just said was to understand that you are not making an investment. You're making a lifestyle decision. I, In my manifesto on my blog, 1 of the things that I say is something to the effect of All of our decisions don't have to be driven by financial considerations, but you should always understand the financial dynamic of what you're choosing to do.

Speaker 2

16:18

And I have a post about buy versus rent, run the numbers, which talks you through how to do that. So I would suggest if you're renting now and you're thinking of going into a house or a condo, that you first run the numbers and find out exactly what it's going to mean financially. And it might be that it's going to be less expensive than what you're renting. That's possible.

Speaker 2

16:40

That does happen. More commonly, you're going to find that it's going to be more expensive. But then you know. And just because it's more expensive doesn't mean that you don't have to buy the house.

Speaker 2

16:52

It just means that you understand what you're paying for the lifestyle decision that you're making.

Speaker 1

16:59

And that was 1 of the first conversations we had at the Chautauqua, I wanted to tell you a story about how I frequently get asked, like, Rach, are you going to buy a place in Chicago? And I say, well, I read J.L. Collins' book, and I'm cool with renting for now.

Speaker 1

17:14

And I told you a story about how my refrigerator broke right before I came to Ecuador and just called my landlord and said, need a new fridge. See you later. I'm going to go on a down. So other than this post called, Why Your House Is a Terrible Investment, is there any other post on your blog that's generated a lot of feedback or controversy from your readers?

Speaker 2

17:35

Well, that's the 1 that's generated the most controversy, because it's such a hot-button topic. Less controversial, But very popular, probably the 2 that are most popular is How I Failed My Daughter and A Simple Path to Wealth. And that was 1 of my earliest posts.

Speaker 2

17:55

And in that 1 post, I kind of sum up the whole content of the blog and the book. So that's popular. Why you need FU money is probably at least as popular. And from the reaction of the audience, I gather we have people who agree with that.

Speaker 1

18:15

There's a famous video on YouTube called The Importance of FU Money. So for those of you who haven't seen it, write it down. Put your headphones on at your desk.

Speaker 2

18:26

Yeah, it's not suitable for work. So just a quick aside on that, if I may. There's a movie called The Gambler, which is not a particularly good movie, so I'm not recommending the movie.

Speaker 2

18:40

But there is a wonderful segment. It stars John Goodman, who's a wonderful actor. And there's a wonderful segment, a little piece in that movie, and you can Google that and find this clip where John Goodman is talking to Mark Wahlberg about the importance of having F.U. Money.

Speaker 2

19:01

And when I saw that clip, I thought, I want to do a version of that. I want to keep it as close to the original as I can, but tweak it so it reflects my values. He talks about buying a house, for instance, and we've talked about that. But my problem is I didn't know anybody who could make the film.

Speaker 2

19:21

But 1 of the wonderful things about Chautauqua, which is where you and I met, is that you meet really cool, interesting people who come to Chautauqua, including a couple of years ago, a pair of filmmakers who were less than an hour from where we were living at the time. And they came up. And I give you all this background because if you choose to watch this, it's filled with salty language that I don't use every day. I'm acting.

Speaker 2

19:46

I'm trying to channel John Goodman, and he uses the same language. And if you like it, you think I do a good job in it, the credit goes to my filmmakers, Joan and Terrell Ondrauna, drawing a blank on his name. But it's if you go to my blog and you do the search function you'll find it and you'll see who they their credit is given.

Speaker 1

20:14

So we're in the beginning of 2018 and this is a good time for folks who are trying to get their financial house in order to maybe come up with a 2018 plan, 2018 and beyond. And the amount of investment options is confusing and overwhelming. So I know a lot of folks who are maxing out their 401k, because that's very sound advice, we get the full match.

Speaker 1

20:38

They might also have an emergency savings fund, but beyond those 2 things, they don't know what to do with what's left over. And they're just keeping their money in savings or checking. Or maybe they're outsourcing the management of their money to someone else. So for the folks who don't feel confident investing beyond just the 401k match, and they're just keeping their money maybe in savings or checking, how should they begin to make sense of all these different options?

Speaker 1

21:05

How would you advise them to get started?

Speaker 2

21:08

Well, in a way, this circles back to the advantage of things being simple. So if you have a visual image, let's say, of a long banquet table that is just groaning under the weight of every kind of food and preparation and dish you can possibly imagine, think of that image as what the financial community has laid out for us and that they want us to partake in. The problem is these are all very expensive things that are, for the most part, designed for the people who have created them and who sell them to enrich them, not necessarily what's best for us.

Speaker 2

21:50

That's the bad news. The good news is you can put your arm down on that table at 1 end, except for a tiny little corner, and sweep it all under the floor Because none of that matters. Only a very small sliver of what out there really matters for us in building our wealth. That's index funds, and that's very specifically broad-based Stock index funds and broad-based bond index funds.

Speaker 2

22:19

I mentioned the 1 that I like the best is VTS ax which is Vanguard's total stock market index fund More common and the original fund Jack Bogle created is the S&P 500 index fund. That's perfectly acceptable and the 2 are surprisingly close. So sometimes people get hung up on deciding between them. If you actually have access to 1 and not the other, Go for which either 1 you have.

Speaker 2

22:48

And then there are total bond market funds. That's with those 2 tools, that's all you really need. It gets a little complex with 401K plans and 403B plans for people who are not in the private sector, because they don't always offer those particular Vanguard funds that I prefer. Most plans offer some kind of broad-based stock index, usually an equivalent of an S&P 500.

Speaker 2

23:18

It might not come from Vanguard, which is my preferred company, but an S&P 500 index fund is pretty much the same no matter who's providing it. Fidelity or T. Rowe price, those are all fine options.

Speaker 1

23:33

OK. And so if someone wanted to get started this year and they wanted to take a look at some index funds, but they also know that there are HSAs, 529 plans, how would you recommend they get started? Like maybe if 2018 was just gonna be a simple year, what would your advice be if they're feeling overwhelmed by all the different places they could put their money?

Speaker 2

23:59

Well I think if you're really starting from ground 0, and you really do not have any base of knowledge on this, and that's not a bad thing. That can be an advantage, because at least it means you don't have bad knowledge, and there's a lot of bad information out there. So if you're at that ground 0 level, don't feel bad about it.

Speaker 2

24:19

That's an advantage in some, there's nothing you have to unlearn. At the risk of touting my own book and my own blog, I would go there and do a little bit of reading and do a little bit of learning. So 1 thing in the way you phrased the question that people need to be clear about, and this is something that I come across a lot, is to say, well, I want to invest in my 401k, or I want to invest in my IRA, or I want to invest in VTSAX. Well, you're conflating investments with what I come to call buckets.

Speaker 2

24:53

So a 401k is not an investment. An IRA is not an investment. A TSP plan is not an investment. Those are buckets.

Speaker 2

25:04

In those buckets, you hold your investments. Investments are things like mutual funds and stocks and bonds. So those are the investments that you choose to put in your bucket. So if you have a 401k, as you do at Google, and I have no idea what your 401k looks like, but you will have a list of selections of investments you can put in that 401k bucket.

Speaker 2

25:27

If my approach resonates with you, and you believe in broad-based index funds are something you want to go with, you can go down that list and maybe find the specific funds I'm talking about, but you'll certainly probably find something that is a broad-based index fund. The easiest way to do that, by the way, is to find the column that shows the expense ratio, and you should have that. You run your finger down that, and when you find the very lowest expense ratios, you have found the index funds. And focus on those and take a look at them.

Speaker 1

26:04

And why do you think some people choose to manage their own investments whereas others outsource it to someone else?

Speaker 2

26:12

Well, I think the people who outsource it to someone else have been convinced that this is just too complex for their pretty little head. And the vast majority of things on that banquet table we talked about are too complex for anybody's pretty little head. When In

Speaker 1

26:30

2007, 2008, 2009,

Speaker 2

26:32

when the economy cratered, Wall Street was selling products they didn't understand. So if this stuff looks complex to you, it's because this stuff is complex, and in some cases, intentionally complex. But we don't care about that, because we don't need any of that.

Speaker 2

26:48

And once you understand that you don't need that complex stuff, then doing it yourself becomes much more attainable, even if you don't have any interest in financial stuff. Like, frankly, my daughter. She doesn't, She has better things to do with her life than fool around with this financial stuff that intrigues her dad. And that's great.

Speaker 2

27:09

I mean, people have bridges to build and ways to make the world work. The beauty of this is that if you get a couple of things right financially, you can profoundly change your financial life without having to dwell on it. And you can get on with doing things that are more important to you and maybe more important to the world.

Speaker 1

27:32

And what do you think are 2 to 3 of the biggest mistakes people can make when investing or managing their money?

Speaker 2

27:40

Well I think 2 come to mind immediately. 1 is thinking that you can pick individual stocks and by extension that you can pick people who can pick individual stocks, that is people who run actively managed mutual funds. 1 of the the comments that makes my skin crawl is when I hear people say something like, well, Warren Buffett became a billionaire picking individual stocks, I'll just do what Warren did.

Speaker 2

28:15

As if. As if. There is a reason that Warren Buffett is famous. Because Warren Buffett has managed to do something that is extraordinarily difficult to do.

Speaker 2

28:28

The ability to do it is extraordinarily rare. And the hubris to think, oh, I'll just go and do what Warren has done Is to me stunning It's just absolutely stunning and the research indicates that while Warren has done it as we talked about You go out 30 years and less than 1% of people trying to do it who have survived that long have accomplished it. So I think you need and this is I bring this 1 up first because this was my own stumbling block. I just kept believing that I could pick people who could pick stocks and I believe that I could pick stocks.

Speaker 2

29:07

And because every now and again I'd get it right and maybe I got it right more often than I got it wrong, that feeds into that belief And that's the thing that made me reluctant to pick up indexing. But the truth is that the few times I got it wrong, dragged down my performance to where, and this is what happens to the vast majority of people trying to do it, to where I would have been far better off with the index, far better off. So trying to pick individual stocks and managers is number 1 maybe, not necessarily in order. The second thing is trying to time the market.

Speaker 2

29:43

And you can't turn on the financial news or open up a financial periodical without finding somebody who's telling you definitively where the stock market is going next. Nobody knows. If you could accurately do that with any consistency, you'd be far richer than Warren Buffett and far more lionized. It would be magic dust.

Speaker 2

30:05

Nobody can tell you where the market is going. You just can't predict the market. And trying to is a fool's game. So Fidelity Investments did a little piece of research, I think about a year ago, year and a half ago, and they were curious as to what group of investors in their funds did best, because the research indicates that the people who invest in a mutual fund outperform, or underperform rather, the performance of that fund?

Speaker 2

30:38

And you say, well, how is that possible? If they're investing in the fund, their performance should match the fund. The reason they underperform is they try to dance in and out. They try to time the market.

Speaker 2

30:49

So when Fidelity did this research, they determined that 1 group of investors did significantly better than any other group who owned their funds. And that was dead people. The dead people outperformed. Now, can you guess why?

Speaker 2

31:07

Because they didn't tinker with their investment. The second best performing group were people who forgot that they owned the fund. So you can't time the market. And especially when the market has been on as long a bull run as it has, the media is filled with people telling you that they know what it's going to do next.

Speaker 2

31:28

At some point, the market will dive because the market is volatile. It will, that's what markets do. So if you invest in the market, you have to expect that. You have to expect the volatility.

Speaker 2

31:40

You have to be willing to ride with it. But I don't know when it's gonna do that. It could be happening as we're sitting in this room together today. I haven't looked at the market.

Speaker 2

31:50

It might be 10 years from now. I have no idea and nobody else does. The difference is I'm willing to say I don't know.

Speaker 1

31:58

So for someone who may be interested in investing, maybe when they go home today, they have some cash they want to start investing. And they say, well, the market's the highest it's ever been. I'm going to wait for it to dip.

Speaker 1

32:12

What advice would you give to those folks who are waiting for the next dip?

Speaker 2

32:17

Well, if we went back to March of 2009, which was when the market bottomed and its collapse, Almost every month since then, you could say it could have said the same thing. I wrote a post, and I want to say 2014, responding to a reader who was asking that exact same question. The market, the S&P 500 was 1, 600 and change.

Speaker 2

32:52

And this reader was saying, how can I possibly invest? How can I possibly invest? It's nothing would go up for the last 5 years. And here it is at 1, 600.

Speaker 2

33:01

And it bottomed out at, I want to say, 600 and something. And where are we today? Now, I didn't know that at the time, because I didn't know where the market was going to go. But you just don't know.

Speaker 2

33:13

You can't predict the market. And by the way, it's become fashionable to suggest the P ratios or Shiller P ratios, give some insight into this. In that post, it's called Investing in a Raging Bull. It's in the stock series.

Speaker 2

33:38

I just put a link to a post I came across, very well done, where the guy analyzes where the various P ratios were at the beginning of drops. And there's no predictive correlation there to be had. So you just can't know. I also have a post called, Why I Don't Like Dollar Cost Averaging.

Speaker 2

34:05

And in summary, dollar cost averaging is the idea of putting in a little bit of money at a time over a period of time. The problem with that is that unless the market conveniently goes down while you're doing it, you will have been giving up gains rather than avoiding losses. And the thing that really bothers me about it is at the end of your period, investment period, where you finally deployed all of your money, who's to say the next day isn't the day the market takes its big plunge? So you have $120, 000 you want to deploy, and you say, I'm going to do it over the next 12 months, and I'm going to put $10, 000 a month in, and I'm going to avoid that risk.

Speaker 2

34:50

You're not avoiding the risk. You're just delaying the risk until you put that final $10, 000 in. Now, if you get lucky and the market plunges, you'll pat yourself on the back. But understand, that's only luck, because nobody knows where the market is going.

Speaker 2

35:03

There is a saying that the best time to have invested was yesterday, and the second best time is today.

Speaker 1

35:11

That's great advice.

Speaker 2

35:13

It's time in the market is more powerful than time to time the market.

Speaker 1

35:18

Time in the market is more powerful than trying to time the market. Time in the market is more powerful than trying to time the market.

Speaker 2

35:22

Well said.

Speaker 1

35:23

I like that. So we have 1 more question for Jim but for folks who have live questions feel free to line up at the mic. We also have a Dory at go slash Jim dash Dory.

Speaker 1

35:35

So my last question before we turn it over to live questions is there may be folks in this room who have a New Year's resolution to get their financial house in order and they may be 1 of the folks who, you know, have a lot of cash and checking or savings or they just are so overwhelmed by this stuff that they don't even know where to begin. So what would you say are the just the key takeaways they should focus on when they leave this room?

Speaker 2

36:02

Well, again, I would encourage anybody in that, but if you're sitting on that much cash, and I'm assuming that that amount of cash represents a large part of your net worth, because money is relative. But if you're sitting on $100, 000 as an example, and that is a large part of your net worth, that indicates that you're not comfortable investing, and that's fine. So the first thing you should do is educate yourself.

Speaker 2

36:27

And you can start with my blog or my book and see if that resonates and go from there. If you find it doesn't resonate, then there are a lot of other sources out there. But educate yourself first. But if you're prepared to, and some of the posts that I referenced are in the stock series.

Speaker 2

36:45

You can read about investing in a raging bull. You can read about dollar cost averaging. But once you decide to invest in stocks, you have to accept the fact that the market is volatile. At some point, the market will go down.

Speaker 2

37:02

Now, whether it goes down 10% and continues going up, 20%, who knows? Nobody knows. But the market, you can count on it being volatile. And at some point, it will go down.

Speaker 2

37:11

And you have to come to terms with that. And you have to be absolutely sure that when that happens, not if, but when, you don't panic. Because the only way you lose is if you panic and sell at the bottom. Now, trust me when I tell you, because I've lived through a few of them, when the market is taking 1 of its dives, it's ugly.

Speaker 2

37:35

It's painful. It's scary. It's easy to sit here now and say, well, I'll stay the course. But it's not so easy to do it when it's happening.

Speaker 2

37:44

So The first thing you need to know is, or first thing you need to resolve, it seems to me, in your own mind, in your own heart, in your own gut, is that when that happens, that selling is not an option. It's just simply not an option. Now, in my world, I divide the times in our life between wealth accumulation and wealth preservation stages. In a more traditional point in time that might have been well when you're young and you're working that's your wealth building stage And then you get to 60 or 65, and you retire wealth preservation.

Speaker 2

38:24

But these days, people step in and out of careers on a routine basis. So you will go from wealth preservation to wealth building and back several times. I know I did in my career. When you're doing that, there are 2 ways you can mitigate the volatility of the market and actually use it to your advantage.

Speaker 2

38:43

When you are in the wealth building stage, you have earned income, and if you're aiming to be financially independent, a large portion of that income is being diverted into investments. So that means on a regular basis, you are putting substantial amounts of your income into the market. That by extension means when the market drops you're getting to buy things on sale. Now you're not going to try to time this because we know we can't do that, but what it does mean is that when the market drops you should celebrate because oh I'm getting to buy when I put that extra thousand dollars or 10000 or whatever it is in each month I'm getting more shares in my VTSA X than I would have gotten otherwise.

Speaker 2

39:27

The volatility works to your advantage in that fashion. So you sleep easily at night because you don't care what Mr. Market's going to do. Now, when you move to the wealth preservation stage, you no longer have that income stream to smooth the ride.

Speaker 2

39:43

And that, in my world, is when you add bonds. And bonds become like ballast in your sailing ship, where your flow of income was before. Now you're going to replace that with a ballast of bonds. And that means that when the market plunges, the stocks plunge, and you reallocate to stay at whatever allocation you've chosen.

Speaker 2

40:06

You'll be selling bonds, which have gone up as a percentage of your portfolio. Let's say, as I do at the moment, you have 30% bonds, 70% stocks. When stocks plummet, that percentage of bonds is going to go up. You sell some of those bonds, and you're buying those stocks at lower prices, just like your cash flow was allowing you to do it before.

Speaker 2

40:30

When stocks go back up again, and suddenly that percentage of stocks starts to outweigh where you want it to be, it gets above 70, you start selling some of those off to replenish your bonds. With those 2 strategies you no longer have to care whether market is going up or down because you know that over time the market is going to go up and you've eliminated the concerns with volatility. So I would embrace those 2 concepts. Understand that you Don't ever sell in a panic just because it went down.

Speaker 2

41:03

That is simply not an option that you will ever consider. And then, depending on which stage you're in, either use bonds or use cash flow to smooth the ride.

Speaker 1

41:13

All right. All right, we're ready to go to some live questions.

Speaker 3

41:18

Thank you for coming. So I just had 2 questions about the future. So number 1...

Speaker 2

41:26

You are addressing the wrong guest.

Speaker 3

41:30

I'll try anyway. So earlier in the talk, you mentioned a very simple sentence, what you do with your money, put it in VT, SAX, or a similar fund. So that 1 sentence, it seems like you can do that in a matter of a few clicks, an individual.