Looking for financial independence Follow The Simple Path.jpeg
The author and blogger was published by JL Collins entitled “The Simple Path to Wealth: Your Road Map to Financial Independence and Rich and Free Life” in 2016 and since then more than a million copies have been sold. It is one of my favorite investment books.
Drumroll. He is now returning with a second edition of the book, on which his daughter, Jess.
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I asked Collins to share some ideas. Below are excerpts edited to our conversations.
What has changed since the first version in terms of your philosophy? What did you modify in this new edition?
JL Collins: nothing. zero. The simple path of wealth is designed to be something that you will implement for decades. If this requires a big adjustment after 10 years, I will not design it well. The basic philosophy is the same, and this is important. What has changed is all the small details – government regulations about income limits to invest in 401 (K) and the amount of money that you can put in individual retirement accounts and all this type of things.
You start the book with your three main principles. Can you participate?
Avoid debts, live less than you gain, and invest the excess-if you follow my simple way, you will do so in low-cost index boxes.
Avoid debts, or get out of it … it is very important. You can never achieve financial independence if you are withdrawing that inspected ball and chain. I am a little horrific that in our culture, the debt carrying (thus) became somewhat assuming that people assume, of course, I will borrow money to buy this, or, or the other thing.
“Avoid debts, live less than what you gain, and invest the surplus,” says JL Collins, in the picture here, are the keys to financial independence. (Image from JL Collins)
How should we spend our money?
Spending money on what is more valuable to you. For me, there is nothing more valuable than buying my freedom, my freedom in time, and my freedom to choose. You do this by getting money and investments that eventually pay all your expenses.
How do you define financial independence? How does your approach comply with the movement of fire (retired financial independence early)?
I love shortening the fire. It is very smart, and it is a great goal if this is your goal. Early retirement was never my goal. I love work. My goal was, which I have enough money to allow me to take bolder options. Being a financial independent means that you have enough money that has been invested to get rid of enough to cover all your expenses and then some – a little pillow.
You write that your annual expenses are 25 times the amount you need to be financially independent. Explain.
There is a concept called 4 % base. And what the base proposes is 4 %, and I think they are great guidelines, is that when you have enough money invested, 4 % of them will cover all your expenses. Suppose you have a million dollars. Well, this starts by 4 %, $ 40,000 per year. So if you can live at $ 40,000 a year comfortably, you are now a financial independent. If you need $ 100,000, you will double it by 25, you will be at $ 2.5 million.
You are defending the provision of 50 % of your income if you want to become financially independent. Is this not realistic for most people?
This is one of the things that I may get more because this depends on how to build your lifestyle. I am sympathetic to the people who feel this way, but there are people who do so with great success. The more you can allocate it, the more the percentage, the shorter your journey to reach this financial independence.
You all have stocks, but what is advice or have people when it comes to dealing with the uncertainty in the markets?
The only thing that determines whether the market will make you rich or let you bleed on the side of the road is what you do when it decreases. Because market corrections, which are 10 % and bear markets, which are 20 % are all normal. It is expected. If you are going to invest in the stock market, you should be ready for these things. They cannot be predicted despite all the people who claim they can predict.
I was doing this for 50 years, and answering what to do when you know that these things will come and you cannot predict? Well, you only stay in the course. You don’t feel panic and sell, and this is the worst thing you can do because that will let you bleed on the side of the road. And not only staying in the course, but if you are building your wealth, and you add money regularly, which is what the simple path calls for, these things are a blessing because you now accumulate those shares at a lower cost.
Read more: How to protect your money during stock market fluctuations
What is your perfect investment strategy?
This is the simple way of wealth. Not only is it easier, it is also more powerful. So when you build your wealth, you carry a single indicator box, and in my case, this is the total stock market index fund in Vanguard.
The main thing is that the total stock market index fund. And the warning here is I hear from people all the time they say, as you know, I am in Fedelity, or I am in Schwab and they have the total funds of the stock market index. Are they fine? The answer to this question is, yes, this is fine.
You own almost publicly circulating in the United States of America, and every person from the factory hall to the CEO is now working to make you richer. This makes me warm and comfortable at night when I go to sleep.
When you stop getting an income to flow to the total stock market index fund, you want to add a bond box. In my case, this is the Vanguard total bond index. I also hold some money in the money market fund.
Often, people will go to 401 (k) and will not find the total stock market index fund, but they will find the S&P 500 box, as this is fine.
Read more: 12 money market accounts at interest rates of 4 % APY and higher
What about the international angle?
I am a little alone in this situation. I simply do not see the need because the largest companies … which constitute the largest part of the total stock market index fund, is by defining international companies. A huge amount of its sales and profit comes from all over the world.
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What do you think of the targeted history boxes? theyThe primary investment car for people in retirement plans for employers these days.
It is effective. One of these pension funds the target date is a great way to go. This box will deal with all balance when it is time to add bonds. For those who want absolute simplicity, you will never have to think about it at all. I don’t think it will perform well and that is why I do not use it personally, and by the way, this international exposure will give you.
What do you think of encryption crawls to investment portfolios as well as private shares and the like? Do you still stick to the index?
I am not a fan of the multi -income school for investment. Simple is better. So not livestock, gold, pensions, encryption, or the like. For the largest part, so far, cryptocurrencies are speculation. Sometimes speculation works very well, these speculation often do not succeed. This makes them speculation.
I am not a speculator. I am an investor. The investor purchases assets that have operations that can generate money and growth – shares in a company or rental real estate, for example. Such things grow in value due to the basic activities that earn money.
Kerry Hannon is a great column writer in Yahoo Financial. She is a professional strategic and retirement expert and authored 14 books, including next Retirement bites: Gen X guide to secure your financial future,” “In controlling 50+: How to succeed in the new work world? And “is ever become more rich.” Follow it Blues.
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