Ep 476: The Simple Path to Wealth: JL Collins on Investing, Index Funds, and Financial Freedom
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And what people should understand is if you're looking at this and you're thinking, wow, this is enormously complex, you're not wrong. Most of the stuff that Wall Street sells is enormously complex. Classically, some of it is so complex, they don't understand it themselves, right? That's the bad news. The good news is you can put your arm on the table and sweep all of that off onto the floor because we don't need any of it.

Hey, everyone. Thank you so much for joining us today on Her Money. I'm Jean Chatzky. And if you have been thinking about financial independence, about the sacrifices it takes, whether it's realistic, how to get there faster, you are not alone. The FIRE movement, and FIRE, for those of you who are not familiar, stands for Financial Independence, Retire Early. The movement has just expanded.

It's exploded over the last decade, with the FIRE Reddit community alone now topping 700,000 members. But in a world of rising prices and stock market swings, is the classic strategy of spending less than you earn, maxing out your investments in low-cost funds, and avoiding the

Debt still enough to get you there? My guest today says it absolutely is. J.L. Collins is often called the godfather of financial independence. He's with me today to share why the simple path to fire is still the smartest one. And his book, The Simple Path to Wealth, became an instant classic when it came out in 2016. Now he's back.

With a brand new updated edition for 2025, he's got fresh takes on everything from meme stocks to inflation and a punch list of actionable steps to help you get started today. We're going to take a break. We'll be right back.

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We are back with JL Collins talking about the relaunch of the Simple Path to Wealth, a classic. JL, welcome. I can't believe we were saying this before we started. I can't believe that we are just meeting.

I know. First of all, thank you for having me. It's a real honor to be here with you. And yeah, it's kind of stunning. You and I have sort of walked down the tracks in parallel and never having our paths actually cross, which is pretty remarkable. But I'm glad they did today. I am as well. I also can't tell you the number of times that your book has popped up in our Facebook group.

Oh, I'm so pleased to hear that. Yeah. Often we'll have members. We run a Facebook group, 20,000 Women Strong. And often members will say, hey, what are your favorite books? What are the must-read books? Simple Path to Wealth shows up.

every, every time. The Her Money podcast launched right about the time that your book launched, and we have seen a lot of changes in the world and in the economy. What's the biggest shift that you've seen in how people approach money? Well, I think first of all, as you pointed out earlier, we just met

I have to say, Jean, in your introductory remarks, as kind as they were, you've already rubbed my fur the wrong way. Oh, no. What did I do? You referred to following this path to financial independence as requiring sacrifice. I don't see it that way at all. So hopefully this also answers your question. To me, I always saved a very large amount of my money and invested it

because I wanted to acquire what I thought of in those days as FU money. And that was freedom. So this was not a sacrifice. This was simply choosing to spend my money on the single most important thing to me. And that's having my financial freedom. I can't imagine anything I would rather spend my money on so far from a sacrifice than

It was an absolute joy. It was probably like some people feel about buying a Ferrari. You know, it's just, it's supposed to, it's where your priorities lie. So that's kind of how I'd like people to reframe it. If you follow this path, you should only follow it if buying your freedom is a highly appealing way to spend your money.

And if it is, it should be as gratifying as any other highly appealing way to spend your money. What does it mean to you when you say buying your freedom? So you buy your freedom by, first of all, setting aside some of your income, some of the money typically that you get from wages, from being paid for your time and effort. And just like you would buy a car or a house, you just divert it to the thing you want to buy.

And the way you buy your freedom is by buying assets. And the specific assets, and you already alluded to this, that I recommend are broad-based, low-cost index funds. Those are the safest, most secure, long-term way to acquire wealth. And ultimately, that's how you're buying your freedom.

I guess my question is actually more around the definition of freedom. Does freedom mean freedom from work? Does freedom mean freedom from work you don't want to do? Does freedom mean something else or different things to different people? And what does it mean to you? Yeah, so freedom means that you get to choose how you want to spend your time. It's kind of amusing to me. I've met a lot of people in the years I've been writing and talking about this

and some of whom who've achieved financial independence. And they'll say to me, kind of sadly, but I don't want to quit my job. I love my work. And it's like, no, you're missing the point. Just because you have financial independence doesn't mean you have to quit your job. It just means you don't have to work for money anymore. If you're enjoying what you do,

then by all means continue to do it. If you're not enjoying what you were doing to get you to this place, then you can go on and do something else. I think it's also a misnomer that the kind of people who are going to be able to accomplish this goal are not hardwired to sit on a beach and drink pina coladas maybe for the first few weeks or even few months.

But they're going to want to go out and do interesting, active things in the next chapter of their life. Or if they're really enjoying the current work they're doing, they're going to want to continue to do that. So the freedom just means that you get to choose to do what you wish with your time and, by extension, with your life. You're not required to do something simply to put food on the table and pay the rent.

There are a lot of equations in fire math, right? When we talk about fire math, we talk about sometimes accumulating 25 times your annual expenses, right? And there are other ways to look at it as well. Can we talk about whether it still works when eggs are $10 a dozen? I mean, one of our producers who lives in Manhattan actually just paid $12 a

And I'm wondering, based on how wages have impacted

increased versus how costs have increased, whether people can be expected to save at such a hefty rate when so much of what they earn, and it's not just eggs, right? It's health insurance premiums and auto insurance. How much can people be expected to save when so much of their money is

feels like it's going into survival. Yeah, so a couple of things. I mean, I have another book out called Pathfinders. And Pathfinders is filled with about 100 stories of people from all over the world who have read the book, embraced the simple path, and have implemented it in their own unique situations. And I guarantee you that

Anybody listening to our conversation today will find stories in there from people who started from much more humble beginnings, much more significant challenges than most of the people who are able to listen to a podcast like this. So first of all, I dispute the idea that you can't figure out a way to arrange your life in order to buy, if this is the most important thing for you to spend your money on,

It's just like if you wanted to drive a big truck, almost no matter what your income, you see people driving big trucks. You figure out how to buy what's most important to you. Second thing I point out is that this path is going to put you in broad-based, low-cost stock index funds to build your wealth. Stocks are probably the single best and most reliable way to keep pace with inflation. And inflation is a real thing.

And certainly it's been a real thing in the last couple of years. Yeah. So if you want to deal with inflation, this is a major step you're going to want to take just for that reason alone.

And the final thing I'd say, and you mentioned there's certain metrics about what it means to be financially independent. And the 25 times whatever your annual spend is a classic. And that translates into 4% of the amount you have invested. So that's kind of the classic formula. And it's a great guideline.

But one of my all-time favorite quotes, and it's the first quote in the book in both editions, comes from a guy named Leo Burnett who ran an ad agency out of Chicago back in the day. And the quote is, if you reach for a star, you might not get one, but you won't come up with a handful of mud either. So if you set out on this path to become financially independent, meaning you never have to work again, maybe you won't get there fully, but

but you're gonna make progress along the line. And every step of the way, you become a little bit stronger. This is what I always thought of as the FU money phase. Every, since I go to the gym, every step you take, you become a little financially stronger. And then ultimately, if you do it long enough, you hit that 4% 25 times magic formula. - I think that's such a good analogy. I went to the gym this morning,

definitely the oldest person there for my strength class. And they were very focused today. It's always different, but they're very focused today on we were doing back squats and everybody had these very, very big weights on their bar and lifting them up. And my weights were not quite as big as everybody else's. And I said to the trainer, I said,

God, I feel like a wimp. And he's like, no, this is 10 pounds more than you did the last time. And so it's what is good for you, the progress that you're making. And that's how we build optimism and resilience and all of the other important factors that go into living this life. I love the way you expanded that analogy.

Because swinging it back into the financial world, what represents being financially independent, just like how much weight you can bench press or squat with, is different for every individual. And so it's not a raw amount of money that gets you there. It's an amount of money against what you spend.

So I've known people who have made millions of dollars a year, literally, but they have structured a lifestyle that absorbs all of that money and tragically, sometimes a little more. I have a very good friend from high school who's never made more than $50,000 a year, raised a family, put a couple of kids through college, and he's achieved it.

Because the total amount, if you're at that level, is much slower and easier to get to, just like the amount of weight you can lift. For the people in our audience who are not familiar with you and are not familiar with the simple path to wealth, I want to talk about the principles that sort of underlie your body of

of work. We've talked about indexing, but I'd like to expand on that a little bit. But let's back up and start with the savings rate. When you haven't been living a life where you are super saving, how do you flip the switch? Yeah, that's challenging because I did it from the very beginning. And again, I wrote the book for my daughter who

had the advantage of implementing it from the very beginning. The advantage of that is neither one of us had built a lifestyle that we had to unravel in order to implement this. And that's very hard in ways that I can only imagine. I haven't actually experienced. And typically, a lot of my readers, of course, are not at the beginning of their journey. They're somewhere in the middle of it. Again, this is a matter of thinking about

how you want to spend your money, what's most valuable to you. And just like somebody who said, you know, I'm really tired of renting. I want to own a house. Well, then you're going to figure out how to

set aside the money for the down payment and how to set aside the money you're going to need to furnish it and to probably update it in ways that you want it to do. There's no magic formula for doing that. It's a matter of what your motivation is. And if your motivation isn't to be financially independent, if you don't value your financial freedom the way I do,

then you're probably not going to be able to unwind those things. I mean, there's nobody you talk to. If you say to them, would you like to be financially independent is going to say no. Right. Yeah, absolutely. I'm going to want that. But then if you start talking about the steps you're going to need to take, then you're going to hear things. At least I've heard things like, well, I kind of like those two least luxury cars in my driveway and

This big house we have is kind of essential. I could never see living other than this neighborhood with this many square feet. And I call it the tyranny of must-haves. People get enthusiastic when they first hear about it and they start following this path. They're like, well, everybody ought to do this. This is going to sweep the world. What's going to happen when nobody has to work anymore? And I'm like, don't worry about it because people on this path are always going to be unicorns because most people don't

are not going to be willing to take the steps to get there. It's harsh, but true. Sorry. It is harsh. And I think, look, I think all of money is personal, right? It's all personal decisions that we make in line with our own values and our own priorities. And I think

I wonder if there are, for the people who maybe think they don't want to choose to save 50% and can deal with the occasional car payment, I'm wondering what lessons they can take from

from this methodology to help make their life, if not completely free tomorrow or in five years, a little bit better along the way. Think about that for a sec. We're going to take a break. We'll be right back.

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Go to everyplate.com slash podcast and use the code HERMONEY199 to get started. This is applied as a discount on your first box, limited time only. We are back with J.L. Collins talking about the relaunch of the Simple Path to Wealth, a classic. Before the break, I asked,

Because we acknowledge this is a tough road. This is not a road that everybody's going to be able to do where you save half your income and maybe you choose to live someplace cheaper or avoid spending money on certain things. What's the in-between? What are the things that those of us perhaps who are saving 15 to 20 percent of our money toward retirement can take from this methodology?

So first of all, I would applaud anybody who's saving anything, right? I think that's great. And I get pushback on this 50% thing where people say, well, no, nobody can humanly do that. That's just not possible. You're crazy. But I also get pushback from the other side where people say 50%, that's nothing. I'm doing 60, 70, 80%. So obviously the greater your percentage, the sooner you will get there.

But every little bit helps. And going back to that quote, if you reach for a star, you might not get one, but you won't come up with a handful of mud. So if you're saving 5% or 10%, it might not get you to financial independence at a young age, but it will make you physically stronger. Again, it's like going to the gym, right? If you want to look like Arnold Schwarzenegger,

you're going to be spending a lot of your free time in the gym. You're going to have to work extraordinarily hard to get there. But if you just want to be a little bit healthier, a little less likely to die of a heart attack, if you want to shed a couple of pounds, then you can get there with much more modest kinds of efforts. So it really depends on your goal.

Again, I think too many people think of it as a light switch. You know, either I'm financially independent or I'm not. And it's a journey. And every step along the journey, you get a little stronger.

And it's a journey that can sometimes go off track, go wayward. You're one of the pioneers of the FIRE movement, so is Mr. Money Mustache, so is Sam Dojan, who writes the Financial Samurai blog, and he retired in 2012 with $3 million. A few years ago, he told Fortune magazine he needed to return to work to afford his kids' college education.

Sometimes we get on a path and we have to adapt. And I'm wondering if you have ever had to adapt or what you say to people who follow your philosophy that find that they need to. One of my good friends in this space is a guy named Brandon who writes The Mad Scientist. He doesn't write too much anymore, but

He was extraordinarily dedicated to achieving financial independence. His savings rate was something well beyond 50%, and he got there. But he looks back on it now and says he wishes he had taken it more slowly, that he'd enjoyed the journey a little more, had saved a little less, and spent a little more.

So I think that's definitely worth considering. I did an interview just yesterday with a woman by the name of Jillian Johnsrud, who is publishing a book called Retire Often about taking many retirements through your career. And that's actually how I did my career back in the day when it was sort of unheard of. And one of her questions was,

What about the financial setback of taking six months off and not having an income if you're going to financial independence? And it's like, well, yeah, but it makes your life better. So absolutely, you can add some spice. This is not and should not be a path of deprivation. Now, if all you do is take time off, then you're obviously not only going to be not financially independent, you're not going to pay the rent.

But certainly you can add some spice to your life along the way, and should.

We're going to have to get your friend Jillian on this show because I think mini-retirements, they're a trend that millennials are really, many of them, buying into and enjoying. And I'd like to learn more about them. Going back to your daughter and to the markets specifically, you told her that during her 60-odd years of being an investor, she can expect to see a 2008-level financial meltdown every year.

quarter century or so. That's two or three of these economic end of the world events coming her way. I got to say, it's not felt like 2008 lately, but the volatility has been, at least in my mind, pretty striking. What do you say to her about, and all investors, about managing

through these events and how does having a portfolio of index funds help? I love that question. And I actually just put a, I rarely post on my blog anymore, but I actually put a post up yesterday or the day before addressing exactly this. And the title of the post is something effective. The single most important thing that determines whether the market leaves you bleeding on the side of the road or makes you wealthy.

And that thing is what you do when the market drops. So the key that people need to understand is this is a perfectly natural part of the process. And I've been investing for 50 years. In that time, there have been three of these meltdowns. The first one was in 74. The next one, a long time, was in 2000, the tech crash. And then, of course, we had the 08-09 debacle. So those two came pretty close on the heels of each other. But

Also during that 50 years, we had multiple bear markets, which are defined as going down 20% or more. And of course, even more corrections. And you need to understand that you can't predict these things. You can't predict when they're going to start. You also can't predict how deep they're going to go. I mean, as we're recording this right now,

The market, through all the turmoil of the new presidency and the tariffs, is now actually in positive territory. I know. A month ago, nobody, including me, would have predicted that, right? We also don't know where it's going to go from here.

I mean, it could turn around and actually go into recession territory and into a deep bear or go on to post-due heights. Nobody knows what it's going to do. You can't predict them. You cannot, as Warren Buffett once said, try to dance in and out of the market. That's the way you lose money. You have to learn how to accept them and endure them and understand that these are temporary. And actually, if you're accumulating your wealth,

That lost decade between 2000 and 2010, if you'd stayed on the simple path to wealth, which means you're buying shares in your mutual fund, you would have had a decade of acquiring shares at bargain prices for the next 15-year bull market run. So you need to learn that these things, these market declines are perfectly normal, and actually they can work to your advantage. You need to learn to love them.

So, it's like hurricanes in Florida. If you live in Florida, you have to assume you're going to experience a hurricane, probably more than once. And hurricanes are very scary. If you panic and run out in the middle of them, they're very, very dangerous. But if you hunker down, they blow over, and the sun comes out, and the birds sing in the trees again, and all is right once again with the world.

So these are not things to be concerned about. Believe me, I understand that is easier said than done. I had my own moment of panic at 87 on Black Monday. I was at my desk on Black Monday. It was a boy, it was a difficult, difficult day. I want to just get specific about the tools that you use for investing, because I know that my listeners like the details. We've talked a

about index funds, but basically you rely on the Vanguard Total Stock Market Index Fund, the Vanguard Total Bond Market Index Fund, and

and Vanguard's Cash Reserves Federal Money Market Fund. Can we talk about what each of them are good for? And as you go through the stages of life, how do you shift your allocations so that they work best for you? Sure. So let me start by saying that the biggest compliment I get about my book is

is when people say to me, you know, I've tried to understand this financial stuff and it always just seemed too complicated. I've tried to read other books and it just didn't work for me. And what I realized reading The Simple Path to Wealth is how simple it can be. And what people should understand is if you're looking at this and you're thinking, wow, this is enormously complex, you're not wrong.

Most of the stuff that Wall Street sells is enormously complex. Classically, some of it is so complex, they don't understand it themselves, right? That's the bad news. The good news is you could put your arm on the table and sweep all of that off onto the floor because we don't need any of it. We just need the key healthy foods, so to speak, that are going to be left, which are low-cost, broad-based index funds.

So you correctly identified that I personally am invested in three things. VTSAX is Vanguard's total stock market index fund. Question I get all the time is, well, can I buy VTI? Well, VTI is Vanguard's ETF exchange traded fund version of VTSAX. It is exactly the same portfolio.

So yes, if you prefer an ETF, by all means, buy VTI. Let's take it a step further.

Let's suppose you say, you know, I've been with Fidelity or T. Rowe Price or Schwab, and I kind of like those folks, and I'd prefer to stay there. They seem to have broad-based, low-cost, total stock market index funds. Is that okay? Yes, it's okay. I have reasons for preferring Vanguard. We can get in those weeds if you want.

But a low-cost, broad-based index fund, total stock market fund, is the same essentially from Vanguard, Fidelity, Schwab. So by all means, same thing is true of their ETF versions. Let's take it one step further. Another question I get all the time is, you know, I've been looking for a total stock market index fund in my 401k, and there just, there aren't any. All I can find is this S&P 500 fund. Is that okay?

The answer to that question is yes. And it's okay whether it's Vanguard's version or Fidelity's or Schwab's or whatever. Why do I say that? Well, these index funds are cap weighted. And what that means is the largest, most successful companies are a bigger percentage of the portfolio.

So, in essence, the S&P 500, which are the 500 largest companies in the United States, make up, I want to say 80, maybe even 85% of the total stock market index fund. And if you track their performance over time together, it's remarkable how closely they track one another. And by the way, Jack Bogle, who created these things and started Vanguard,

And the Index 500 was the first index fund he created, and that's the one he held himself all his life. So it's good enough for Jack Bogle. It's good enough for all of us mere mortals. So then the question becomes, well, all right, J.L., if it doesn't matter, why do you go into the Solstok and make an index fund? And my response to that is, well, it's the same reason I put Tabasco on my eggs.

I just like the little extra spice of some small and mid-cap companies, right? But you can feel comfortable, total stock market. Now, beyond that, then, because now there's index funds for everything. There are. There's index funds for sectors. You can buy precious metals index funds. You can buy...

I'm not interested in any of that. That's why the caveat is broad-based, which means total stock market, S&P 500. Where do bonds come in? Thank you. I forgot that part of your question. So in my world, there are two phases. And as we talked about earlier, young people like my daughter is a good example, are now stepping away from work for extended period of time. So this is not necessarily age-related.

But I think of them as the wealth accumulation phase. This is when you are trading your time and effort for money. You have earned income. And as we've already discussed, you're going to channel some of that to buy what's most important to you, your financial freedom, which you do in these index funds. In that world, in my thinking, you only need one fund, the stock fund, whether it's S&P or total stock market. And people sometimes say, well, that doesn't sound very diversified.

Well, the total stock market index fund has 3,600 companies. The S&P 500 has, well, guess how many companies? 500, right? So when I was a young investor, diversification was described as, well, you want to pick somewhere between eight and maybe 10 sectors.

And you want to pick maybe one or two companies in those sectors because nobody can track realistically more than say 15 to 20 individual companies. And if you do that, you're diversified. So when I'm buying 3,600 companies with my index fund, I'm plenty diversified. Now I'm a hundred percent in stocks, but I'm there for two reasons. One is they are the most powerful growth engine available bar none and

And number two, as we already discussed, I don't care that they're volatile. I don't care that they're going to plunge periodically. I know that. I know it's normal. I'm prepared to accept it, live through it, and endure it and take advantage of it. So that's how you build your wealth.

And your flow of income that you're channeling in there is what smooths that ride. It allows you to take advantage of those dips because now that regular amount of money you're putting in every week or every month is simply picking up more shares at bargain prices. Right, you're talking about dollar cost averaging. Yes, yes. Which, by the way, if you have a lump sum, I'm opposed to, but for this purpose, it works ideally.

Now, when do bonds come in? Well, when you step away from paid work, as my daughter just did, she's a good example. At that point, she sold some of her VTSAX to turn around and buy bonds because now bonds provide that ballast that your flow of income provided. And now you deal with the volatility of stocks by adjusting your asset allocation.

So if you have an asset allocation, let's say for the sake of argument, you're 70% in stocks and 30% in bonds and stocks plummet. Well, then that percentage of stocks is going to drop and the percentage of your bonds is going to rise and you sell some of those bonds into the stocks to take advantage of.

of those lower prices. And you also have those bonds to draw on for your living expenses, so you're not forced to sell at lower prices. - How do you decide what the asset allocation should be at what point in your life? - So that's a kind of a complex question because there are a lot of factors that play into it, right? Here's how I think about it. Step number one is your asset allocation to stocks should never be below 50%.

And the reason for that is stocks are the driver for growth that allows a portfolio to survive over time. And if you look at the Trinity study, which is a study that showed different withdrawal rates based on different applications, you could see that that survival rate breaks down when you tilt too heavily towards bonds. So the second question becomes, in my mind, how close to the edge are you?

So let's assume we're talking about somebody who is financially independent and doesn't intend to work ever again. And let's theoretically say they have a million dollars invested.

which using our 4% rule is $40,000 a year to live on. If, say, $10,000 of that is because you want to travel and have fun, well, then you're not close to the edge. You've got that nice cushion, right? Because you only need $30,000 to provide. Right. At that point, I would say, personally, I'd go more heavily into stocks because I want that growth that will make my portfolio even larger over time and provide more value.

assets for me to enjoy. If it takes every dime of that $40,000 for you to put food on the table and pay the rent, then you're going to want to be much more conservative and tilt more heavily towards bonds.

Again, I would never go beyond 50-50. I probably wouldn't go beyond 60-40, 60% stocks. And is there a particular allocation that you have for cash at any point in time or not really? Not really. I'm pretty comfortably set financially. Yes. So I don't need a lot of cash as a cushion, right? Right.

And so I don't know, it's maybe 5%, 5% in cash, something like that, probably less, which is more than enough for our kind of spending. It depends how you see your spending unfolding. It's such a fascinating conversation. And I love how...

I love how detailed and how simple the methodology has continued to stay, because I think that's what enables people to get on this path, stick with this path. And you're right. There's too much information about too many investments out there for a lot of people to stomach. And it's

Very, very helpful to know that you can follow what I tend to call the boring route and that it will wind up okay. Thank you so much for unpacking all of this for us. Thanks for spending all of this time and thanks for just coming on the show. It's been such a pleasure to meet you. Jean, thank you so much for having me. I've really enjoyed the conversations. Great questions, by the way. Oh, thank you.

And it's such a pleasure to finally meet you. As we said at the beginning, this should have happened a long time ago, but I'm glad it's happened now. I am as well. If people are looking for more information on the work that you're doing these days, where do you want them to go?

Probably the easiest thing is to go to the blog, which is jlcollinsnh.com. As of May 20th, the new edition will be, as they say, available wherever books are sold. All right. We'll meet again soon. Thank you so much. Looking forward to it. If you love this episode, please give us a five-star review on Apple Podcasts. We always value your feedback. And if you want to keep the financial conversations going, join me for a deeper dive.

Her Money has two incredible programs, Finance Fix, which is designed to give you the ultimate money makeover, and Investing Fix, which is our investing club for women that meets biweekly on Zoom. With both programs, we are leveling the playing fields for women's financial confidence and power. I would love to see you there.

Her Money is produced by Haley Pascalides. Our music is provided by Video Helper and our show comes to you through Megaphone. Thanks for joining us and we'll talk soon.