The Simple Path to Wealth
A pretty straightforward book for building financial health (and wealth) over time
In 2021 I aim to read more books than I did last year, maybe even a book a week. I wrote about that goal here. This is the first book I’ve read this year and so it is my first review as well — but if financial books are not your thing, don’t worry, I’ve got a mix of other kinds of books lined up for the rest of January.
Week 1: The Simple Path to Wealth
I began my first book of the year on vacation which gave me a healthy head start before the work week began. That first book was The Simple Path to Wealth by J.L. Collins, a Christmas gift from my big brother who is always looking out for me. “I’ve read a lot of financial books,” he said, “and this one is the clearest and the best.” I trust my brother’s financial sensibilities so I jumped right in, and like other recommendations he’s made for me over the years (like Powerful Phrases for Dealing with Difficult People and People Can’t Drive you Crazy if You Don’t Give Them the Keys, lol, I was having a tough year!) it was immediately applicable to my Real Life™. Perhaps because of this, despite some of the denser material which can be a challenge for someone like me who is not particularly obsessed with money things, it was a very easy and dare I say enjoyable read.
Here are the things I understand better since reading this book (hold on to your seats, you are about to enter my brain):
- What index funds actually are, and why the VTSAX fund from Vanguard is so robust and worth investing in long-term. Not only did Collins present convincing evidence of past success with this single type of investment, he also pointed out Vanguard’s expense ratio (and I know what an ER is now!) as the lowest in the game, and how that is due to their unique management structure where shareholders and the investment company’s interest are one in the same. I’m both a principled and a systems person, so this made a bunch of sense to me.
- The difference between stocks and bonds, and how each hedges against different kinds of financial catastrophe, including crashes and hyperinflation. I know now that in different periods of your saving and spending life — which a person enters and leaves throughout their life as they experience a variety of work and life situations, not just at retirement — it is sometimes wiser to have a higher bond allocation, but most of the time it makes sense to keep more stocks. (Definitely read the book, it explains why in depth).
- I had never connected the idea that there are financial products, and then there are differently taxed buckets in which to hold those products. It’s a duh moment for me, now. But previously I saw a world of a million different financial products all with their own rules. A world of parallel options, if you will; I was a two-dimensional dot looking at a line, not realizing it was a circle. Collins’ 3D world makes a lot more sense. I still want to go back and read Chapter 19 on “buckets” again, where he explains in detail the differences between and strategies for using 401ks, IRAs, Roth accounts, even HSAs and more, but at least I know that resource is at my fingertips and that I understand this new-to-me core principle.
- I now believe retirement is attainable. I’m a good saver, but not a good investor, and I can see this book changing this for me. Part of what makes me a not-good investor is that I am overwhelmed by products. I am, to be honest, still a bit overwhelmed because this book was US-centric and I hold retirement accounts in Canada and the UK where tax rules are different, but I feel more equipped to be able to handle it all now, knowing essentially how things work in the States. He does offer some advice for international readers, enough to have me intuit that between the US and Canada at least, it is a similar enough system. In any case it’s all numbers and parts, and I feel I have a much better idea of what the parts are so and simply need to plug in my numbers to figure out a plan.
- I feel validated in two ways. The first is in believing financial advisors are not in your best interest. Whenever I talk to investment or money managers, the experience has given me the creeps. Perhaps it is paranoid to a degree but I haven’t trusted a single one, not even the one my mom and brother say is “very very nice” —and I’m sure he is. I like my grumbly, rough and ready tax guy, who I will use to help me figure out this Canadian stuff, but he’s not running strategy for me, merely validating my ideas so I don’t forget something obvious. In my mind Collins was a wolf who ran with the pack, so he would know who the goodies and who the baddies are – and he is cheerfully honest about the strategies he uses for himself, his wife and his daughter, which does not involve a money manager of any kind.
- My second validation is in aiming to rid myself of debt. This has always been my inclination but not always the advice I receive. For example, most folks (personally and professionally) see a mortgage as acceptable debt. “Take out the loan, enjoy life, build credit!” they say, which is lovely to hear when you want the thing, and sometimes it is good advice I suppose depending on what’s going on in your life. I waited for this to show up in the book; alas it did not. Which made me feel weirdly good. Carrying the weight of any kind of debt at all has always bugged me and been something I wanted to pay off as quickly as possible. In contrast, others (perhaps from more financially secure backgrounds, or just less anxious people overall) say to take our time with it. But Collins hammers this point home: Don’t carry debt. Any debt at all. It is a huge missed opportunity — not just in the money you save from not paying interest, but in all the money you could have made off of investing had you not been making interest payments. And shouldn’t we be satisfied with a simpler life, anyway– one that isn’t funded with money we don’t have? (It sounds judgmental, but this part spoke to me as my life has always improved when I was satisfied with less.) Regardless, Collins’ perspective is that paying off debt is a sound principle of good money management, and I’m glad to relax into it! Or rather, crank it into high gear. My immediate goal this year is to finish paying off the renos for our main house to get out of debt tied to our living space by my birthday in September, and then I will figure out a more ambitious saving plan for retirement (and our girls’ education) to take real advantage of compounding interest. We still hold an investment house and perhaps in five or so years we can shed that as well. Collins’ commitment to a simple investment portfolio — and his evidence of it working — was inspiring.
I have one more thing to say about this book since I am sharing these thoughts publicly: Predominantly what I liked about this book was that it filled a knowledge gap for me around “how investment and retirement funds work” and in doing so, helps me plan for the future of my family. I am, for better or worse, the most financially-interested person under this roof which often terrifies me to no end. But, with greater understanding I can make better decisions for everyone – especially as I take all our aspirations into consideration (not just retirement). I think Collins does a good job of hinting at this – especially in one of his final chapters “Give Like a Billionaire”, but I do have other ideas about investment, giving, community, family, education, etc. that fall outside the scope of this book. What Collins gives me is the veggie stock into which I can throw all the other delicious ingredients, but I know as well there are other courses and types of dishes to make and enjoy. If anyone has a good book to read about the future of capitalism, for example, I am all ears…
That’s basically it! As I work out my reading schedule for the rest of the year, I have already slotted this one for a re-read in May when our renovations are complete (knock on wood) and I will have a better idea of our complete financial picture.
All in all, this isn’t a book I would have picked up on my own but I’m grateful my brother saw its potential for me and I’m certainly glad to have invested a few short hours to read it. Collins writes with clarity, integrity, honesty, and in the voice of a good teacher — which is all that I could want from a financial book.
To inspire my new running regimen, next I will read What I Talk About When I Talk about Running, another gift from my brother and a meandering exploration of what running and writing (and life) mean, especially altogether. I’m a few pages in already and so far it feels (said with a healthy dose of humility) similar to what I wrote when I ran 100 miles as I turned 37 . Plus it got me through a coup, so I already know that this is my kinda guy and my kinda world.