Stocks — Part IV: The Big Ugly Event, Deflation and a Bit on Inflation


So far we’ve seen that the stock market is a wonderful wealth building tool that goes relentlessly up. Vanguard’s Total Stock Market Index Fund (VTSAX) is the only tool we need to access it.

But it is extremely volatile, crashes routinely and most people lose money due to their psychological tendencies.  Still, if we toughen up, ride out the turbulence and show a little humility regarding our investing acumen this is the surest path to riches.


Stock Market 1900 – 2012

There, in 1929, is the Big Ugly Event. The Mother of all Stock Market Crashes and the beginning of the Great Depression. Over a two-year period stocks plunged from 391 to 41, losing 90% of their value along the way. Should you have been unlucky enough to have invested at the peak, your portfolio wouldn’t have fully recovered until the mid-1950s. 26 years. Yikes. That’s enough to try the toughest investor.

Of course, if you had been buying stocks on margin (that is with borrowed money) you would have been completely wiped out. Many speculators were. Fortunes were lost overnight.

Lesson #1: Never buy stocks on margin.

Lesson #2: If a time comes when you are reading and hearing about people routinely making fortunes in an aggressively rising market using margin, something very, very bad is around the corner. (Joseph Kennedy is said to have known it was time to exit the market in early 1929 when he started getting stock tips from shoe-shine boys.)

Lesson #3: If you see Lesson #2 forming it is a good time to take your chips off the table. Very tough to do when everybody is making “easy” money.

Lesson #4: Once the crash comes, it is too late.


So what to do?

Does the possibility of another Big Ugly Event blow a big enough hole in this idea of “toughen up and ride out the storms” to make it useless? The answer to that has everything to do with your tolerance for risk and your desire to build wealth. There are ways to mitigate the risk and we’ll talk about them next time.

For now, let’s step back and consider a few things regarding The Big Ugly:

1. It would have taken an investor of exceptionally bad luck to have borne the full weight of the crash. You would have had to buy precisely at the 1929 peak.

Suppose instead you had invested in 1926-27. Looking at our chart this is about halfway up on the climb to the peak. Many, many people were entering the market in these years. Certainly they were destined to lose all their gains, and yet 10 years later, had they held on, they’d be back in positive territory. Although another rough stretch was coming.

Suppose you’d bought at the earlier peak in 1920. You would have taken an immediate hit and recovered five years later. From the collapse in ’29 you’d be back even by 1936. Seven years.

The point is that any given start would have likely been different and yielded an outcome not as severe as the widely quoted 90% loss, peak to bottom.

2. Suppose you were just out of school and beginning your career in 1929. Assuming you were in the fortunate 75% that kept their jobs, you would have had decades of opportunities to buy stocks a bargain prices. Ironically, a crash at the beginning of your investing life is a gift.

3. Suppose you were retired with a million dollars in today’s money. By 1932 your stash is down 90%, to 100k. Terrible for sure. But remember the Depression was deflationary. That means prices fell dramatically. And that means your $100,000, while no longer a million, now has far more buying power than 100k did pre-crash. Plus, it is poised to grow rather sharply from this low.

4. The Big Ugly Event has happened only once in the last 112 years. Longer actually, but that’s how far back our DJIA data goes. We haven’t had another in 83 years. These are really rare.

5. Many changes in economic policy were made post-1929 that, so far, have worked. In 2008 we came right to the edge of the abyss. Closer I think than most folks fully appreciate. But we didn’t tumble over. This I find encouraging.


Looking for Balance

What is not so encouraging is that a Deflationary Depression like that of ’29 is only one of the two possible economic disasters that can destroy wealth on a major scale.

The other is Hyperinflation.

Here in the USA we haven’t had to deal with this monster since the Revolutionary War way back in 1776. But it destroyed Zimbabwe’s economy as recently as 2008. Hungary had the worse case of it in history and many credit the German hyperinflation of the 1920s with ushering the Nazis to power in the 1930s.

Hyperinflation is very bad news, every bit as destructive as deflation, and it is exactly what it sounds like: Inflation running out of control.

A little inflation can be a very healthy thing for an economy. It keeps the wheels greased and running smoothly. It is the antidote to looming deflationary depressions. This is why our Federal Reserve has been working overtime pumping money into the system these past few years. We very much need to get some inflation going. But, not too much. It is a tricky balance and once in motion it can be hard to change direction.

In a deflationary environment delayed buying decisions are rewarded. If you were considering a new house during a deflationary period you would notice that prices are dropping, along with mortgage interest rates. So you wait. You can get both for less later. If enough potential buyers join you, prices and rates drop further. Delay is further rewarded and action is punished. Too much of this and the market slips into a deadly spiral of crashing prices.

But when inflation is high and growing, anything you want to buy will cost more tomorrow than today.

Buy that house (or car, or appliance or anything else) today and beat the price increase. Delay is punished with higher prices later and action is rewarded. Buyers become ever more motivated. Sellers become ever more reluctant. Too much of this and the market slips into a deadly spiral of increasingly worthless currency people are desperate to exchange for goods.

“Hyperinflation is often associated with wars or their aftermath, political or social upheavals, or other crises that make it difficult for the government to tax the population.” Mmmm. The quote is from Wikipedia and sounds a lot like our current situation to me.

Governments love a little inflation. They can add money to the system, keep the economy humming and not have to raise taxes or cut spending to do it. In fact, it is sometimes called “the hidden tax” because it erodes the buying power of our currency. It also allows debtors, like the government, to pay back their creditors with “cheaper dollars.”

Given all this, it is hard not to see increasing inflation on our horizon. In fact, it is far more likely today than any deflationary depression.

The good news for our VTSAX wealth building strategy is that stocks are a pretty good inflation hedge, as long as it is moderate and builds slowly. After all, as we’ve discussed, in owning stocks we own businesses. These businesses have assets and create products. The value of those rises with inflation.

Still, if inflation rises too far too fast we’ll want to have something that reacts more quickly. So too for deflation.

The decision every investor must make is how much risk to accept in the wealth building process. Looking at the past 100+ years, you have to ask yourself whether it makes sense to focus on the Big Ugly or to invest for the relentless rise that dominates.

But they are rare and in the context of our overriding approach—spend less than you earn, invest the surplus, avoid debt—they are survivable.

This is the first post of the blog:

The more able you are to live like the Monk, the more likely you are to live like the Minister.

Next time we’ll look at specific investments to build and protect our wealth. As I promised in Part I, you won’t believe how simple it is.


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Important Resources

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  1. Trish says

    Jim, these posts are so good – I spent part of my Sunday afternoon going back over some of the older ones. I’m going to make them required reading for my sons.
    Thanks so much – enjoyable, clear – if only you’d started this about 20 years earlier!

    • jlcollinsnh says

      Thank you so much for the kind words. You made my day.

      20 years ago I had a pesky job that got in the way….

      …plus I didn’t know what a blog was back then. 🙂

  2. vinoexpressions says

    Sage, simple advice. Love it. Spend less than you earn, invest the surplus, avoid debt. I will be tuning into your blog to harvest investment wisdom. Well written and very readable insight into how to manage money – personally. Nice.

  3. Yuriy says

    My observation when I saw that chart in your previous post:
    If one put in half his money in 1929 and kept the rest in cash, then bought in at the low, he would have an almost 300% gain by the 1937 high. The big crashes make a pretty good argument for dollar cost averaging and sticking to the plan of buying when others are panicking.

    • jlcollinsnh says

      Hi Yuriy…

      Thanks for stopping by!

      The challenge in what you describe is knowing where that bottom is. While waiting the half in cash is unproductive and thereby reducing returns.

      Many people expected the 2008 debacle to mimic 1929 and stocks to shed 90% again. They are still waiting to invest the cash they raised.

      Personally, except for the cash I keep on hand for up coming needs, I prefer to keep my money working full time.

      But certainly buying when others are in panic mode is a very good thing.

  4. Shilpan says

    Jim, I think the key is to consistently invest in the best companies of America so that your risk gets spread out. I am also against margin trading. No one should do that. I use one simple approach to protect my gain. When both DJIA and NASDAQ go below 50 DMA(Day moving average), I sell everything and wait for the trend to be up. I sell weaker stocks first because they normally go down in value quicker than stronger stocks. I loved this article. You’ve inspired me to research 1929 crash to see how one could have avoided painful 90% loss. 🙂

  5. Head Farm Steward says

    “A little inflation can be a very healthy thing for an economy. It keeps the wheels greased and running smoothly. ”

    “…it is sometimes called “the hidden tax” because it erodes the buying power of our currency. It also allows debtors, like the government, to pay back their creditors with “cheaper dollars.””

    Stealing from savers? Punishing lenders? Incentivising reckless borrowing with low rates? Raising prices? Sounds healthy to me. Just how much theft is the right amount to keep the wheels greased?

    I also take exception to your description of deflationary environments. You don’t wait to buy something you need. You buy it. Yes, it may cost less (or more) in another year…but you need those eggs today. Deflation makes life easier for those with savings but punishes those who borrow. Unfortunately for governments, deflation also lowers tax revenues…hence the inflationary policies.

    Sure deflation can lead to a spiral of falling prices. Even the poor can buy more stuff! Inflation leads to a spiral of increasing prices. Who wins then (now)?

    And why do you tie falling prices to falling rates? Rising rates lower home prices…at least, they did when I was a kid. You buy less home per payment at 16% than at 3% so the price has to fall.

    I absolutely agree that hyperinflation is more likely than deflation. History has proven that. If interest rates rise the gov’t is in real trouble. So…Damn the torpedoes!

  6. Clint says

    There’s a lot of noise these days about the “bond bubble bursting.” Is this a perfect example of the kind of noise one should tune out if in for the long haul (20+ years), or is this an actual long-term concern that should make one wary of bonds?

    I’m 34, in the wealth building stage, and currently allocating 20% to VBTIX.

    Thanks so much. I can’t tell you how much I appreciate, enjoy, and share your investing series.

    • jlcollinsnh says

      Great question Clint …

      And it deserves a more complete answer than I can tap out on this little phone.

      Do me a favor? In late September repost it under the post on bonds. I’ll be back from Ecuador by then and at my computer keyboard.


  7. Andy Lomon says

    Hello Jim,

    Amazingly well explained! Unfortunately in the 3rd world (aka here! [Argentina]) we have the evil twin to deflation, that is between 25-35 inflation for at least the last 5 years in a row. And to make it worst, unclear/uncertain official statistics.

    So if I got it right when inflation comes you want to be invested (mainly stocks-VTSAX) and when deflation hits you want to be in cash / bonds?


  8. Sunflower says

    Hi Jim,

    Came across your blog via a friend’s recommendation; love it! Thank you so much for the helpful tips!

    Quick question-I noticed the y-axis on the graph you used to show the DJIA on this page was skewed to be top heavy, thus exaggerating smaller movements in the early years of the DJIA, while compressing the fluctuations in the later years. When I took a look at the DJIA/SP 500/VTSAX over the last 20 years or so, the cyclical cycle of the market meant depending on when you started to invest, either many years would be required to get back to original levels, or you would have made a strong return on the upswing.

    Do you think it would be possible to monitor certain metrics to use as a rule of thumb to know when to buy or sell to minimize the downside? e.g. >10% decrease from the peak within 2 months =sell all VTSAX; >10% increase from lowest point over 2 months = buy VTSAX with all available funds.

    You address this in some of your posts, and the comments sections that because there is no way we can be clairvoyant, and thus we should keep to our investment philosophy and buy as the prices fall. Perhaps I am missing something deeper?

  9. Dean in Denver says

    Love your blog!

    This DJIA chart you use always throws me off because it’s on a logarithmic scale (assuming this is done so it actually fits on a somewhat normal size page). The upward trajectory is even more impressive on a normal graph.

    Dean in Denver

    • jlcollinsnh says

      Hi Dean…

      Truth is, I use that chart because it is the one I found at the time. 😉

      Do you have a link to the one you are referring to? I’d love to see it.

  10. WonkyTonk says

    Hey! Love the blog, I think I read the whole thing before swinging back to this page to ask this question, and I even bought your book! The dates on the comments definitely show that I’m late to the party so I wonder if I’ll hear a reply. Please redirect me if I didn’t find this question addressed elsewhere.

    I’m just recently finding out about the FI/RE lifestyle. So I’ll hapily admit I’m a noob who has no business trying to time the market, but how can I can I throw a minimum 10grand of my savings into an index fund with all current stock predictors you cite in this very post telling me not to buy? I’m hesitant to begin investing when the P/E ratio has been so high the last few months. The Dow is about to cross 20,000 for the first time and a google search shows multiple articles about “experts” claiming it can go to 40,000 in the next few years without a drop. The market is about to be deregulated in the next year or so, so its garunteed to become more volitile, and what goes up must come down…

    Basically, I’m trying to say it sounds to me like reality is starting to look a lot like the scenario before a stock crash you create in this blog post. I don’t mean to sound like the new kid in school trying to teach the class, and I sure as hell don’t want to even pretend to be able to time the markets. But how can I not feel like the greater fool when I’m buying my minimum investment in VTSAX for the first time when stock prices are quite literally the highest they’ve ever been?

    • jlcollinsnh says

      Hi WT…

      If you’ve read everything here and you are still wringing your hands there is probably nothing more I can say to help.

      But I will point out that even as you say “I sure as hell don’t want to even pretend to be able to time the markets” you go on to say looking at your tea leaves tells you we are on the edge of a market crash. You’ll want to decide which it is and act accordingly.

      Should you chose to invest in the market you’ll need to get used to the idea that it will periodically drop, that these drops are unpredictable and you’ll just have to ride them out and not panic.

      But you’ll also have to get used to the fact that frequently, most often in fact, you will be investing/have your money invested when the market at is at all time highs. Look at the chart in this post.

      In the year 2000 it was ~11,500. It dipped to ~7500 in 2009 and now is entering 2017 it is pushing 20,000. When I started investing in 1975 it was ~800, down from pushing on 1000. It finally crossed that in 1981, and everyone was wringing their hands over this all time high.

      I have no idea what the market will do this year, or next. But history tells us 20, 30, 40 years from now we’ll look back an say “Man. Those lucky dogs in 2017 got to buy stocks when the market was only at 20,000.”

      • WonkyTonk says

        Thanks for the fast reply!

        I feel like a big fat dummy because right after posting this I went straight to the “raging bull” article again, and now you’ve linked to it in your response now. Just shows I’m gonna have to read over the series again as well as your book, and a few others. Now that I’ve reviewed things and gathered my emotions, I do feel comfortable in the highs and lows of the market and riding it out until I’m FI/RE, but I guess I just had the same sticker shock that Wendy had before making the leap. The Mad-Fientist’s comments in that article really helped as well, and looking back to see smart guys like him have the same concerns in 2013 that I have now really put things in perspective. I really do wish I wouldve bought in at those record highs that were causing such anxiety in 2013, so why wouldn’t I do the same now in 2017?

        I guess my real concern was: “come on guys, now that I’m actually the one committing my own money and paying attention to the stock market, this has to be the exception that proves the rule right? You’re not actually going to let me do this right?” I think everyone goes through that same sort of sticker shock before making anytype of commitment with their money. I did the same thing with a new car loan, and thats hands down always a miserable financial decision but I’m still alive to this day despite it. Investing long term is hands down always a good financial decision, but it really shows that you can’t control your emotions. I guess I should be glad I’m able to show my silly anxieties anonymously online, and have it preserved for others years from now to look at just how I did with Wendy and Mad-Fientist. Thanks!

        • Jeff says


          My advice would be to read this blog, MMM, Mad Fientist, and the likes EVERYDAY until your emotions are under control. I’m not being sarcastic when I say that either. I started reading these types of blogs about 3-4 years ago, and it has changed my life. You WILL get to a point to where investing feels very simple, and the market going up and down is no big deal. As a matter of fact, when it does go down, you will be scrambling looking for money to BUY more, not sell. Read, read, read (and re-read) about this stuff daily.

  11. Brad says

    Mr Collins,
    I absolutely love your blog and your book! It has changed how I view money and I am pursuing FI with determined rigor using the methods prescribed by you. I have a question. Most of your posts explain all the reasons why your methods will overcome most financial doom scenarios. I am thinking about the these events another way. Rather than explain why the investing methods you tout are mostly invulnerable and will not fail due to inflation, crashes, etc. Have you considered this scenario. Your investing advice has failed and now you need to determine why it failed. In the military this is called a pre-mortem analysis. So rather than looking at what might go wrong (inflation, crashes, etc) and why your strategy will over come these obstacles. You look at the situation as that it has failed and what did go wrong and you generate ideas as to why the plan failed. I’d be curious to hear if you have analyzed your investing strategy in this way and what you determine. I hope this does not come off as an over zealous skeptic trolling your blog. I thoroughly enjoy your information and am implementing it in my life. I’m just curious. Thank you for your time.

    • Jeff says

      Not speaking for Mr. Collins, but the ONLY way this plan could fail is the market crashes and NEVER recovers — goes to zero. And if that happened, the world would be in chaos. And nothing you owned, including gold, would be worth anything.

      This plan is as fail-safe as you can get. You can have minor arguments on stock and bond splits (I’m more for all stocks — 80%+), but that’s it. And whatever argument you have over that is fairly minor in the grand scheme of things.

      As long as we have money and markets, and the world “as we know it”, you can’t lose following this advice.

    • jlcollinsnh says

      Jeff sums it up well. (Thanks!)

      For this approach to fail would require the complete failure, beyond recovery, of the US economy. Something along the lines of what happened to Japan and Germany at the end of WWII.

      Stay tuned. I’m working on a post that touches on this. Should be up soon.

  12. Paul says

    Hi, I love this blog and have now read all of the series. Thank you for your time and effort to help educate. I have certainly learned a ton. I have a question about the recovery after the big event. It’s easy to look at the graph and say, “well, if you left your money in, you would have eventually recovered.” My question is, does that cover all of the businesses that went out of business? My thinking is that the recovering your stash would be possible only assuming all of the investments still had at least some value on which to grow at the bottom. Clearly that wasn’t the case although I have no idea how many companies closed. My second question is, does an index avoid this scenario because there will always be at least some value?

    • jlcollinsnh says

      Hi Paul…

      Yep, in includes all the businesses that went under and all those created that replaced them. This is what I mean when I refer to the index and VTSAX as being “self cleansing”

    • jlcollinsnh says

      Thanks Nick!

      Some HS and college teachers have told me they do use my book in the class room. Very cool, but not common. 🙂

  13. Thomas M says

    Mr. Collins,
    Thank you for the great blog posts! I’m learning a lot. I noticed on the Dow chart that from the late 1950’s the climb up seems to be very steady with few downturns. Is there a correlation between that and the frequent use of credit cards?
    Meaning, people have much easier access to credit and credit cards, so, in a panic they will go to credit to cover expenses instead of pulling money out of their investments to pay their bills. My parents didn’t have credit cards (grew up in the 60’s) and paid for everything with cash and didn’t have money for investing at the time.
    Thanks again

    • jlcollinsnh says

      Glad you like them, Tom!

      When I look at the chart from the 1950s, I see a pretty wild ride as it moved up.

      As for the expanding use of credit, my take is that it has made the things you can buy with it much more expensive: Houses, cars, college. When people don’t have to come up with cash you can get them to pay much, much more.

  14. Peter says

    It sounds like the advice to “toughen up” and stay the course translates to: don’t panic and sell when things aren’t looking rosey. The market will come back up and you’ll recoup your losses. However, what if the fund doesn’t survive or, in the worst case, the entire financial institution goes belly (Lehman brothers)? What should you do?

  15. JE- says

    Whilst working I have zero fear of these crashes, even if i got made redundant I would get 4 months pay and share scheme that I have been paying in all tax free to help with costs with a partner luckily willing to pay our costs so we can take advantage of a potential redundancy and split the benefits. (Yes I am very lucky in this case )

    However, I try to imagine myself in wealth preservation mode whilst using my pot as an income and it does start to feel scary if the markets drops in retirement..for me when I quit I will quit and I see having to take on unwanted work to pay the bills as my plan failing..if I can find work that I enjoy alot regardless then great but also unlikely as I absolutely hate working as a concept unless of course I find my own sidegig where it becomes more or less a Passion (ideas are not my strong point though)

    People mention 2008 as some really scary time which of course it was, but when I look at the backrests 2000-2002 saw 3 years of decline in the markets due to the tech crash…for me that is alot worse if you are retired? As a result I think it’s brilliant you advise People to have 25% in bonds as this would often cover periods like this one. I always wondered why bother with bonds and only after seriously looking into how I would feel seeing my stock crash in retirement this made me realise how good this advise was.

    Having said that, what happens over time is this significantly acts like a drag on returns Vs 100% stocks,

    It’s a tricky one for me to figure out what I should do once i do reach FI as I don’t want to be selling stocks in a major down market but also don’t want the drag that bonds inevitably have .I guess I want the world but you got to try i guess 🙂

    • jlcollinsnh says

      You’ve hit on the challenge, JE…

      …and it can indeed be tricky to sort out the balance that best serves your needs and temperament. You might find this post useful:

      It might also be useful to remember that when drawing on your portfolio in retirement, you will first take the dividends from the stock fund (~2% for VTSAX) and the interest from your bond fund (~3% for VBTLX).

      Assuming you are using the 4% rule as your withdrawal guideline, this means you will only be selling ~2% worth of shares per year to make up the difference. Not quite as scary even in a multi-year downturn.

      • JE- says

        thanks for the sharp response – much appreciated,

        point taken on the share selling but I was thinking the affect that has if you get 3 solid years of decline? i guess if you take the dividend only plus any interest on bonds then this would not be as bad but would be a major loss in income during those 3 years?

        i know your US based but for the UK / Euro folks like me would you recommend a global bond fund? this seems similar to the total US bond but obviously with alot more bonds in the fund?

        looking at a global bond fund during the crashes this one seemed to hold up very well.

        • jlcollinsnh says

          No, you’d be keeping your income at the same 4% withdrawl and that would be the same mix of ~2% in dividends and ~2% in share sales. My point was simply, in a down year, you are only selling 2% at the low prices. Over the course of 3 years, you still would have sold only ~6%.

          If I were based outside the US, I might well go with global funds like the ones mentioned in this post:

          • JE- says

            Thanks again for the quick feedback

            So, you are implying you are selling the lower 2% of the pot along with the 2% lower amount of dividend? So a more variable % method than a strict 4% rule method?

            Makes sense – let’s just hope it doesn’t stay -60% for 3 years 🙂

  16. Kyle J says

    I have to say, this is one of the best series on the internet on practical finance. Anyone can understand and I have recommended to several people.

    What I disagree with you on is inflation. Inflation is not necessary for a healthy economy. It is a hidden tax on the non-elites (everyday Americans) and manufactured by a private banking cartel (The Fed) with no oversight and unlimited power for the sole purpose of control and power over the masses.

    These booms and busts are not natural and are a direct result of reckless fiat money creation (QE) backed by nothing. The fed forces people into the market because of their reckless money creation eroding the purchasing power of your wealth.

    The dollar has lost almost all of its value since the creation of the Fed on Jekyll Island back in the early 20th century and I’m afraid this house of cards built on fake money and malinvestment will one day come to an end at the expense of the masses.

    Thanks for your hard work and education



  17. Victor Emanuel Vulpescu says

    I don’t agree with you. If you listen to Ray Dalio, we are in a similar scenario as the 1930s. We’re heading to the Big Depression, the longest winter in our lifetime. I am very enthusiastic about the depression coming since my exposure is 100% on cash and short term individual local bonds.

    With the depression coming, I will have so many opportunities to buy real estate and stocks at discounted prices. Given the time frame, I believe having more than 90% in cash is the way to go and only a small lump sum in stocks just for play money and DCA the future cash flows.

    The vast majority of your assets have to be preservation as Nicolas Taleb says. If you might see any risk for a hyperinflation, you can hold gold or real estate as a hedge. I believe the risk of a hyperinflation in Europe is close to 0. Actually inflation is at record lows, only 1.2% today.

    What I believe is more likely to happen is to have a deflationary crisis which would be pure gold for our cash. Liquidity will help you buy cheap assets at discounted prices. This is the hugest opportunity of our lifetime. Cash will become king. Winter is coming! Dracarys!

    I am waiting for the bubble to burst and for my cash to be deployed soon. Do not miss this one in a lifetime opportunity to get rich and live like a boss. Cash pile will make more profit than any other asset classes if you build it now.

    • jlcollinsnh says

      Hi Victor,

      Thanks for your comment!

      Mr. Collins is currently traveling and unable to respond just now.

      We find for most questions, he has already covered the topic. Using the Search button might very well provide your answer. If not, please post your question again after October 15, 2019.

    • Ryan G says

      If I may ask, how’s that working out for you? Hopefully you have not sat on cash this whole time and missed out on these great returns!

      There are always people preaching doom & gloom, recession, depression, etc. It’s always “just around the corner.” Personally I try to tune them out.

  18. ZZ says

    Hi JL,

    I know you say never to buy stocks on margin but what about using equity against your investment property to buy stocks?

    Also, here in Australia we have an investment loan available to us from a bank called “Equity Builder” which is simply an investment loan for approved ETFs with no margin calls, interest rate is around 4.3% (variable). it’s a principal and interest loan between 3 years and 10 years. seems pretty safe as there are no margin calls. Interested in your thoughts

    • Edwin McQ says

      hey mate, im in WA. i havent checked the link but do you need to own property to be able to access this “loan”?

      now would be the perfect time to utilise that tool

  19. Lee says

    Due to the Zimbabwe crash it made me a trillionaire almost overnight. I bought a note off eBay for a few quid, framed it on my wall and over excelled at being a millionaire in a get rich quick scheme!
    Back to the low cost ETFs index funds and the slower and better defined, successful goal of being financially independent 😉

  20. Michael says

    Hi JL,

    I purchased your book 2 years ago (, read it, and loved it. I am in my 30s, have plenty of years until retirement, and have allocated my portfolio to be long VTSAX and a few individual stocks.

    My question is concerning draw-down risk, and your thoughts on the most recent paper from Chris Cole of Artemis Capital Management:

    The paper advocates boldly allocating your capital to asset classes that both benefit from Secular Growth (Stocks, Bonds, Real Estate) as well as Secular Decline (Long Volatility, Gold, Commodity Trending) in order to MINIMIZE drawdown risk and maximize portfolio growth through all market cycles.

    I am skeptical of this approach (most notably holding gold) but it strikes me that the only question I STILL had after finishing your book was, “What to do if your are LIVING OFF YOUR CAPITAL and markets decline in the midst of your retirement and you are forced to draw on your investments in order to meet your financial obligations, thereby selling your ability to participate in a future economic and market recovery?”

    I am WITH YOU that VTSAX is the best path to build wealth. But it strikes me, “Is it best to have two separate investment buckets?”
    (A) The Get Rich portfolio – VTSAX
    (B) The Stay Rich portfolio – VTSAX, VBTLX, Long-Vol, Gold, and Commodity Trend


  21. Mark says

    I thought I might share my view on the big ugly event and how I will ‘wrongly’ deal with it.

    At 31 years old;

    When the pandemic hit and the markets tumbled, I was not in the least bit concerned. I knew that a time would come when people would once again become ‘good consumers’ to my benefit.

    I surprised myself with my complete lack of concern when watching my precious net worth decreasing. The crashes are very characteristic of the markets and ultimately aid returns. Dividends repurchased cheaper etc.

    BUT this was a tiny crash. I tell my self that I can withstand a 60-70% crash. In that I mean to not sell. I am extremely confident I can. Where else would I want my money to be? If it’s in Coca-cola, McDonald’s, etc etc that’s simply great.

    BUT as humans we have the urge to take actions. Riding the storm is an action. The best action. JL Collins tells us that if we can’t follow the plan then we should not even consider it. But we have an urge to do more than nothing when the world appears to be crumbling.

    My incorrect strategy is that I hold 3% of my portfolio in gold.

    When the certain crash arrives I can sit back knowing that I do have a card to play at some point. I can make an action. When the market is down 50% I will deploy my gold into VTSAX. VTSAX will be a bargain and my gold should have increased in value. I will be smug for months.

    The problem with my strategy is that human emotion comes into play. Will I really deploy the gold at the 50% crash level? Or will I deploy at 40%? Etc. Why am I watching my gold perform so poorly as VTSAX is marching up?

    I am very comfortable with adopting JL Collins mindset to investing. But as I wasn’t burnt like him in the late 1980’s I feel I personally need to hold a little card to play. The rules of investing aren’t ‘burnt’ into me in quite the same way as I have not felt them.

    When my gold has been deployed I will have no gold for the following big ugly event. But after riding the above mentioned event, I will be a more learned person.

    Plus my ‘wrong’ strategy is far cheaper than employing a Financial Advisor to hold my hand.

    JL Collins, your book truly has provided me with a great deal of certainty in life which in turn is allowing me to enjoy doing the things I love in a far less anxious state!

    Many thanks for that!

  22. Ken says

    Hi JL,

    I’m a big fan of your book and your no-nonsense articles. I do have a question regarding Lesson Three of the above article of selling of stocks when ‘everybody’ is talking about it. Doesn’t this go against your rule of not trying to time the market? If you don’t need the cash, wouldn’t it be better to continue to DCA into the stock/ETF and rebalance your stock/bond allocation once or twice/yr and continue to grow your net holdings? Or do you recommend a little defensive selling to lock in profits and wait in cash/bonds for a downturn?

    Thank you for your time,


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