Stocks — Part VI: Portfolio Ideas to Build and Keep Your Wealth


Today we’re gonna look at the fun stuff. What, exactly, can we use to build and keep our wealth.

I’m going to give you three portfolios each using the tools (funds) we discussed last time. First will be exactly what I tell my 20-year-old to do. She couldn’t care less about investing. With this simple approach she doesn’t have to. All she needs to do is to keep adding to the pot and let it ride.

Years from now she’ll wake up rich.

Along the way she’ll out-perform roughly 80% of the more actively engaged investors out there. We’ll call this The Wealth Building Portfolio.

Next I’ll share with you what Mr. and Mrs. jlcollinsnh do as the semi-retired couple we are. We’ll call that one The Wealth Preservation and Building Portfolio.

Your personal situation is likely different from ours. But using these two as parameters, and after reviewing your personal “considerations” as we discussed last time, you should be able to fashion the four tools into something that works for you. If you have questions, just post them in the comments and we’ll work through them together.

Finally, I’ll share with you an idea I’ve been playing with of late. Let’s call it The Wealth Building with Cash Insurance Portfolio. I know I’ve got some pretty sharp investors reading this blog and I hope they’ll weigh in with some opinions on it.

The Wealth Building Portfolio.

Here’s the thing. If you want to survive and prosper as an investor, you have two choices. You can follow Dr. Lo’s advice and seek out broad diversification with asset allocation. Your hope is that this will smooth out the ride even as it reduces your long-term returns.

Screw that! You’re young, aggressive and here to build wealth. You’re out build your pot of F-you Money ASAP. You want what’s behind door #2. You’re going to focus on the best performing asset class in history: Stocks. You’re going to “get your mind right,” toughen up and learn to ride out the storms.

You’ve heard the expression, “Don’t keep all your eggs in one basket.”

You’ve likely also heard the variation, “Keep all your eggs in one basket and watch that basket very closely.”

Forget it. Here’s what your old uncle jlcollinsnh says:

Eggs in a basket

Put all your eggs in one basket and forget about it.  

The great irony of investing is the more you watch and fiddle with your holdings the less well you are likely to do. Fill your basket, add as you go along and ignore it the rest of the time. You’ll likely wake up rich.

Here’s the basket: VTSAX. No surprise here if you’ve been reading along in this series so far. Stock Index Fund. Low cost so almost all our money is working for us.

Owning 100% stocks like this is considered “very aggressive.” It is and you should be. You have decades ahead. Market ups and downs don’t matter ‘cause you avoid panic and stay the course. If anything, you recognize them as the “stocks on sale” buying opportunities they are. Perhaps 40 years from now you might want to add a Bond Index Fund to smooth out the ups and downs. Worry about that 40 years from now.

At this point I can see the financial gurus of the world gathering feathers and heating up the tar. So let me explain.

Previously, we explored the idea that financial crisis are just part of the landscape and the best results come from simply riding them out. You can’t predict them. You can’t time them. Over your investing career you’ll experience many of them. But if you are mentally tough enough you can ignore them.

So now if we agree that we can “get our minds right,” what shall we choose for riding out the storm? Clearly we want the best performing asset class we can find. Just as clearly, that’s stocks. If you look at all asset classes from bonds to real estate to gold to farmland to art to racehorses to whatever, stocks provide the best performance over time. Nothing else comes close.

Not even close

Let’s take a moment to review why this is true. Stocks are not just little slips of traded paper. When you own stock you own a piece of a business. When you own VTSAX you own a piece of every publicly traded business in the USA. Many have extensive international operations so you get to participate in the world markets too.

These are companies filled with people working relentlessly to expand and serve their customer base. They are competing in an unforgiving environment that rewards those who can make it happen and discards those who can’t. It is this intense dynamic that makes stocks and the companies they represent the most powerful and successful investment class in history.

Because VTSAX is an index fund we don’t even have to worry about which will success and which will fail. It is “self cleansing.” The failures fall away and the winners can grow endlessly.

A portfolio of 100% stocks, which is what VTSAX gives you, in study after study provides the greatest return over time.

The only downside, and I mean only, is that the ride will be very rough at times. Admittedly, it’s a big one. If you are not tough enough to stay the course, if you get scared and bail when the storms are raging you are going to drown. But that’s a failure in you, not a downside of this asset class.

As an aside, there are a few studies that indicate that a 80%/20%, stock/bond mix will actually outperform, very slightly, 100% stocks. It is also slightly less volatile. If you want to go that route and take on the slightly more complicated process, you’ll get no argument from me.

Could it really be this easy? Yep. I started investing in 1974. At the time VTSAX had yet to be created (Bless you Jack Bogle!), but just $15,000 invested in the Dow stocks, and left to ride, by the end of 2011 would be $1,000,000. This despite all the panic and collapses and recessions and disasters that we’ve endured during these last 38 years. Imagine what you’d have if you’d kept adding to the pot along the way.

Unfortunately, I wasn’t smart enough at the time to do it. But this is the Simple Path to Wealth I created for my then 19-year-old daughter: Put all your eggs into one basket, add more whenever you can and forget about it. The more you add the faster you’ll get there. Job done.

The Wealth Preservation and Building Portfolio.

But wait you say, I’m at or nearing retirement. I’ve built my wealth. Now I want to hang on to it. I want a smoother ride. What then?

Yeah, me too. A few years ago as I was nearing my own retirement I made some additions to VTSAX. Hold on now, this is going to get really complicated. You’re going to have to add two more index funds. Oh my!

We now enter the world of Asset Allocation and this will require slightly more of our time. In addition to adding the additional funds we’ll want to decide how much to allocate to each. Then once a year or so we’ll want to rebalance to keep the allocations where we want them. This is also what you’ll be doing if you use the 80% stock/20% bond mix option above. It’s going to take a couple of hours once a year. You can handle it.

100% stocks, even in the broadly diversified VTSAX, is considered very aggressive. High short-term risk (read: gut wrenching drops) rewarded with top long-term results. Perfect for those who can handle the ride and have the time.

But it’s not for everybody. Maybe you don’t want to deal with this level of risk. Maybe a bit more peace of mind is required. As you get older you might want to smooth the ride a bit, even at the cost of lower overall returns. You have to sleep at night.

Now that I’m kinda, sorta retired and we have F-you Money, my wife and I hold some other stuff in our portfolio.  But not much. Here it is:

50% Stocks. VTSAX (Vanguard Total Stock Market Index Fund). Still our core holding for all the reasons we’ve discussed.

25%  Real Estate. VGSLX  (Vanguard REIT Index Fund) and the equity in your home if you own one. REITs (Real Estate Investment Trusts) invest in real estate. They provide an inflation hedge and dividend income. But during periods of deflation real estate prices plummet. (Important: I no longer hold VGSLX. Please See Addendum I below for how this has changed)

Yin Yang

REITS are the Yin to our Bonds’ Yang.

20%  Bonds. VBTLX (Vanguard Total Bond Market Index Fund) Bonds provide income, tend to smooth out the rough ride of stocks and are a deflation hedge. But during times of inflation and/or rising interest rates they get hammered.

5%  Cash. Cash is always good to have in hand. Cash is also king during times of deflation. The more prices drop, the more your cash can buy. But idle cash doesn’t have much earning potential, and when prices rise (inflation) its value steadily erodes.

We mostly keep ours here: VMMXX.  Money Market Funds used to offer higher yields than banks. When rates rise they will again. These days, with interest rates near zero, not so much. Now we also keep some in our local bank. If you prefer, an online bank like ING works fine too.

So that’s it. Four simple tools. Three Index Mutual Funds and a money market and/or bank account. A wealth builder, an inflation hedge, a deflation hedge and cash for daily needs and emergencies. Low cost, effective, diversified and simple.

You can fine tune these investments to your own personal considerations. Want a smoother ride? Willing to accept a lower long-term return and slower wealth accumulation? Just increase the percent in VBTLX. Comfortable with volatility? Want more growth? Add more to VTSAX. Expecting higher inflation? Add more VGSLX .

The Wealth Building with Cash Insurance Portfolio.

Confession time. I hate bonds and I’m not all that keen on REITs either.

The more I own of them, the less I own of stocks and, as we’ve discussed, stocks are far and away the best performing asset class. So, each dollar not in stocks is a dollar working below par.

Since I consider these dollars are my employees, I want them working full time all the time.

Problem is sometimes (to beat this analogy to death) financial panics and market collapses come along and kill off a bunch of my employees working away in the stock market. It’s nice then to have others less stressed to pull from the bond and REIT fields to take their place. But still, even these tend to get wounded in a collapse.

The cash employees on the beach their feet up in the lounge chairs, slathered sun tan oil and sipping cool drinks get fat and steadily worth less. But when collapses come they are away from the bullets. They are the most rested of all when I put them back to work. Their laziness drives me crazy, but when the crunch times come I always wish I had more of them.

Let’s look again at the The Wealth Preservation and Building Portfolio above, figuring we have a million in it:

  • 50% of our dollars in the stock market working full tilt in the hot sun. $500k
  • 25% with easy duty in REIT. $250k
  • 20% with really easy duty in bonds. $200k
  • 5% napping in the sun on the cash beach. $50k

You could easily pull about 4%/40k from it each year for your living expenses and ride out most financial storms. But you are giving up a big slug of wealth building potential. Since most financial storms last less than three years, maybe there’s a better way. What if we did this:

  • 88% of our dollars working full tilt in the hot sun. $880k
  • 12% napping in the sun on the cash beach. $120k

Since most of the time the market goes up, this portfolio will have a far stronger ability to build wealth. We can draw our $40k from the dividends and capital gains our stocks in VTSAX throw off.

When times get tough and stocks slide, we leave VTSAX alone and let it heal. With a $120k/three year cushion in cash, we can pull those dollars off the beach to spend in the meantime.

When times improve, we go back to tapping VTSAX and we rebuild our cash position for the next cycle.

Mmmm. I haven’t convinced myself just yet. What do you think?

Addendum #1: Please note—I no longer hold VGSLX. Please see Stepping away from REITs for a discussion as to why.

Addendum #2: What if you can’t buy VTSAX? Or even Vanguard?

Addendum #3: Recently I’ve been reading a new blog that has impressed me: Bucking the Trend (note: this blog no longer exists). This link (removed) takes you to the post outlining his new portfolio. While different than those here, it follows the key principles: It’s simple and it uses low cost index funds. And that’s the point.

 I don’t see the need for International Funds and he wants more international. You know what? Long-term (and that’s the only way to think about investing) it will work just fine. Simple and low cost trump the differences. So consider this one more Portfolio Idea to Build and Keep Your Wealth.

Addendum #4: This is a great example of the right way to use and think about VTSAX

Addendum #5: The Path to 100% Equities

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Important Resources

  • Talent Stacker is a resource that I learned about through my work with Jonathan and Brad at ChooseFI, and first heard about Salesforce as a career option in an episode where they featured Bradley Rice on the Podcast. In that episode, Bradley shared how he reached FI quickly thanks to his huge paychecks and discipline in keeping his expenses low. Jonathan teamed up with Bradley to build Talent Stacker, and they have helped more than 1,000 students from all walks of life complete the program and land jobs like clockwork, earning double or even triple their old salaries using a Salesforce certification to break into a no-code tech career.
  • Credit Cards are like chain saws. Incredibly useful. Incredibly dangerous. Resolve to pay in full each month and never carry a balance. Do that and they can be great tools. Here are some of the very best for travel hacking, cash back and small business rewards.
  • Empower is a free tool to manage and evaluate your investments. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. At a glance you'll see what's working and what you might want to change. Here's my full review.
  • Betterment is my recommendation for hands-off investors who prefer a DIFM (Do It For Me) approach. It is also a great tool for reaching short-term savings goals. Here is my Betterment Review
  • NewRetirement offers cool tools to help guide you in answering the question: Do I have enough money to retire? And getting started is free. Sign up and you will be offered two paths into their retirement planner. I was also on their podcast and you can check that out here:Video version, Podcast version.
  • Tuft & Needle (T&N) helps me sleep at night. They are a very cool company with a great product. Here’s my review of what we are currently sleeping on: Our Walnut Frame and Mint Mattress.


  1. Shilpan says

    I like the idea of wealth building with cash. It’s your fund to rely on when markets slide. What if markets slide for more than 3 years? I’m afraid that the way our government is printing money like a mad man, and borrowing from China, a payday will be ugly. And markets may fall until we can get our financial house in order. What if you add reserve up to 5 years? Or as you keep growing your nest egg, increase % of cash reserve accordingly. So, a young person may not need much but an older person may need higher percentage of cash reserve to ride out market volatility. Just a thought.

    • jlcollinsnh says

      Since I hold your opinions in such high regard, Shilpan….

      I’m intrigued and encouraged you find value in the idea.

      When I look at the 2008-09 debacle I see a three year climb out of the hole. Since this was the biggest hit since the Depression, and since I think it’s a mistake to build a plan around the possibility of a rare event like a Depression, three years seems a good line. It keeps the majority of capital at work while providing cash to ride out even a very nasty storm. I

      Were an upcoming storm to prove even nastier, we would have to tighten our belts to make it thru. But that is likely true with almost any asset mix.

      I’d be concerned that a five year cushion begins to hurt growth in the good times by keeping too much “on the beach.”

      Interesting idea about increasing the percent of cash as one ages. Maybe a very young person might even decrease it….

  2. WorkingRachel says

    While I strongly support most of this, do you have any thoughts on foreign investing? I tend to think it’s at least possible, if not likely, that over the course of my lifetime (I’m 31) American companies’ share in and dominance of the world investment market may decline. Given that any wage income I’m earning is also tied into the US economy, I’m inclined to put at least some of my money in foreign investments (of the index fund variety, of course, not in individual shares of random foreign companies). I currently hold some VEIEX and VTMGX–if you wanted to keep it simpler I believe Vanguard has an all-world-minus-U.S. fund, too.

    • jlcollinsnh says

      Welcome Rachel…

      ..thanks for stopping in. Great question!

      Regarding international funds you can certainly add them if you’d like. As you point out, Vanguard offers International Index Funds. They’ll serve you well.

      I don’t bother for these reasons:

      1. The US is still the dominate world economy and, in my view, will remain so for the next 100 years and counting. That dominance will shrink over time, as it has been doing since the end of WWII, but it is not ending anytime soon.

      2. VTSAX is loaded with US companies that are fully international in their operations. Indeed many generate well over half their revenue and profits overseas. So it provides exposure to expanding world markets.

      3. This trend will continue to expand as the international economies around the world continue to grow and prosper.

      4. Accounting standards and transparencies in the US remain the envy of the world. Less funny business to worry about.

      5. Direct international investing introduces currency valuations into the mix and that is a whole other level of risk that needs to be considered.

      Hope this helps!

      • Pedro says

        Points 2 and 4 are very valid. Points 1 and 3 are somehow speculative. Point 5…. well, Triumph of the Optimists is a fantastic compilation of 100 years of stock market data. There you can see that currency risk in the long run (20 years plus) is negligible or non-existent. So point 5 is valid for retirees.

        Fantastic blog.

    • jlcollinsnh says

      True enough, but in this strategy the cash would be there to prevent selling while the market is swooning.

      If you are keeping some cash aside to invest on drops, how do you decide when the market has dropped enough? Seems I always push my chips in too soon…..

      • 101 Centavos says

        Me too. But if a stock or fund was soundly valued at say, X, and nothing fundamentally has changed, it’s more of a bargain at 20 or 30 percent off. Calling a bottom and timing the market is a fool’s errand, as you say. I guess the trick is having the conviction huevos to double down.

      • Aaron says

        A little late to the party, but you need a systematic process for investing your cash. It can never be ‘shoot from the hip’ unless you are ridiculously disciplined and probably 1% of 1% of people are like that…

        So here’s an idea. Pick a number that you think the stock market will return on average over your lifetime. Don’t worry about being accurate, just guess. Let’s say 8%. You save your money each year. At the end of the year, you look and see what the stock market did that year. Did it return more than 8%? Awesome. Take your wife out to a nice dinner and celebrate. But leave your cash sitting there. Did it return less than 8%? Great. Put all your savings in the market. This forces you to buy on the way down, and not buy on the way up. Sure you’ll miss out on some nice rallies, but you’ll also buy in big when it’s down.

        I’m not saying everyone should do this, but this is an example of a systematic process. You could say you’ll save your money each year and buy in half for every 10% decline in stocks, and buy in with everything you have for every 20% decline. But by all means have a process if you aren’t going to dollar cost average each month.

  3. AverageJoe says

    Nice and clean! I love it. You include your home equity as real estate? That part surprises me. I don’t like including my house as an “investment”, though I always want to make a good investment decision when buying/selling property I’m gonna live in (like any other piece of the portfolio….).

    • jlcollinsnh says

      Thanks, Joe….

      …glad you like it and glad you’ve chosen to comment.

      I agree that a personal home is not an investment, but since it does soak up a big chuck of my net worth I like to include it as I consider my asset allocations. Make sense?

  4. Fuji says

    I may have asked this questions previously (can’t find the correct blog post if I did), but can I replace Total Bond Market Fund with Wellesley Fund? I know they aren’t the same, but Wellesley is mostly bonds, plus some dividend paying stocks and it seems it might work. I know this is probably obvious to everyone else, so apologies for the dumb question.

      • Fuji says

        I vaguely recalled I had asked the question previously – thanks so very much for such a thorough response! It’s nice to have a smart person’s brain to borrow on occasion. 🙂
        I feel much better about my choice now. I used to be spread out all over with Vanguard – Energy Fund, PrimeCap, V500 and more. Now I have 50% in Wellesley and 50% in a total stock fund via a 401K and I think I’m going to leave it and forget about it. We’re at least 10 years from retirement and even then I hope not to have to touch that money.
        Thanks again for such a substantive blog, I always am happy to see a new post.

          • Fuji says

            I have loads of questions, lol. You should consider a “ask me a question” button on your blog. You could cull them and use some as springboards for future posts.

  5. Nephi says

    I’m new to your blog, found it via the MMM blog. I really like this investing strategy but I am having a hard time understanding from looking at the chart for VTSAX on google finance how I would achive these massive gains that you are talking about. Overall, the chart does not indeed always go up. It drops to the bottom and then raises to the top, then drops to the bottom again but doesn’t seem to be going consistently up over the long term. And if you’re referring to the dividend income, for this past year it seems to be around 2% but it doesn’t look much higher or lower in any other years. Is this dividend income the only growth that is gained from the fund? Although after having another look at it I see that the dividend yield would be much greater if I were to purchase during a “sale”. I’m used to looking at dividend stocks so I’m not quite sure how to read the data from a fund. Up until yesterday I was planning on implementing the dogs of the dow strategy that Jacob from ERE recommends.

    • jlcollinsnh says

      Hi Nephi…

      Great question!

      The problem is VTSAX has only been around since about 2000.

      If you look at the chart from its inception what you are seeing is the last 10-12 years of exceptional volatility the market has been thru. If instead you’d been looking a chart from say 1982-1999, you be forgiven if you started to believe the market only went up without pause.

      Check out the chart here:

      This is the S&P 500 Index from 1950 and you can more clearly see the relentless upward bias. Or look at the chart I provided in Part IV of the series for an evan longer view.

      Now VTSAX is even broader based (all 5000 US based stocks) than the S&P 500 (the 500 largest) but that provides more diversity and should offer a slightly better performance over time.

      Dividends for VTSAX are around 2%. Sometimes higher, sometimes lower depending on the direction of the market at any given moment. Just like an individual dividend paying stock.

      If you haven’t already, you might want to read the rest of my stock series for more.

      Regarding the “Dogs of the Dow” strategy some love it and some loath it. There are plenty of conversations elsewhere, like ERE, on it. Since it’s not my 1st choice I won’t rehash them here.

      But for readers unfamiliar with the “Dogs” it is basically a strategy of buying the four or five highest dividend paying stocks from the 30companies on the Dow Industrial average. Since dividends rise as share prices fall the idea is that these companies have likely seen problems and a drop in their share price. Since they are large established companies and it is unlikely that they’ll go out of business, the bet is that the share price will recover and you’ll profit. Meanwhile you collect dividends in the 4-6% range.

      Each year you sell the winners and add the new dogs.

      I will say this. If I were trying to retire as early as possible with as little capital as possible I might consider it. This is what Jacob @ ERE did and, while I don’t recall his thoughts on the Dogs I can see where he might like it.

      Suppose you had 150k and wanted to hang it up. The traditional idea of a 4% withdrawal rate would give you $6000 in annual income. The Dogs might throw off 5/5.5% or $7500/$8250. That’s a big step up.

      For more on my thoughts on dividend investing:

    • jlcollinsnh says

      wow! that’s wild. but actually I’m surprised it doesn’t happen more often.


      …..I wonder if there’s an investment opportunity in tar and feathers?

  6. ddrem says

    Buying the indexes may have historically been the most profitable way to invest, but we can’t be sure that trend will continue.

    The stock market is a great vehicle for exactly two groups of people: institutions and corporate executives. For individual investors, it’s very much like a ponzi scheme since many companies pay none or only a tiny dividend these days. We have to hope that there is more money pouring into the stock market in the future to keep share prices rising if we hope to achieve our investment goals.

    But stock prices are a function of supply and demand. What would happen if demand left the market for a very long time? There could be any number of financial “disaster” scenarios or even more normal events which greatly reduce demand for stocks. e.g., What would happen if Baby Boomers moved out of the market and into more “safe” investments like bonds as they retired? As it clearly states in every stock market-related commercial: past performance is no guarantee of future results. And if everyone is basing their investment strategy on the belief that because it has always gone up over time it will continue to do so, that seems like a disaster waiting to happen. That is the same logic people were using for buying into the top of the tech bubble.

    And while index funds are surely a better bet than typical mutual funds due to lower management fees, in reality you are trading one stock-picker for another. The indexes aren’t static. The stock pickers at Dow Jones and S&P jettison poor performers and bring in newer stocks all the time.

    But what about the companies comprising the indexes? Their executives and boards are diluting the hell out of your shares with the options they grant themselves. And then they take the cash that could have been returned to you as a dividend and initiate share buybacks to cover up all of that dilution. They have found a great way to enrich themselves at your expense, and no one seems to mind much so long as the stock price continues to climb.

    Our economy and our stock market are not ATMs with a never-ending supply of cash coming out of them. They are vulnerable to many things beyond the control of anyone — even our politicians, central bankers, etc., as witnessed by the near-collapse of our banking system a few years ago. In 1494, the Pope divided the new worlds up between the two greatest world powers, Spain and Portugal. Anyone know how they’re doing now? And if the Roman Empire only lasted 1,000 years, America’s days are surely numbered too. The line may have been up for 100+ years now, but it won’t remain that way indefinitely.

    The stock market could revert to its original purpose of raising capital for corporations instead of being a vehicle for enriching the brokerages and corporate executives at the expense of shareholders. Companies could start paying real dividends again (higher than their bond rates since equity is inherently more risky) and stop diluting their shareholders. The politicians could gets their acts together and reform social security, medicare, etc., balance the budget and start paying down our national debt (~$15T with another ~$60T in unfunded/off-balance-sheet liabilities). And if all that happens in a timely manner, you’ll probably be just fine investing in the indexes. But if all the problems we’re facing aren’t solved, and demand contracts for an extended period of time, the stock market is probably not going to be the best place to put your nest egg.

    • jlcollinsnh says

      Hi ddrem…

      …and welcome.

      Reading thru your comment, pretty clearly we are going have to agree to disagree.

      My views are laid out in some detail in my Stock Series and address the issues you raise. In addition, below I’ll offer some thoughts point by point. I’ve put your words in quotes to separate them from my response for clarity.<

      "Buying the indexes may have historically been the most profitable way to invest, but we can’t be sure that trend will continue."

      True enough, but also true of anything at all. When it comes to predicting the future we have to work with what we have.

      “The stock market is a great vehicle for exactly two groups of people: institutions and corporate executives. For individual investors, it’s very much like a ponzi scheme since many companies pay none or only a tiny dividend these days. We have to hope that there is more money pouring into the stock market in the future to keep share prices rising if we hope to achieve our investment goals.”

      Not sure how the size of dividend payments makes stocks a Ponzi scheme.

      There is nothing magic about dividends. They are only one option companies can use for allocating their earnings.

      Basically there are four things (at least that I can think of off the top of my head) that companies can do with their profits.  They can pay them out as dividends.  They can use them to build the company.  They can buy back their own shares.  They can buy other companies. They can sit on them waiting for opportunities.   See I came up with a fifth!

      Further, dividends are not related to or dependent on investment money coming into the market or the stock paying the dividend. They are sourced from the earnings of the business.

      “But stock prices are a function of supply and demand. What would happen if demand left the market for a very long time? There could be any number of financial “disaster” scenarios or even more normal events which greatly reduce demand for stocks. e.g., What would happen if Baby Boomers moved out of the market and into more “safe” investments like bonds as they retired? As it clearly states in every stock market-related commercial: past performance is no guarantee of future results. And if everyone is basing their investment strategy on the belief that because it has always gone up over time it will continue to do so, that seems like a disaster waiting to happen. That is the same logic people were using for buying into the top of the tech bubble.”

      Supply and demand are only one force driving stock prices. This is the “foam” I describe in Part III:

      The other, and far more powerful, force is the earning power of the business your stock gives you ownership in.

      “And while index funds are surely a better bet than typical mutual funds due to lower management fees, in reality you are trading one stock-picker for another. The indexes aren’t static. The stock pickers at Dow Jones and S&P jettison poor performers and bring in newer stocks all the time.”

      There is a profound difference between what an active fund manager is attempting and the flow of stocks into and from an index.

      The active manager is trying to choose which companies will out perform their peers. Will JPMorgan do better than Bank of America?

      An index adds companies as their business grows to a sufficient size and discards them only when their business collapses below a minimum level. This is a very powerful process of self cleansing. I covered this in some detail here:

      “But what about the companies comprising the indexes? Their executives and boards are diluting the hell out of your shares with the options they grant themselves. And then they take the cash that could have been returned to you as a dividend and initiate share buybacks to cover up all of that dilution. They have found a great way to enrich themselves at your expense, and no one seems to mind much so long as the stock price continues to climb.”

      Certainly there are executive abuses in the board room, but they are not as common as you seem to believe. Shareholders can, and do, vote with their feet. If the execs and board of a company behave irresponsibly it takes surprisingly little time for shareholders to react and step away.

      It is hard for an individual investor to see this coming in any given stock, and that’s another reason indexes outperform.

      Finally, share buybacks are not done to cover up dilution, nor would they be effective in that roll. They are an alternative way to return value to the shareholders, exactly like dividends, but without tax consequences.

      “Our economy and our stock market are not ATMs with a never-ending supply of cash coming out of them. They are vulnerable to many things beyond the control of anyone — even our politicians, central bankers, etc., as witnessed by the near-collapse of our banking system a few years ago. In 1494, the Pope divided the new worlds up between the two greatest world powers, Spain and Portugal. Anyone know how they’re doing now? And if the Roman Empire only lasted 1,000 years, America’s days are surely numbered too. The line may have been up for 100+ years now, but it won’t remain that way indefinitely.”

      Here we agree. No great power lasts forever and if you believe “America’s days are surely numbered” certainly you might want to look elsewhere for your investments.

      But the US is still the dominate world economy and, in my view, will remain so for the next 100 years and counting. That dominance will shrink over time, as it has been doing since the end of WWII, but it is not ending anytime soon.

      “The stock market could revert to its original purpose of raising capital for corporations instead of being a vehicle for enriching the brokerages and corporate executives at the expense of shareholders. Companies could start paying real dividends again (higher than their bond rates since equity is inherently more risky) and stop diluting their shareholders. The politicians could gets their acts together and reform social security, g>medicare, etc., balance the budget and start paying down our national debt (~$15T with another ~$60T in unfunded/off-balance-sheet liabilities). And if all that happens in a timely manner, you’ll probably be just fine investing in the indexes. But if all the problems we’re facing aren’t solved, and demand contracts for an extended period of time, the stock market is probably not going to be the best place to put your nest egg.”

      Overall, a fair list of some of the challenges around today, and they are not likely to be resolved in anything like a timely manner. But it is no where near as grim as the list that might have been put together in 1860 or 1916 or 1933 or 1941.

      But that’s exactly why I favor ownership in successful corporations operating in the USA (still the world’s strongest economy) and around the world seeking new opportunities. That’s what it means to be invested in a broad-based Index Fund. That’s exactly what VTSAX is and it allows me to be poised to benefit from growing prosperity anywhere in the world.

      So, as I said, we disagree and that leaves me curious. Where do you invest your nest egg?

      • Bryce says

        In my head I’ve had a hard time counting on the continued success of the 4% rule when I believe economies will continue to be more global and prosperity will continue to equalize between leading economies like the US and 3rd world countries with jobs moving overseas and things are outsourced…I just think it’s natural. But I guess to summarize your thoughts… 1) it’s not as grim as other times in history and the US economy did just fine given enough time. 2) US dominance will continue to shrink, but it’ll be a slow process, such that future returns will still be close to historical returns given enough time. Is that a fair summary?

      • jlcollinsnh says

        Hi Bryce…

        Here are my thoughts on the 4% rule:

        Looking at the Trinity Study charts and the results from most scenarios, what is striking to me is how conservative 4% is. While it fails 4% of the time, it succeeds 96% of the time and most frequently in spectacular fashion.

        To your two summery points, I would add that a growing world economy is great for the US. Our share of the pie may be shrinking, but the pie itself is becoming ever larger.

        At the end of WWII, we had practically the entire pie to ourselves. Today, about half. But that is half of a far larger pie and has made for a far larger and more prosperous US economy.

        It is not a zero-sum game. The better the rest of the world does, the larger and greater the market for the typically high-value goods we export to it.

        Just as it is important to ignore all the financial news noise and stay the course when the market takes one of it’s periodic dives, it is equally important to ignore all the political news noise about what terrible shape our country is in. Especially in the silly-season election cycle years like this one.

        We certainly face challenges. We always have, often greater than those of today.

        That said, if your reading, research and sober reflection lead you to conclude the US is doomed to decline, then you’ll want to seek out a course other than that I suggest.

        But don’t come to that conclusion based on the nightly news or the rantings of politicians seeking to trade on fear for votes.

        • Bryce says

          “To your two summary points, I would add that a growing world economy is great for the US. Our share of the pie may be shrinking, but the pie itself is becoming ever larger.”

          “It is not a zero-sum game.”

          ^^^^ BOOM! These comments make me feel better about how I perceive the global economy. Thanks!

  7. Toddius says

    I have enjoyed reading the blog.

    You said:
    “At the time VTSAX had yet to be created (Bless you Jack Bogle!), but just $15,000 invested in the Dow stocks, and left to ride, by the end of 2011 would be $1,000,000.”

    How are you figuring this? Back on 1974 the Dow was at about 850 and today it is about 12420. That is only 14 time greater.

    • jlcollinsnh says

      Hi Toddius…

      Glad you like it.

      I used the spreadsheet calculator you can find here:

      In put start year: 1974
      Under that input investment: $15,000

      In put end year: 2011

      It will tell you the 15k grows to exactly $1,003,387, an annual return of 12%.

      Alternatively it will also tell you that it takes an initial investment of exactly $14,949.36 to end in a cool, even 1m.

      What? You thought I was making it up?? 🙂

      • Toddius says

        I thought that 12% was high for the dow, but I wasn’t looking at the dividends. Without the dividend it is only about 7% annually.

        Thanks for your advice. It’s making me rethink my investments entirely.

          • Toddius says

            I am 30, no kids, not married (but we might as well be), and currently renting our apartment.

            My retirement is 60% in my company’s stocks. The company I work for is employee owned. 20% in various higher-risk, what I now know are, index funds. The last 20% are in various stocks that, looking back, I choose randomly. A total of 40k in my retirement fund.

            Most (80%) of my private savings is cash siting in the bank and the other 20% are in other various stocks. A total of 70k private savings.

            No debt.

            The stocks have done good and bad, but I don’t think they are making money as a whole, far to risky and take more time than I should be spending on them. I put away about half my income, but have not maxed out my retirement in the past. I could have, but I’ve been thinking about buying a house.

            I live in a relatively expensive housing city, and currently looking at rental properties (duplex or triplex). We’d live in one and rent the other(s). I see this as a much better investment than a house, which my friends are all buying. I know it will be more work, but the numbers work out so much better. If I were to buy I will have to use all of my savings and probably dip into some of the retirement.

            That’s me. What do you think?

          • Toddius says

            I should probably follow this up with admitting that I haven’t had much of a strategy so far. Other than saving and the investment property.

          • jlcollinsnh says

            I think you’ve done very well. Looks like an aggressive savings rate and no debt. Kudos.

            Right now you are almost exactly at a 50/50 allocation stocks v. cash. Way too conservative for a 30 year old, but I’m guessing you are building cash for the house purchase.

            If you haven’t already you might want to read:


            Buying a house isn’t just about the numbers, but it is important to run them so you know what they say. Personally, in you situation, I wouldn’t do it. 30, single, no kids, working hard…who needs the house hassle. But that’s just me.

            If you do decide to buy, now is likely as good a time to do it as we’ll see for a long while. And I agree the multi-family is the better investment. but that will make you a landlord and that’s a part time job. Think long and hard before taking it on. The market is filled with people burned and desperate to get out of it. who, of course, make great sellers for you.

            as for your stocks, as you know I believe trying to pick individual stocks is a loser’s game. I still do it for fun with a tiny amount of my capital, but the heavy stock lifting in my portfolio is done by VTSAX. but any low cost total stock market or S&P 500 Index Fund offered in your 401k will do.

            Also, 60% in just one stock is very scary. I’d adjust that ASAP.

            My guess is I’m not telling you anything you don’t already know. 🙂

            Check back and let us know what you decide. Good luck!

          • Toddius says

            The company stock is not in the same investment category as regular stock. The company is small (500 people) and not publicly traded. In fact, we can’t sell the stock unless we leave and if this is the case then we are forced to sell. The stock price is adjusted annually to the calculated value of the company’s worth. It has an excellent track record, 10% consistently for the past 30 years. I also see this as an investment in my career and position within the company.

            Thank you for the advice. I’ll let you know how it goes.

  8. Julie says

    I’m really enjoying this series. You have a way of simplifying everything without being condescending that is very unique. If you ever get bored with retirement, you should consider becoming a teacher, or at least a financial tutor.

    My only disappointment is that I did not find your blog or this series a year ago. I recently hired a financial advisor and invested my savings after way too many years of not having my money work for me, and I’m realizing that I should have done it differently. Oh well, live and learn, right? I’ll start “fixing” things soon, so that it’s all set up in a way that I’m much more comfortable with. From the start, I kept wondering why I shouldn’t just invest most or all of my money in the S&P 500, but I made the mistake of listening to everyone else’s “advice,” including the so-called experts. It’s great to hear someone with experience confirm what I already believed. Thanks for all of the great advice!

      • Julie says

        Thanks for the encouragement! Unfortunately I have to delay getting things on track; due to illness, I can’t work, and will likely go through my cash long before I’m better, so I’ll have to liquidate some investments. It’s definitely not the time to be moving things to something new. But as soon as I get back on my feet, that’s the first thing (in addition to finding a way to save up again, of course.) This is a great lesson in why it’s good to have savings!

        And you’ll have to trust me when I say that I wouldn’t have said it if I didn’t mean it. I’ve been following a lot of personal finance blogs, and this is now my favorite. I love your direct, straightforward approach.

  9. Nephi says

    One question that I have is at what point do you sell? You mention that “We can draw our 40k from the dividends and capital gains our stocks in VTSAX throw off.” The capital gains come from selling, right?

    • jlcollinsnh says

      Hi Nephi….

      Great question! Depending on your needs, there are several options.

      Stock funds, like VTSAX actually provide three avenues that can increase your holdings:

      Dividends, capital gains distributions and capital gains in the price of your shares.

      Dividends are based on the dividends the stocks held in the fund pay and they are paid out on a regular basis, typically twice a year. You can choose to have them paid to you in cash or reinvested in the fund. VTSAX currently pays out around 2% in dividends.

      Capital gains distributions are any capital gains the fund earned by selling stocks within the fund. As you might guess from the name these are paid out, or distributed, on a regular basis just like the dividends. usually on an annual basis. Like dividends, you can choose to have them paid to you in cash or reinvested.

      Also like dividends you will owe tax on these assuming the fund is held in a taxable account.

      Finally, if your fund shares increase in price you will also have a capital gain. However, this is not distributed and no tax is due until you sell your shares. To access this money you must sell shares, something you can do anytime. You can also arrange to have shares sold automatically.

      Hope this helps!

      • Nephi says

        Huh, that’s really interesting. I’ve never heard of capital gains distributions before. I know about dividends but not those. The page for VTSAX on Google Finance only shows dividends but not capital gains distributions information as far as I can see. Looking at morningstar it looks like maybe it hasn’t done any capital gains distributions at least in the past two years. Is that correct? Also, I checked the box to receive follow-up comments by email but it never notified me of your recent reply… I guess I’ll just keep checking back here on my own until I know that’s working.

        • jlcollinsnh says


          As an index fund VTSAX will very rarely, maybe never, sell the stocks it holds so you are unlikely to see a capital gains distribution. This is one of the reasons index funds are considered to be “tax efficient.” for more on how they report such things:

          actively managed funds, on the other hand, buy and sell all the time. the “active” part of their name.

          each time they do, it is a taxable event, the sum total of which is accounted for at the end of the year. If there is a net gain on these transactions, the shareholders receive a taxable distribution. Any net loss is NOT tax-deductable to the shareholder, but it is carried forward in the fund to offset any future gains.

          This is one of the:

          — many reasons I prefer index funds.
          —reasons some investor prefer choosing their own individual stocks so they can choose if/when to take profits/loses.
          —reasons that if you own actively managed funds it makes sense to hold them in tax advantaged accounts.

          Very sorry to hear you are having trouble with the follow-up comment feature. That’s a WordPress issue and I am clueless as to how to correct it. Any ideas? Anybody?

          • Julie says

            I’m getting the followup comment emails. I have no idea why I would when someone else wouldn’t, though.

  10. Chetbodet says

    Why do you recommend VTSAX over the ETF version of the fund VTI? I am looking to invest in one next year in a non tax deferred account. It seems like the trading costs that go along with the mutual fund make it slightly less attractive than the ETF.

    Note: I am looking to invest approx $11K starting with bimonthly investments of $250, but will have less than $50K total invested with Vanguard.

    • jlcollinsnh says

      I don’t actually. As you point out, VTSAX and VTI are just different versions of the same fund, along with what is called Investor Shares which has a 3k buy in and a slightly higer expense ratio. VTSAX is just the version I own.

      VTSAX and VTI even have the same ultra low expense ratio and you can get into VTI with out the 10k minimum invstment required by VTSAX.

      My only reservation with VTI would be if you are paying a brokerage commsion to buy and/or sell. That’s a no-no. But dealing directly with Vangard, no problem.

      • J. Martin says

        Hi, found my way here through the MMM blog and I’ve read the first 6 articles of your Stock series. I pretty new to anything stock market. I have about $1k (yes, one) in a mutual fund through Edward Jones that I haven’t look at in years and know very little about. My main question is about the act of buying stocks. If I don’t go through a brokerage like Edward Jones, how do I give a company like Vanguard my money? I was on their site (the Canadian version because that’s where I live) and didn’t see anything on how to actually buy stocks, or anything about minimum . Is there some kind of software? Do I have to become a member/client?

        Another Question. I am 26, so is my wife, and we have a 2 yr old son. I am still in school, will be for 4-5 more years (doctorate in theology, so no big pay day on the other side), and have about $20k in student loans from my undergrad. These loans are NOT accruing interest until I finish all my schooling, at which point we will have the money saved to pay them off before they ever do. As we save money (after reading MMM we’re seeing the necessity) for these loans should we be putting it in stocks, or just in the bank so that we don’t have to pay off the debt in a down stock year? And, to follow on my last question, I assume one sells stocks in a similar fashion to buying them — but HOW?

        • jlcollinsnh says

          Welcome JM…

          Glad you found your way over here.

          When you are ready to move your money, just give Vanguard a call and they’ll walk you thru the process of getting it to them. Of course, you’ll also have to contact your current brokerage to get them to release your money. Sometimes they can be real difficult about this, one of the many reason I recommend avoiding them in the first place. Since you only have a $1000 you might just have them give you the cash and then send a check to Vanguard.

          Since you only have $1000 to start, the index funds I typically recommend are not available to you. They require $3000 minimums.

          No worries. You can get into their TRFs. At your age I’d use VTTSX

          This is an excellent fund and could easily be the only one you’ll ever need for reasons I describe here:

          As for the money you’ll be accumulating to pay your student loans, the classic advice is that it — like any money you’ll need within five years or so — should be kept in an insured bank account. Which these days pays close to zero interest. This good advice and is what you should do. But it is not what I, with my high risk tolerance, would do.

          I would add all this money as I could to my VTTSX fund. When the time came to pay off my loan, if the market had gone up, I’d sell the shares needed to raise the 20k and pay it off; keeping the extra money it had earned for me along the way invested. If the market had declined during the years leading up to my graduation, I would simply keep my money invested and keep buying more shares as I could, knowing I was getting them at cheap prices. As for the loan, I’d start making minimal payments as required.

          Then, when the market spiked back up as it always does, I’d pull the money and get rid of the loan.

          As for buying and selling, once you have an account it couldn’t be easier. Assuming you provide Vanguard with your bank info, you can move your money with a few mouse clicks or a phone call. Or you can mail them checks for deposits and have them send you checks for your withdrawals.

          Hope this helps, and keep reading the Series!

      • TKD says

        Hi Jim,

        Possibly a dumb question, but I’m new to this. If VTI is essentially the same as VTSAX, wouldn’t I want to invest in VTI if I can’t meet the initial $10k threshold? Or would you still recommend VTTSX and then selling it for VTSAX when it reaches $10k?

        • jlcollinsnh says

          Welcome TKD…

          Not dumb at all.

          The Total Stock Market Index Fund comes in three “flavors”:

          Admiral Shares: VTSAX .05%/$10,000
          Investor Shares: VTSMX .17%/$3000 If you start here, Vanguard automatically rolls you into VTSAX once your account hits 10k and this is not a taxable event.
          an ETF: VTI .05% (ETF=exchange traded fund. You buy ETFs in any amount you want, just like a stock. And, just like a stock, commissions and/or spreads are frequently involved, adding to your costs.)

          If you start with VTI (or VTTSX) you would have to manually roll it into VTSAX once you hit 10k and it would be a taxable event. However, since the ERs are the same you could just leave it in VTI.

          For more:

          • TKD says

            Thank you for your thorough response. This site has been an invaluable tool as I attempt to educate myself on the mystifying world of finance. It has caused me to notice the ridiculous expense ratios and fees I’m currently paying with a financial advisor and I’m scraping together the $10k put into VTSAX and carving out a place in the budget to add to it monthly.

  11. Scott says

    Look up value averaging — that’s the best way I’ve found to know when to move money between the stocks and the cash.

    And I’d suggest that you stick with the mutual fund, not the ETF, for the major holdings to avoid any bid-ask spread problems. Maybe start with the ETF for the low expense ratio, but once you’re comfortably above the admiral line, flip it into the mutual fund so you don’t have to pay ask for more, or settle for bid when you take it out.

  12. SC says

    Love it! Love it! I’ve been wanting less theory and more practical steps. Keep it up!

    I like the idea of VTSAX, but as I hope we’ve reached a bottom in housing prices, and we can’t get any lower interest rates, that hopefully implies that interest rates and housing prices will increase going forward. If this is true wouldn’t buying REITs be a great place to put a larger chuck of money over the new few years?

    Also, this might be newbie question, but if you have several index funds within Vanguard, say 50% and 50%, if you want to rebalance them to 60% and 40%, you’d have to sell one to add to the other obviously, but do you have to pay the tax on whatever you’ve earned that you sell to put into another fund? Or because its still within the vanguard account do you not have to pay tax until you sell and/or take it out?

    LOVE IT! Keep it up!

    • jlcollinsnh says

      And I love your enthusiasm, SC!

      Your thinking on interest rates, housing and REITS is sound. As it happens, I agree with your assessment. But remember, we are both now on the slippery slope of predicting the future and timing the market. A losers game, that. Be careful overweighting into REITS.

      As it also happens, I am in the process of selling my house and returning to the wonderful carefree life of renting. Probably bad timing.

      As I discuss above, at this stage of my life I personally use the The Wealth Preservation and Building Portfolio. That holds 25% in VGSLX (Vanguard REIT Index Fund). Once I free up the house equity it will go into this fund to maintain the allocation, but no more.

      Newbie or not, it’s a good question. The fact that you’d be selling one Vanguard fund and buying another does NOT protect you from any capital gain due on the sale. It is a taxable event. Unless, of course, you hold the funds in a tax deferred account like an IRA or 401k. In that case you can buy and sell funds tax free even across fund companies.

      Love your comment. Keep it up!

  13. Steve P says

    Great article! I had a question, I have a fidelity investment account through work (exercised stock options go to this after-tax account here) and it says I can only invest in the VTSMX and not the VTSAX (admiral shares). It says the VTSAX is closed to new funds even though I can meet the minimum of 10k in my account. Do you know if I can only get VTSAX through

    Also, your opinion on FSTVX? Fidelity’s version with low expense ratios that look to be on par with VTSAX. Net expense ratio of FSTVX is 0.06% as well.

    Thanks and keep up the great work!

    • Scott says

      MorningStar shows 0.07% for that fund, but otherwise it looks similar. You can look at the cap weightings and see that it’s also a full-market fund.

      If you have an account through work, look and see if there are any institutional-qualified funds. In my normal vanguard account I can get VFIAX for 0.05% ER, but in my Fidelity work account, I can get the VIIIX version for an epic 0.02% ER. (I don’t, though, because I don’t think the S&P 500 index is a good one for index funds. The more modern, broader, lower-turnover ones are better, and avoid the hedge fund front-running.)

      TBH, the difference below like 0.25% ER is not all that important. The most important thing is avoiding the 5%-up-front-and-1%-per-year rip-off funds…

      • Steve P says

        One more question… Why not an ETF like VTI as opposed to VTSAX? Just curious as to your opinions on a no-load Mutual Fund to a low-cost ETF? Thank you again!

        • Scott says

          VTI, VTSSX, VTSMX, VTSAX, VITNX, VITSX, and VITPX are all the same fund, just different share classes. (If you have $200,000,000 dollars in it, you get the fancy VITPX version that only charges 0.02%; if you’re a basic investor with $3,000 in it, you get the VTSMX version that charges 0.18%; if you get it through the ETF, and pay bid-ask spreads, you get charged 0.06% with a one-share minimum.)

          I wouldn’t recommend the ETF for something as core as your total market holding. You’ll quickly get above the $10k mark to get the same ER from a mutual fund as the ETF, and the mutual fund means you don’t need to worry about spreads, premiums, trade commissions, etc.

          ETFs have a much better place if you want to bet on things like sectors. Say you decide that you’re underweighted in Utilities (which are 3.4% of VTI/VTSMX, compared to financials at 17.8%). A small allocation to VPU is possible, since you can buy one share (currently around $85) at a time. The mutual fund version, VUIAX, on the other hand, has a minimum investment of $100,000. Since for something like that we’re talking about maybe 2% of the portfolio, the mutual fund only works if your whole portfolio is around $5,000,000: certainly far larger than I expect mine to get (in real terms, at least — who knows about nominally).

      • vicki says

        Hmm, I just switched 401k investments to S&P 500 because the fee was .o5% while all the other fund choices are atleast .49% (their index life cycle fund is .78%). I’m wondering if I should stick with it.

        • Scott says

          In that case, I’d say stick with the S&P 500 one. It’s by no means a bad choice, and the difference between the S&P 500 one and a total market ones are very much on the margins. (Some slight turnover differences, and whether small or large caps are doing better for that period.)

          0.05% vs 0.2% doesn’t bother be much. Some asset classes are just more expensive in practice — Vanguard’s non-US Total Market has a 0.16% ER, for example, and it’s worth it.

          But if you look at, say, Vanguard’s US Large Cap Growth Index Fund (0.10%) vs their US Large Cap Growth Equity (Active) Fund (0.54%), you’d better be getting your money’s worth out of the active management — and if you look at the past 10 years, you’ll see that you got some extra beta, but no alpha worth talking about.

          It’s almost certain that a 0.78% index fund is a rip-off. The most expensive index fund I can find at Vanguard is their ex-US small cap one, at 0.45% ER (though it’s also a load fund), with only 3 of 52 funds above 0.3% ER. So sticking with the low-ER stock fund in your 401k makes good sense (so long as it meets your target asset allocation).

          In related news, it drives me nuts that you can’t sort Vanguard’s fund lists by ER on their normal site. You have to go to the Advisors’ site, and find the screening tool that’s no longer in the tools list…

    • jlcollinsnh says

      Hi Steve…

      VTSAX is open to new investors thru Vanguard and most retirement plans that offer the fund. It being closed to you in your company’s plan must be unique to that plan.

      VTSMX is basically the same fund but with a lower minimum initial investment level and a slightly higher cost ratio. That’s the one I’d use in your case.

      Likewise, VTI is the ETF version. As long as you don’t fall prey to the temptation to trade it like a stock it’s fine too.

      I don’t pay attention to Fidelity funds much these days and so can’t comment on that specific one. But they, and several other traditional mutual fund companies (after years of disparaging index funds and the investors in them) have introduced their own.

      Since these are in response to Vanguard, typically their cost ratios are competitively low. If these are what’s offered in your employer’s plan, go ahead and use them if you’d like.

      But keep in mind, these companies only offer them as “loss leaders” to get you in the door. From there they hope to lure you into their actively managed funds where there is far more money to be made. For them. From you.

      For this and other reasons explained in this series, I only do business with Vanguard.

  14. Jonathan says

    I deeply appreciate all the sage advice here…my only complaint is the slavery metaphor. I think MMM refers to his invested dollars as employees. That works for me. Referring to dollars as “slaves working in the fields” strikes me as an unfortunate use of language, especially given the otherwise excellent content here. But to each his own!

    • jlcollinsnh says

      Hi Jonathan…

      Thanks for your kind words.

      You point is well taken and is actually something I’ve thought about. I picked up the slave metaphor from one of my favorite books (I still highly recommend it): The Richest Man in Babylon. In it the author uses the slave terminology. Partially, I’m guessing, because slaves were a fact of life in ancient Babylon and partially because the book was written in the early part of the last century when there was less sensitivity around the term.

      I prefer it over employees because it is more accurate: We have absolute ownership of our money. I also like it because it is a more powerful and dramatic word.

      All that said, giving offense or causing hurt is the last thing I want this blog to do. My hope is that we are far enough away from the cruel and ugly realities of slavery in this country to allow it’s use in a financial context. But I could be wrong.

      I’d be interested in hearing from any other readers who might have been given pause in reading it.

      My sincere thanks to you for bringing it up, especially in the gentle way you chose.

      • Jonathan says

        And my sincere thanks to you, Jim, for your thoughtful and prompt reply!

        I’m not one to insist on politically correct language–I am a MMM reader, after all. And I do see how “slave” can be a useful metaphor for an invested dollar. I have also noticed its use in other contexts, like audio recording equipment. I guess what bothered me about this one aspect of your post was the extension of the metaphor to include details associated with actual, real-world slavery, like forced agricultural labor. There was also a mention of the “laziness” of your cash slaves, which brought a common racial stereotype to my mind. I think it was these additional rhetorical flourishes that prevented me from seeing your use of “slave” as an abstracted metaphor, which I know is how you meant it.

        Thanks again for a great site. I should tell you that based on your advice, I’ve decided to change the bulk of my 403(b) investments. I wanted to put it in VTSAX, as you suggest, and was disappointed to see it’s not available under my employer plan. But then I realized I could select VITPX, which, as far as I understand it, is the institutional version of VTSAX and is otherwise identical to VTSAX. (Please correct me if I’m wrong!) I had my money in one of the LifeStrategy funds before, which was doing fine, but VITPX has a .02% expense ratio, among its other benefits.

        • Scott says

          You can find much better information about funds on the advisor version of Vanguard’s website. For example, it includes more correlation numbers (one of the most important things in Modern Portfolio Theory), and the stylebox shows the range, not just the central tendency (so you can see that VTSAX is more than a large cap blend fund).

          If you look up VTSAX on the Advisors’ site, you’ll see a “more share classes” link, which will show all the classes, including — as you determined — the epic “Institutional Plus”-class VITPX.

        • Jonny says

          I love your site but I also cringed at the slave metaphor (and whether America or Babylon – or modern slavery, estimated at ~20+ million ppl worldwide, for that matter), just doesn’t seem like a good metaphor to drop lightly.

        • Lynne says

          For a metaphor, I like thinking of my investment dollars as minions…armies of minions…working to build me a secret volcano lair filled with gold.

          (…I don’t really want to plot world domination. I just want a secret volcano lair. Is that so much to ask of the world?)

      • Abigail Gorton says

        I also love your site. I have read almost all of it. And I am old enough to have some understanding for why you use an inappropriate metaphor.

        Personally, I have been brought to a bit more understanding of the pain of certain words in the last couple of years. I am from the tech industry but now I consciously make an effort to avoid the use of s___e and even of master.

        I have my own 20 year old. With gratitude to you, I got her into Vanguard and into VTSAX. She is currently reading ‘The Psychology of Money’ by Morgan Housel. I recommended the book, but she even paid for it herself.

        I wish I could to send her to your site, but I cannot and will not. She would get as far as Stocks VI, stop her reading and come back to me in disgust. Not only would she refuse to have anything more to do with you, but she would also have yet another slight downgrade in her opinion of me – just when I was inching back up a few notches after the teenage years (sigh!). Nor could I send my office mate here. We discuss money and goals and retirement. We also talk about the fact that she is the great great grandchild of s___s.

        Somewhere else in these comments, you jumped quickly to correct “could care less” / “could not care less”. You have also been happy to edit your own words about real estate investing. Once you have done that for the pain-triggering terminology on this page, I will be able to refer you.

        Because, when I say I love your site, it is a little analogous to how I love my kids. They are great overall. Awesome, even! I personally accept them just as they are, but I also understand that not everyone will accept or love them until they clean up some of their little rough spots.

  15. Jared says

    Jim, first of all, thanks for all your great posts on your blog. I was introduced to it recently and I have been ravenously reading your and MMM’s blogs.

    I have a quick question about investing… maybe quick, we’ll see. I was talking about your recommendations of VTSAX and was sent a graph from the guy I was talking with. It compares Vanguard’s VTI, BlackRock’s MALOX (a global allocation fund) and the S&P 500. Over the last 12 years, the S&P 500 has shown an increase of 21.69%, VTI an increase of 39.22% and MALOX an increase of 74.85%!
    I am wondering if you know anything about fund MALOX from BlackRock. I looked into it a little after this was presented to me, the first thing I noticed was that MALOX runs a .79% expense as opposed to VTSAX at only .05%. However, MALOX has a pretty great track record, and the graph he sent me is with fees factored in. I also saw a $75 transaction fee! which seems a little absurd. Wasn’t able to find out the details on the transaction fee, not sure if there are ways around it of if it is only in some situations, or if that is for every purchase or sell of new shares…
    I am wondering, if this really does as well as it’s showing over the long haul, it seems like a pretty good place to invest. Though, after reading on your blog and on a number of other financial independence blogs, I am a little wary of “active funds.” Most of all I’m curious to know if you know of the MALOX fund and what you know about it as well as what your thoughts are on it and on BlackRock in general.
    I am youngish, 27 and I started investing some right out of college. However, I wasn’t really that interested in the details and let a broker handle it… major mistake, ended up with my investments just sitting in AmericanFunds for the past 5 years essentially gathering dust! At least I didn’t lose my money, just lost all the potential money it could have been making. I’ve got about $12,000 in my Roth IRA and am looking for a productive place for it now. So I’ve been reading and researching but I must admit, I feel like I’m barely treading water in the stocks/investment ocean. Lots of info to wade through.

    Thank you again for all the blogs. You’ve been a great help in getting me some investment planning grounding to start from. You’re style is very educational and concise, thanks for your time helping some of us who are less financially savvy catch up and gain confidence!

    • jlcollinsnh says

      Welcome Jared…

      Thanks for the kind words! I’m glad you are finding some value here. The fact that you started investing right out of college is awesome, even if you stumbled a bit on the way. Don’t let it bother you. I’ve made far greater mistakes. Just think of it as an expensive education.

      I am completely unfamiliar with MALOX and Blackrock and, candidly, I have little interest in looking into them. From your note you have already read enough of the blog to know my view of actively managed funds is they are not worth the time, let alone your money.

      They always do a fine job of presenting themselves and my guess is that these guys are no different. Who knows, they might even be the exceedingly rare case that does outperform the market over the decades (which at 27 should be your investing horizon). What I do know is I wouldn’t bet my money on it.

      Too bad about your investment in the American Funds, but they haven’t been “essentially gather dust.” They’ve been lining your advisors’ pockets with handsome commsissions and fees. Sorry, I couldn’t resist. 🙂

      Good luck!

    • Scott says

      The best question to ask yourself is, “Why did my advisor show me a 12-year chart? Is there something special about 12?” The answer, of course, is “Yes”.

      Go do some research for yourself, and look at the chart of the whole history of MALOX compared to VTSMX (the more expensive version of VTSAX). The first thing that will jump out at you is that since June 1996 (when MALOX started), MALOX is only up about 40% to VTSMX’s 140%. Then you’ll notice that it’s easy to make MALOX look better: pick a time that starts in the dot com bubble, so VTMSX starts by falling 40%. Then think, “Hmm, how long ago was that bubble?” and realize, “Gee, about 12 years ago, wasn’t it…”

      More subtly, you’ll notice that the shape of the MALOX graph looks rather similar to VTSMX recently. Mathematically, you can look at the correlation between them (I used 3-year correlation, because that’s the correlation Vanguard shows on their site for all their funds), which shows an R2 of .9393, which (essentially) means that 96.9% (square root of R2) of the movements in MALOX can be explained by VTSMX, so they’ll essentially differ only in beta (size of movements, which is easy to adjust by holding more cash) not in alpha (excess return for the same risk).

      Here’s a good article from Vanguard about how 10-year fund performance appeared to jump this year, since a bad year got removed from the calculation.

      Remember that your adviser won’t work for free. Either he has to make money from those load funds (those transaction fees go to his pocket, not the fund, usually) or you have to pay for his time, and most advisors only do one or the other.

      • Jared says

        Thanks Scott, I was looking for more history on the funds but hadn’t been able to find it. Each of the places I found info on the funds they only went back to 2000. I did notice that in general MALOX did’t increase as strongly over time as VTSAX, it just didn’t drop as steeply during the market downturns. Anyway, I really appreciate your response. I had also been wondering about the use of alpha and beta in other comments you’ve made. Thanks for that quick explanation too!

        • Scott says

          “Didn’t drop as steeply”? Remember to compare it to a similar-beta fund. Dropping beta from stocks is pretty easy; you just mix in bonds. Take VBIAX, for example, which is a vanguard fund that’s essentially 60% VTSAX and 40% VBTLX (Vanguard’s Total Bond Index fund).

          If you compare MALOX to VBIAX, they behaved very similarly in drawdown depth and recovery rate.

          If you go look up MALOX on Morningstar, you’ll find that the guess is rather close. It says 33% US stock, 23% non-US stock, 17% bonds, and 13% cash (plus some in “other”, which appears to be things like Gold bullion).

          If you like the all-in-one fund model and are willing to (probably) have lower returns in order to (probably) have a more steady ride, consider something like the Vanguard LifeStrategy Moderate Growth Fund (VSMGX), at 0.16% ER. If you look at its holdings page, you’ll see that it just holds (as of 02/28/2013 ), 42% US stock, 40% US Bonds, and 18% international stock (since lately US has been doing better than international, and they don’t do continual rebalancing for tax reasons).

          Personally, I use multiple funds so I can get lower ERs with Admiral shares (the strategy funds only have investor shares), can spread the different funds between my IRA and taxable accounts, and can rebalance with new money (or non-reinvested dividends) to avoid selling (in order to defer taxes as long as possible).

  16. Faey says

    Hi there Jim

    I found your blog from MMM and MMM through ERE: it’s wonderful reading and lots of creative thinking. Thank you.

    My question is:
    I am swiss and live in Switzerland: is this investment strategy even possible for a non-resident alien?
    I haven’t been able to find anyone – so far – that offers those ETFs here and not sure how the tax situation would be – and also the conditions due to being a foreigner – would be.
    Do you have any suggestions?

    Thank you very much for your time!


    • jlcollinsnh says

      Hi Faey….


      I’m afraid I have no expertise in how one based in Europe can go about this. As you read thru the blog, be sure to look at the comments. If memory serves, some of my European readers have posted their ideas and approaches.

      Perhaps someone from Switzerland will post a comment here with some ideas for you.

      You might also go to and ask there.

      Please, when you sort it out, comment again and let the rest of us know. Thanks!

      • Faey says

        Hi Jim

        I have been looking into this and I am looking for equivalent products here. I think investing in the CHF makes more sense for me- I live here – as it is a little more stable than EUR and USD (ahm, at the moment).

        I like the portfolio ratios you go for, so I am evaluating the ETFs TERs and see where that takes me.
        Unfortunately I haven’t managed to find any similar companies to Vanguard when it comes to policy. Just cutthroat business as usual 🙂

        Again, thank you for your input!


  17. AJW says

    Have to ask the question. What do you think about adding a Vangaurd Small Cap and Mid Cap fund to your portfolio?

    I like the idea of 880K in stock with the remaining in a reserve for the down years, especially if you are getting a Social Security check, and retirement check for both you and spouse! Life is good….

    • jlcollinsnh says

      Hi AJW….

      Thanks! We are indeed enjoying our travels and I appreciate your kinds words on the blog.

      As for small and mid-cap funds I personally don’t feel the need. You pick those stocks up in a Total Stock market fund like VTSAX, the one I use.

      glad you like the 880k+reserve concept. Thanks for weighing in. I still can’t get completely comfortable with it, but it just seems there is some potential there….

      • AB says

        My 401(k) is through Vanguard, but it doesn’t offer a Total Stock Market Fund. Right now, I’m invested 25% in S&P 500 (VINIX), 50% in Small/Mid-Cap (VEXMX), and 25% in International (VTRIX). Any suggested changes?

        • jlcollinsnh says

          Welcome AB…

          The funds you are in are fine and a bit more aggressive than a straight Total Stock Market index fund. This because the Small/Mid cap fund is traditionally more volatile and has provided strong performance. But if you are trying to duplicate the Total Stock Market Index this would be closer:

          VINIX (S&P 500 index) ~75%
          VEXMX ~25%

          I hold a fairly contrarian view of not needing international funds. You’ll find my thinking here:

          Hope this helps!

    • Scott says

      Personally, I’d suggest diversifying by adding a bit of VTIAX before betting on small-caps. That said, I do have a bit of VEXAX (actually VXF, the ETF version). It’s essentially VTSAX without the S&P500. (VTSAX = VFIAX + VEXAX.)

      If you do decide to do some active management and pick things other than total indexes, be warned that the Mega, Large, Mid, and Small cap funds at Vanguard aren’t actually disjoint. Large contains both Mega and Mid.

      (Mega is first 290 stocks and Mid is 361, which add up to the 642 in Large. Small is 1436, but you’ll notice that Large + Small is still fewer stocks than the 3225 in Total.)

  18. AJW says

    First I would like to say I think your blog is great. Thank you for your work. Hope you are enjoying traveling ! ! !

    Your thoughts on adding a Vangaurd index Small Cap and Mid Cap fund in a portfolio mix?

  19. Mike says

    General question on trying to do as you say to retire early:

    I am 49, have about 330K in a 401K, have a pension of about 20K per year coming when I’m 65, but want to retire by age 55. Should I take my money out of my 401K, take the 10% penalty and the tax, and move it into the Vangaurd funds you are discussing above. I dont know much about this but it seems to me that I cant retire early with my retirement money stuck in my 401K. Thanks.

    • jlcollinsnh says

      Hi Mike….

      I loath taking penalties. As much as I love Vanguard, I’d look for similar funds within your 401k.

      What you want are low cost index funds. One for the total stock market and one for the total bond market. Or a Target Retirement Fund would work. Virtually all 401k plans have these.

      Once you leave the job, you can roll your 401k tax and penalty free into a Vanguard IRA.

      To withdraw your money penalty free, taxes will be due, you’ll need to be 59.5. So if you hang it up at 55 you’ll want some savings outside these tax plans you can draw on before then.

      Hope this helps!

      • Mike says

        I see. So, to give me the best chance of retiring before 59.5, maybe I will leave the money in my 401K, but move it to an index fund withing the 401K. The other thing I could do perhaps, is limit what I contribute to my 401K going forward, and use the money I was putting into the 401K to put into the Vangaurd Index’d funds. Of course, that would be post-tax money I’d be putting in, as opposed to pre-tax money that I could have continued to put into my 401K, but I would have access to the money I put into Vanguard at any time, instead of having to wait until I’m 59.5 to get it.

        I guess the other thing I could do is just keep dumping money into my 401K, but put it into an index fund within the 401K, as you suggest, and find ways to save extra cash (like getting rid of cable, etc.), and put that money into a Vanguard index fund. This would allow me to keep taking advantage of pre-tax money by continuing to add to my 401K, and also build some cash reserves using personal investments like the Vanguard funds you talk about.

        One other option also is to do what I just said, but also as I get within 5 or so years of 59.5, I can use the 72(t) early withdrawal feature of my 401K, which allows me to withdraw money from my 401K in fixed amounts on a pre-established schedule. This would help in the case where I want to retire around age 55, but I dont have enough cash saved on my own, so I use the cash I do have saved, plus dip into my 401K a little bit to tide me over until I reach 59.5, as which time I can withdraw from my 401K as much as I want without penalty.

        What do you think of these options??

        Thanks again for your help!


  20. Clint says

    1. I’m currently 34 years old, and considering moving everything to VTSAX. Is this the best route at my age? Should I allocate more to the REIT and Bond funds? Assume I am saving as aggressively as possible (25% for now), have no debt, do not own a home, but only have an average total amount currently saved (under $100K).

    2. Why do you not invest in SPY or something that tracks the S&P specifically?

    3. In my 401K, I do have the ability to invest in an index that tracks the total stock market, but I currently have my allocations split between two large cap, a mid cap, an international, and a small cap fund(s). If I plan on putting my Roth and Brokerage into VTSAX, would it be wise to keep my 401K funds as they are, for more diversification?

    4. Is it best to keep a six-month emergency fund in a money market, or is there something that may yield more while still keeping it safe? Assume I have no foreseeable reason to need this money in the next 3 years.

    • jlcollinsnh says

      Hi Clint…

      Glad you found your way over here. OK, let’s see….

      1. I think of this less in terms of age and more in terms of earned income. Lots of readers around here have retired early or are planning to. While you are working, earning cash flow and building your assets in what I call the accumulation phase, VTSAX is the best tool. Assuming your are prepared for the wild ride.

      Once you have you F-you money and have stopped paid work, it is time to smooth out the ride with some bonds and REITS.

      2. I prefer the broader reach of a total stock market index fund like VTSAX with its 3300 stocks v. the 500 in the S&P. SPY the S&P 500 in is what’s called a SPDR (Standard & Poor’s Depositary Receipts) a type of ETF (exchange traded fund) traded like a stock. No problem, if that’s what you want and are aware of the transaction costs buying and selling it. But for long-term investing like I reccomend, a mutual fund gets it done.

      3. The 4 funds you currently hold in your 401k are more or less mimicking the total stock market — exactly what you get with VTSAX. Just a more complex way to get there, especially in that you’ll need to keep them in balance to avoid an over allocation developing. Short of that, no harm in holding them. No benefit either.

      4. Time was I would have said MM fund, but now with interest rates so low it really doesn’t matter. Since bank accounts also offer FDIC insurance, more and more I’ve gone that way of late.

      • Clint says

        Right now I’m shooting to retire in 20 years. My income is currently around $62K, and while that will increase, I can’t guarantee by how much. Does that change the picture at all?

        Obviously there are no guarantees, but to ask a further obvious question: How should I feel comfortable that putting everything into VTSAX will have worked out at the end of 20 years, instead of sticking with a more diversified path? Or that in the 19th year, the market doesn’t fall apart? (Again, there are no guarantees; I realize I’m asking an unanswerable abstract, but I’d like to hear what keeps you from worrying about it.)

        • jlcollinsnh says

          Nope, and 20 years should be plenty of time.

          As for why I feel comfortable with this approach, that’s what this stock series is all about.

          Start with part I. 🙂

          • Clint says

            In my 401K, the only index fund I have the ability to invest in is symbol FXSIX. Would this be close enough to VTSAX?

          • Clint says

            Or should I stick with the current mutual funds in the 401K, if FXSIX is my only option?

          • jlcollinsnh says

            FXSIX is Fidelity’s S&P500 index fund. It has a nice low expense ratio of .05, which is likely lower than the combined rate of the funds you now hold. But it is not quite as diverse.

            Still, when the dust settles, either approach will get you there.

          • Clint says

            But if the expense ratio on FXSIX is .04, and the expense ratios on the mutual funds I’m currently in are anywhere from .69 – 1.33, wouldn’t it be best to be all in FXSIX, if the returns will be the same?

          • Clint says

            Or maybe get rid of the highest expense ratio funds and roll those into FXSIX, leaving the funds that have lower expense ratios?

          • Clint says

            Two final questions:

            1. If FXSIX, available in my 401K, tracks the S&P only, is there any benefit to keeping the small and mid-cap funds around? Or, to clarify again, just put everything in FXSIX?

            2. What are the benefits/ drawbacks to using VTI as opposed to VTSAX? And if I went the VTI route, what is the best strategy for investing? Buying often would rack up commissions. Better to build up a chunk, then invest quarterly or something less frequent? Or just forget the VTI thing and move to Vanguard, where I can just buy VTSAX?

            Thanks again for your help. I appreciate it.

          • jlcollinsnh says

            Hi Clint…

            You really need to take the time to read the stock series here. Until you do, you’ll just be following my advice in answer to your questions blindly. Without understanding, you’ll eventually lose your way and, when the going gets tough, you’ll panic and fall off course.

            We’ve also covered the answer to both these questions already, but here you go:

            1. If you keep the mid-small cap funds in addition to FXSIX you will come closer to duplicating VTSAX but at the cost of high fees.
            2. VTI is an ETF and buying ETFs typically involves paying commissions. VTSAX can be bought commission free.

          • Scott says

            For investing, you don’t want ETFs unless you can get them commission-free. For Fidelity, you’d want ITOT, which is closer to VTI/VTSAX than FXSIX is, and has an ER only 0.01% higher than VTI/VTSAX.

  21. Buck says

    I know I’m over a year late to this party (story of my life), but thought I’d chime in with some thoughts, especially related to “The Wealth Building with Cash Insurance Portfolio” (88% VTSAX and 12% cash) proposal. I guess you could also call it “The 3 Year’s Worth of Cash and Remainder in the Total U.S. Stock Market Portfolio”.

    I must caveat the rest in saying that I’m still in the accumulation phase of the FI curve and haven’t spent too much time thinking about the draw-down phase of this hill.

    On its surface, it’s definitely an interesting idea and seems to me to be very much dependent on your mindset. The 88/12 split does not feel at all like preservation and definitely feels more ‘pedal to the metal’. This is fine if your goal is to maybe reduce your SWR down from maybe a nice, although potentially high 4% to something lower or if you want to leave a nice nest egg to some fortunate dependents. If your SWR is already at 2.5%, my opinion would be to steer more toward a preservation mix.

    I know in a previous discussion we established that VTSAX (total U.S. market) also contains all the Real Estate companies contained in VGSLX (REIT Index), so I’d probably lean toward a hybrid approach that looks a bit like your “Wealth Preservation and Building Portfolio” with a subtle change. This way you get both more money invested in stocks and across a greater breadth that still includes real estate (to hedge against hyper-inflation) and bonds (to hedge against deflation). Given $1M portfolio, something like:

    70% in the stock fields working full tilt in the hot sun (includes easier duty REIT). $700K
    18% with really easy duty in the bond fields. $180K
    12% napping in the sun on the cash beach (3 years expenses). $120K

    • 2l2r says

      I like this but I am always keen to see how the cash balance is replenished. Questions such as do we not replenish in a year the stocks are down, or replenish first from bonds after cash is exhausted, so in a 7 year down turn for stocks we would never sell?


        • arborite says

          I was tinkering around with this idea the other night. I figure that the best test for this is to see how it would do if you were retiring with just enough to pull 4% on 1/1/2000. The problem that I ran into is that there isn’t a good way to tell when you need to start using cash. My spreadsheet tells me the lowest that my cash reserves get to and where I would be at today with whichever strategy I was trying out. I tried averaging. I tried taking out percentages of cash vs stocks based on the current price/previous peak. I tried setting a lower limit (e.g. 80% of peak) where I would pull cash rather than stock until that limit was surpassed again at which point I started doubling stock sales to replenish the cash. The best I could achieve was less than 75% of the original stock value and that was adjusted to take my cash reserve to next to nothing at its lowest point.

          If you go with the 88/12 split with a 4% withdrawal rate (adjusting for inflation), I just don’t see how it could work out. It may be that there is no scenario where it will work out and in 16 years when someone updates the Trinity study, we’ll find that out.

          I think there are two things that could immediately improve this plan (although, I haven’t tested them yet). The first is to split your equities from pure US Stock Market to something that is uncorrelated or very loosely-correlated, like Pacific and Emerging Markets. If one of the assets starts to decline, then you can sell more of the other to compensate. I still think that once you get to a certain point (maybe 80% of peak), you would start using cash to cover the faltering market’s share. You could even take your normal withdrawal from cash and sell off some of the prevailing asset to buy into the other while it is down to rebalance. At this point, though, what I’ve just described is a 3-fund portfolio.

          The only other option that I can see (which could be a good idea in any scenario) is to wait to retire until you hit a bear market to make sure you still have enough in your account at the worst of times. This gives you a couple extra years of savings and it almost ensures that you will see growth in your first few years of retirement. Even if the market does fall again, you’d only need to start pulling from your cash reserve once it fell below the price when you retired, making for an easy marker of when to start and when to stop (rather than some arbitrary calculations).

          I’m interested to see if you have since come up with any other ideas on how to make this work without complicating the idea.

        • jlcollinsnh says

          Hi Arborite…

          Thanks for sharing your analysis and thoughts.

          Sounds like you’ve bumped up against the same flaws and obstacles as I have. The likely solutions add complexity and since the point of a strategy like this was to find a simpler path, that makes those a no go.

          Your idea of retiring in a bear market has merit, but presents two challenges that occur to me:

          1. How deep would the bear need to be? Just as we can’t predict how high or long the bulls will run we can’t know how long or deep the bears will go. Retiring after a 20% drop, the technical level for a “bear”, only to to see it fall another 20% wouldn’t be much consolation.

          2. The gaps between bear markets can be surprisingly long, perhaps adding many years to a working life while waiting.

          I’m afraid I haven’t come up with any further, useful ideas. For now, I’ve pretty much given up on this stock/cash idea myself…. 🙂

          • John says

            Maybe a solution would be to retire when one can live not on 4% withdrawal but on, e.g. 2%? So essentially building a bit higher capital.

          • jlcollinsnh says

            Hi John…

            Pulling just 2% (about the dividend yield on VTSAX) would certainly work and with a greater margin of safety.

            Of course there is a price:

            —It would take more time and more working years to accumulate the capital (twice as much) needed.

            —You would very likely leave behind a fortune to your heirs.

            If those two things work for you, a 2% withdrawal rate is just about as close to a guaranteed success as anything in this life can be. 🙂

  22. PSA says

    I’ve come to you by way of Mr. MM for my own financial situation, but now I have a question that concerns my mother’s. My mom is 71 and retired and she wants my assistance with her investments. Her home is paid off and she lives comfortably from her social security and pension. She doesn’t need to use any of the money she saved in her 403b – although her financial planner took out that money and split it into 2 annuities (possibly variable?) as far as we can tell (she’s just turned over her financial documents for me to decipher and I don’t know much about the post-retirement phase of finances). My mom thinks her assets are too conservatively held. She wants her money to keep making money, especially since she doesn’t really need any of it and could leave an inheritance (her idea – she doesn’t owe me or my brother a thing if she chooses otherwise). She’s always been inherently frugal and understands the basics of investing over the long haul but gets confused in some of the details or with pushy salespeople (hence the annuities). Could the 50/25/20/5 breakout you describe in the post be appropriate for her?

    Thanks for all of the information on your blogs. I’m reading and re-reading them every day and learning more and more each time.

    • jlcollinsnh says

      Hi PSA…

      ..good to hear the stuff here stands up to rereading.

      Grrr. Just when I think my opinion of financial planners couldn’t be lower…

      If your mother is comfortably living on her SS and pension, there is absolutely NO reason for her to have been sold annuities. Well, other than the fact annuities are very profitable for the insurance companies and the agents that sell them. If she hasn’t already, she should promptly sever all ties to this clown.

      Now for more bad news. As you likely know, when your mom passes on the insurance company will keep whatever is left of those annuities. In effect, they not only have charged her high fees an d commissions, but they’ve made themselves her heir.

      Of course, while bad for her, this is a very sweet deal for them and they’ll not want to let it go easily. In all likelihood there are huge surrender fees built into these, making it very expensive to get out. How expensive you’ll have to wade thru them and pester the company to find out.

      Once you know, you can decide whether to just live with them or take the hit and get out.

      If she decides to get out, and if this is really-truly money she won’t need and will pass on to her heirs, the 50/25/20/5 breakout will work just fine for her. In fact, she doesn’t even need the 5% cash position. But if you and your brother also plan to hold this inheritance long-term, I’d go even further and suggest that VTSAX is all she needs. If I were living comfortably on my SS and a pension it is all I’d own.

      If it is just too cost prohibitive to get out, you can take the monthly annuity payments, open a VTSAX account and have her just start funneling the money in there. Hopefully she will live a very long and healthy life and bleed that insurance company for decades to come. That will be the best revenge.:)

      But that also brings up a very sober consideration. Not to be morbid, but you need to think about your mother’s life expectancy in this decision. If she’s in great health and comes from a family that routinely lives to be 110, the annuities look a lot better (although VTSAX would look better still). The greater the extent to which this is not true about her health, the more motivated to dump the annuities you and she should be.

      Please give her my best and tell her the best way to handle those pushy sales people is to just hang up.

      Good luck and please keep us posted!

      • PSA says

        Thank you so much for such a prompt and detailed response!

        We’ll have to get into the nuts and bolts of the contracts to see what they really entail and what it would cost to get out of them. I’ve always been wary of insurance/investment bundles; I just wish I had known about this much earlier.

        My mom is active and in great health at the moment. Most of her immediate relatives haven’t yet made it past 85, but she’s in way better health than they were at her age. Of course, anything can always happen, but if someone in her family is going to make it to 110, it will be her.

        Thank you once again for your help!!

        • jlcollinsnh says

          I hear you.

          When my mother was alive, and before she turned her finances over to me, some jerk sold her a piece of high cost crap call Damson Oil. Funny how I still remember the name after 25 odd years….

          All we can do is lick our wounds, learn from the mistake and move forward.

          Your mother is lucky to have you looking out for her.

          All the best!

  23. Frugal Miami Guy says


    What do you think about a ‘poor man’s index’: equal amounts invested in 20 Dow stocks once per year, rebalanced once a year? With 80/20 stock + cash allocation, no mutual funds. I am in my late 20s and am looking for financial independence within the next 5 – 10 years.

    Thank you!

    • jlcollinsnh says

      Hi FMG…

      I think it would be extra work and transaction cost that would result in lower returns that the index fund VTSAX 80%/20% cash. 🙂

      • Frugal Miami Guy says

        Extra work, yes. But regarding the transaction costs: say I have 250K. VTSAX charges .05% per year for admiral shares which comes out to $125/year in costs. But if I trade my 20 stocks only once a year to re-balance I’m looking at $4 per trade (ShareBuilder) x 20 trades = $80. Also, sticking to the Dow index blue chips somewhat protects me against bubbles. Please tell me if you see any fallacies in this. Thank you.

        • jlcollinsnh says

          Sounds like you’ve got the costs handled, so I’ll give you that one.

          My concerns would remain:

          —lower returns over time than with VTSAX
          —sticking to 20 (or 30) blue chips actually makes your portfolio more volatile and more likely to take a bigger hit when bubbles burst.
          —you are a stock picker with this strategy and all the research indicates that is a very, very, very tough game to win.
          —and you won’t know if you’ve won until you have 20-25 years of doing it under your belt
          —since after that amount of time, maybe only 5% of professional investors will be able to say “Yes,” you gotta be awfully sure of yourself to make that bet.

          Personally, I’d rather be on the 95% side of those odds.

          Good luck!

  24. Garrett says

    Great blog and I love the ideas presented here. I am 26 years old and just started my career. I’m more inclined to be aggressive and I am just starting to get the hang (lingo and such) of the stock market. Is investing from Vanguard directly the same as lets say investing in their stock (VTI) on the NYSE. And what about Ichan Enterprise LP (IEP) on the NASDAQ, I feel like with his wealth of knowledge his stock would be a good purchase as well. Also, with the market as high as it is I’m afraid to buy at its current position (currently over 16K for the dow), would I be better off waiting until the fed starts tapering in a few months to get a better bargain??

    Thanks in advance!!

    • jlcollinsnh says

      Welcome Garrett…

      Glad you’re here and enjoying it. But your comment tells me you need to do much more reading here.

      VTI is the ETF version of VTSAX, both are the Total Stock Market Index portfolios offered by Vanguard. Typically, but not always, you have to pay commissions to buy or sell shares in an ETF, plus ETFs were designed for trading and trading is a losing strategy. That’s why I prefer the fund.

      LPs (Limited Partnerships) are loaded with fees that are wonderful for the managers at the expense of the investors. The exact opposite of the low cost index funds recommended here.

      “After reading your series and the Bogle book, I can’t come up with a reason not to pursue a nearly solely index-fund strategy. It is so elegant in its simplicity and it makes intuitive sense to me, and you can outperform nearly everyone else with zero work and nearly zero fees. That’s incredible!” Brad

      Your last question is about market timing which I cover at length here:

      You should definitely wait to invest. Not because of what the Fed might or might not do. Or because the Dow is at 16,000. But because you lack an understanding of investing principles. No worries. Keep reading. You’ll get there just fine.

      Good luck!

  25. Scott Pepper says

    Hi Jim, I’m loving your posts referred by MMM, thanks so much for all the great info. A long time ago, I kinda fell into the conventional wisdom trap of 60/40 allocation of stocks/bonds; but I have to say that I am comfortable with a bit more risk (even at my advanced age :). I’m 56 and retired 3 years ago, and left my 401k in my company’s plan because it’s cheap and easy. 58% is mostly in 3 funds, S&P Index (.06 fees), BlackRock US Equity (.09) and BlackRock Extended Equity (also 9 cents). The 42% is in PIMCO’s biggie, the Total Return Fund, but the expense here is significant — 0.46 %. The past 10 yrs has been great, but the last 2 PIMCO has suffered. So I guess I have 3 questions for you, if you care to opine: (1) I’m happy with the stock fund returns and think the expense is low, am I right? (2) Am I crazy to want to change the allocation by 10 pts, to 68/32? (3) Even if PIMCO’s expense is high, I think it has performed much better than Vanguard’s — do you still think it’s a bad idea to stay with it? You should know that I’ve got a separate 50k invested in REIT’s outside the retirement fund, as well as 50k in a Colombian coffee farm! And I’m considering Lending Club as well… so I feel like I’m doing pretty well as far as diversification goes. Thanks! Scott

    • jlcollinsnh says

      Welcome Scott!
      Glad you found your way here.

      You certainly sound well diversified and I bet there is a great story behind your Columbian coffee farm! If you care to share it, I also bet I’m not the only one who’d be interested. 😉

      As to your questions:

      1. Your S&P index fund and the two BlackRock funds have nice low ERs. While it is good you’re happy with the returns, don’t forget we’ve been in a powerful Bull market for the last few years. At some point the Bear will revisit for awhile. This won’t mean the funds stopped working. Just a heads up.

      2. Not crazy at all, especially with your other diverse investments and as long as you recognize that you will be adding some risk in seeking greater returns. Balancing risk/reward and smoothing the ride is what asset allocation is all about. But don’t be tempted to try to time the market in doing this:

      3. Jack Bogle is fond of saying “performance comes and goes, but expenses are forever.” Or something like that. Many actively managed funds will outperform the index for a year or two or even several. But ultimately they underperform as apparently PIMCO is now. If, as I suspect, your BlackRock funds are also actively managed I would have the same concern about them even though it sounds like they’ve done well for you of late. This is why my money is only in index funds as described in the post.

      Hope this helps!

      • Scott Pepper says

        It DOES help, thanks Jim.

        So… the story on the Colombian Coffee Farm, it’s interesting. When my last company offered me a generous early-out pkg a few years ago, at 53, I could have walked across the virtual street to Apple or Google etc., but I was already in the mindset of escaping the cubicle.

        Since I had saved pretty well and they literally GAVE ME the F-you money (how ironic), my wife decided to take a sabbatical and we hit the road, living in several places in Mexico for the past year, then Florida’s “Space Coast” for a few months, and I write to you now from our current temporary home in S Africa, right next to Kruger Nat’l Park, where zebras and giraffe regularly block our driveway and hang out on the porch. We are so thrilled to be able to do this, and it is definitely on a tight budget.

        Anyhow, while living in Mexico with a lot of free time to read, I stumbled into various excellent blogs, like MMM and Live and Invest Overseas and now yours.

        Live and Invest Overseas is where I learned about the coffee farm, and so I took a week-long “due diligence” trip last August to Medellin to investigate. It seems that Colombia has the POTENTIAL to grow some of the very finest coffee in the world, yet their multiple layers of profit-grabbing, price-dictating middlemen have not only impoverished the coffee farmers, they have indirectly forced the production of mediocre coffee.

        Along came a company called Coffee Latin America and its sisters Logistics Latin America and Tierra Cafetera (now Cima), which bought a few very large farms that were in distress, and created a new model by inviting investors to share in the land ownership and the profits from coffee production.

        By cutting out the middlemen, they are able to focus on high-quality coffee only, return to the old ways of production (mono-crop to multi-crop), stop using chemical pesticides, and rewarding the farmers with higher pay, incentive bonuses, and health & pension benefits (never seen before).

        So, I can’t vouch for the results yet, because I’ve only been invested a half-year, but the 5-year projections show profit growing steadily from 3% to 19%, and continue on indefinitely at 19. Plus I physically own my 3 acres of the 120-acre farm, and am free to sell it, but the company has first right of purchase.

        So in a nutshell, I bought 3 acres of a Colombian coffee farm that is now dedicated to replanting high-quality beans in a sustainable, organic manner, with socially responsible practices, for $50,000 US, and I lease it back to the coffee farm in return for 2.5% (my share of the farm) of 80% of the profits. (The 20% goes to the farmers as incentive bonus.)

        I think it’s a win-win-win and I’d rather have it there than where it was, in employee stock shares that were going up, down, and nowhere. I can only hope that the returns will be as promised, but I know 19% is a lot to ask for; I’d be happy with 10.

        If anyone is interested, I can pass along the website for the company, I’m hesitant to do it now because it may appear that I’m promulgating or shilling for them. That’s not my intention…but you asked! 🙂

        • jlcollinsnh says

          Wow Scott!

          By all means, post the link if you’d like.

          Great story, on many levels.

          Perfect example of how new vistas open up when we lift our noses from the grindstone.

          Right now I have a question in concerning ethical investments. Your coffee plantation will be part of my response.

          And I love how they gave you the F-you money to fund a chuck of your escape. Ha!

          Now I want to hear about living in South Africa! My wife is from Zanzibar and ever since our last visit we’ve talked about return to explore more of that continent.


          • Scott Pepper says

            Hi Jim, thanks for the kind words. The company’s link is, there’s plenty of information there. But I’m also happy to answer questions. The coffee culture there is amazing. And I should add that the company did NOT buy out the old farm owners and kick them out; instead, they allow them to live out their lives in their house on the farm, and employed their adult children who wanted to stay in the business.

            S Africa is fantastic! No amount of zoo visits or watching Tarzan reruns can prepare you for the feeling of watching these magnificent animals parade around an immense national park, like Kruger in S Africa. Although you are pretty much trapped in your car. We’re so lucky to have a brother who owns a house in a reserve called Marloth Park, literally on the border of Kruger, where there are so many wild animals roaming around that they strongly urge you not to walk after dark in case one of the predators has gotten under or over the fence. So it’s like a reverse zoo; we’re trapped in our cages all night, trying to sleep through the scary noises outside! In daytime, my 2-mile walk to the market regularly includes sharing the dirt road with zebras, warthogs, kudu, impala, and even giraffes.

            You and your wife MUST return, there are so many incredible places and animals to see. We can only afford S Africa on our tight budget, including 3 months free rent and a free flight from my Amex points, and we can only hope that our investments (and Mustachian ways) enable us to visit many other African countries in the future.

  26. Syed says

    I would still consider myself a “beginner” investor so i really enjoyed this post. And mainly because I’ve been invested in VTSAX in my Roth for a few years now. I have many decades to go so I will just add to it and ride it out. This is being bookmarked.

  27. Arpit says

    Hell Jim,

    First of all thank you very much for sharing this insight on the world of investing. You are a true inspiration for me.

    This is regarding the cash position on the portfolio. It is very interesting one and I am also thinking about it from my portfolio perspective. I am in my mid 30s and I have started investing in VTSAX but thinking about cash position. It is very interesting that super investors like Seth Klarman and Mohnish Pabrai have 20 to 30% of their portfolio in cash. Their reasoning behind this is, cash helps to navigate through difficult period and during those period (like 2008) you can deploy cash to take full advantage of it. If you see one of the reason why Buffet, Seth Klarman, Mohnish Pabrai has successfully beat any other fund manager on wall street is due to their ability to stay focused and have nerves of still to stay invested during down market and also grab opportunities at that time. But my dilemma is, for average investors like you and me is it worth to have say 5% of saving in cash? I mean what is better – to be completely invested in market to make every penny you saved work for you vs hold 5% cash and wait for down turn to take advantage of it.

    I know that answer to this question also depends upon individual’s comfort level but just curious to know your and all other visitors view on it.

    • jlcollinsnh says

      Welcome Arpit…

      Thanks for the very kind words.

      I am unfamiliar with Seth Klarman and Mohnish Pabrai. My guess is that they are active, stock pickers? Typically, folks like that like to keep large amounts of cash on hand as they look for opportunities and/or wait for market declines.

      That’s what Buffett does, but interestingly it is not what he recommends:

      He recommends Vanguard Index Funds and holding them forever.

      If you do that, you really don’t need a large pool of unproductive cash sitting around. I try to keep my cash to a minimum.

      If the market plunges, when I rebalance some of my bond holdings will shift to stocks and I’ll get to take advantage of the drop that way.

      That said, 5% is certainly a modest amount if you want to hold some cash.

      Make sense?

      • Aaron says

        Yeah the reason why Buffett says one thing but does another, is that he knows most people can’t, or won’t, do what he does. Unless you are willing to work as hard as he, Klarman, Greenblatt and others, don’t even try to copy them. Just invest in index funds.

  28. Mike says

    Hi Jim,

    I recently came across an article on MMM’s blog and noticed comments back and forth between him and yourself from 2012. It was on his asset allocation article. In it MMM suggests a portfolio allocation of 25% Large Cap, 25% Small Cap, 25% Intl Dev & 25% Short Term Bonds taken from William Bernstein’s “The Intelligent Asset Allocator”.

    Currently I am 100% invested in VTSAX as you advise on your blog, and as MMM originally did on his. I’m 24 years old and my portfolio currently sits at about $40,000 between my 401K, IRA, HSA and Taxable Account. My goal is to “retire” by 34.

    In the comment section of MMM’s article you agreed that anyone looking to retire within 10 years should be doing AA. I was wondering what you would recommend for me?

    Thanks in advance, love the blog.

    • jlcollinsnh says

      Hi Mike…

      I’m afraid you have me at a loss as I don’t recall which post of MMM’s or what my comment there was.

      But as my post says above, I think of this in terms of two stages.

      In the wealth acquisition stage when you are still working I favor 100% VTSAX. Your savings rate in these years should be high and that money newly invested each month serves to smooth out the wild ride the market is.

      Once you “retire” and your earned income drops, you begin living off your investments. At this point I add bonds to smooth the ride.

      Of course, some make money in their “retirement” and if that’s the case you can balance between the two.

      Make sense?

      Glad you like it! 🙂

      • Mike says

        Here’s the url to the article I was referencing:

        And heres your quote to MMM:

        “For those retired or planning to in the next decade or so, AA makes all the sense in the world. Heck, even I do it now, although I hate owning bonds. In fact, I wouldn’t argue real hard against it even for longer terms it it helps an investor sleep better at night.”

        I asked because I am both in the wealth accumulation phase and within 10 years of “retirement”.

        I value your advice, thanks

        • jlcollinsnh says

          Thanks Mike…

          ..that helps.

          What that quote refers to is the individual’s risk tolerance v. investment returns.

          In the comments on that post MMM observed that some research has indicated that an assets allocation of stocks/bonds (80/20 I believe) sometimes out-performs 100% stocks over time, assuming faithful rebalancing. While I’ve seen those studies, I’ve seen more that favor 100% stocks, no rebalancing required. In both cases the margins are narrow, so I default to the simplier 100% stocks using VTSAX.

          But that is the wilder ride and some find that very uncomfortable, especially as they close in on retirement. That’s the thinking behind the quote you cite.

          From a purely performance perspective, my call is 100% stocks. But stock investing is a long-term game and even with 10 years they could move against you. Risk v. reward.

          Only you can decide the balance that works best for you.

          This calculator might help:

  29. Adam says


    You mention above in the article that “80%/20%, stock/bond mix will actually outperform, very slightly, 100% stocks” according to studies. Do you have a link to any of these studies, or an example that shows what stocks/bonds they did to beat the just 100% stock allocation? However, since it’s only slightly would you still recommend just 100% stock allocation since that’s simpler?

  30. markmark says

    Hi jlcollinsnh, Just want to ask if you know if there are VANGUARD-similar firms here in the Philippines? I searched some but the fees are above the >1% expense ratio. Thanks! Your articles are helpful, please keep sharing.

    • jlcollinsnh says

      Hi MM…

      As far as I know, Vanguard does not have a presence there and I have no idea if there are similar firms. But I tend to doubt it. There really aren’t any similar firms in terms of how Vanguard aligns itself with the best interests of its investors even here in the USA.

      You might want to ask here:

      Many of my international readers hang out there, even those not in Europe. Perhaps one of them will have some ideas for you.

      Good luck and please be sure to let us know what you learn!

  31. Rajib says

    Jim, Thanks for writing this wonderful blog and for providing such wise financial advice. Not only are your articles packed with helpful advice, but I find that I learn just as much from reading the questions in the comments section and your answer to almost every question. Thanks so much for being so responsive to your readers. Your wisdom, humor and humility shines through your writing.

    On to my question. My company retirement plan only offers 3 index funds: S&P 500 (0.07% ER), Nasdaq (0.56% ER) and a bond fund. My allocations are as follows: 50% to the S&P 500, 40% to the Nasdaq and 10 % to the bond fund. Would you consider the expense ratio of 0.56% of the Nasdaq fund as high for an index fund? If so, would you suggest I move that to the S&P 500 fund?

    I should mention that I am 31, in the wealth building phase and plan on maxing out my 401k. I am planning on an early retirement.

    • Rajib says

      The Nasdaq index is FNCMX. I am seeing that it will hit me with management fees 0.24%, Distribution and/or service fee(12b-1) Fees 0.06%, Exp Cap (Dated) 1 0.29%. No idea what these are but they seem excessive.

      The S&P fund is FUSVX. It too has other fees. Exp Cap (Dated) 0.05% and Management Fee 0.025%. At this point I am thinking I should move everything to the S&P fund, since the fees are “lower”. Wish my company offered VTSAX 🙁

    • jlcollinsnh says

      Welcome Rajib….

      and thanks for your very kind words. I agree, there is lots of good info in the comments and I’m delighted you’ve dug into them.

      Yes, I consider a .56% ER high, especially compared to the .07% for the S&P 500 fund.

      Since the S&P 500 index tracks within a few basis points of the total stock market index (VTSAX), that’s where I’d put my money and be done with it. 🙂

  32. Ed W says

    Coming to this topic a few years late, but after one is done riding out a “storm” by using cash, how do you rebuild your cash reserves if retired and have no employment income? Did I miss a discussion on this? BTW, thanks for all your efforts to share your knowledge and ideas!

    • jlcollinsnh says

      Hi Ed…

      You’ll find a little conversation on this in these comments, but the idea didn’t generate as much as I had hoped.

      You’ve put your finger on the problem: Rebuilding the cash postion after a downturn. It would have to be done out of the rebound increases, but that is asking a lot while one is also drawing on it for living expenses.

      And that is pretty much why the idea hasn’t gone anywhere. 🙂

      • Scott says

        I’d say you do it by rebalancing, the same as how you rebuild your bond position after an upturn. Cash is an asset class with an allocation and rebalancing needed just like stocks and bonds.

        Also, if you’re in a taxable account you want the record-keeping advantages of not automatically reinvesting dividends (so you have fewer lots and sell less when rebalancing), so some of that cash can stay in the cash allocation.

        Remember that you’ll always have some money in cash. Might as well make that allocation explicit and subject to adjust-if-out-of-whack rebalancing like your other positions. That would solve the “so, how often should I buy non-cash with cash” question too, with the same answer as all the other rebalancing. (And vice-versa, for “when should I sell to get some cash”, which should be the spending version of the previous saving question.)

      • Howard says

        If you don’t mind me being even later, I found this article convincing as to why a “cash reserve” doesn’t really work:

        It relies on market timing. “stocks are on sale” always struck me as a little too close to market timing for comfort, even though hardcore index investors use it all the time. They might be on sale, but they could also be more one sale in 6 months..

        Unsurprisingly the most boring method still seems to work best; pick and AA (80/20 stocks/bonds?), and rebalance annually, without regards to sale/no-sale.

  33. Paula R. says

    Hi Jim,
    I’m 41 and just opened a Vanguard with 3,000. I am going to add a lump sum of 20k to that fund. I think it’ll be converted to VTSAX. My question is: after making that big investment, how much do you think I should add and with what frequency? Should I save the money throughout the year and do another lump sum purchase? I am able to save 50/60% of my salary but not sure if this investments should be done in a monthly basis or every, let’s say, 4-5 months? would we be more productive? of course, I’m talking about buying VTSAX!
    thanks for your help!

    • jlcollinsnh says

      Welcome Paula…

      Congratulations on your aggressive savings and investing plans.

      Since the market goes up more often than not, overall the sooner you put your money to work the better. Time invested is your friend.

      Further, pay no attention to what the market is doing when you invest other than, perhaps, celebrating when it happens to be down and your get to buy your new shares “on sale.” 🙂

      • Scott says

        On timing, the most important thing is to do it regularly so you don’t get tempted by “oh, the market looks overpriced; I’ll wait”.

        I have my direct deposit at work set up so that some of my salary goes directly into my Vanguard account. I highly recommend that approach, since it means you don’t need to think about it.

        • Paula R. says

          I love when I get responses from experts! thanks for the fast and great feedback both Jim and Scott!
          I will add the 20k for now and will set-up automatic payments on a going forward basis.
          I love saving money! that’s the easiest part for me. Now, putting it to work, little scary but you’ve given me a lot of confidence in that respect!
          Thank you again!
          Paula R.

      • George says

        Hi J
        I have about $200K sitting in cash and I am 49 yrs.
        What percentage would you suggest I put in VTSAX, VGSLX, VBTLX, VMMX.
        Since the market is high now…do thnk I should wait for the market to come down a bit before investing?
        Please advise
        Thank you.

  34. Birdlady77 says


    I’m been trying to decipher the different Vanguard products available through my 401k to see what is comparable to the VTSAX fund. They have 3 Vanguard products:

    Vanguard 500 Index-Admiral: 0.05% (10 year return averages 7.75%
    Vanguard Explorer-Admiral: 0.35% (10 year return averages 9%)
    Vanguard Short-Term Bond Index-Admiral: 0.10% (10 year return averages 3.3%)

    Your help is appreciated!

  35. CK says

    Jim, I was intrigued by the Wealth Building and Cash portfolio. Above in the comments you note that a problem with this approach is replenishing the cash buffer once the market begins it’s rebound (while also living off the gains). Why would this not be a concern (or be less of a concern) for an 80/20 stock/bond portfolio? Is it because bonds go up when equities go down, so the bonds would be essentially replenishing themselves while you are drawing down?

    • jlcollinsnh says

      That’s part of it. Plus the rebalancing between the two.

      If you went with the stock/cash allocation and rebalanced as with stock/bond, that would help make it work too.

      But my intention was to let the stocks run with no rebalancing while holding the cash until needed in a crash. By definition, this means the stock percentage would rise, at least until the crash.

  36. Arnold says


    I’m so pleased I found your blog. Thank you for the wonderful service you provide to so many people all over the world and your excellent advice! You put so much personal time into answering virtually every question posed to you! That is so nice of you….

    I hope you don’t mind guiding me as well.

    I am 65 years of age, in an informal domestic partnership relationship with a lovely lady, and recently “semi-retired”. I have $40k sitting in a zero interest money market account at Bank of America and two work-related 401k plans worth about $18k. I also have about $15k in cash stored in a safe.

    At this time, I have no income and for the past 10 months, have been drawing money from my savings to live. Fortunately, I am pursuing a frugal lifestyle and my living expenses are at about $800 per month – I can possibly trim it down another hundred or two a month. I will soon have to start working again part time to fund my living expenses.

    Needless to say, I have so many regrets that I did not save and invest in my youth and during my adult working life and plan for my retirement. I squandered money on cars, travel, eating out, girlfriends, clothes, motorcycles, businesses, high interest credit card debts etc. without giving much consideration to the financial consequences of my actions. The end result of these actions is that I now will have to rely on social security to sustain me for the remainder of my life. Who knows what will happen or where I will land up when I become too old to take care of myself.

    Jim, would you mind if I interjected a brief word of caution at this stage to the younger people reading your blog – please, younger people, don’t make the same mistake as I did…don’t….

    I am not yet receiving social security -I am trying to delay claiming it for another 5 years until I’m 70, at which time my payout will be the highest, about $1700 – $1800 a month.

    The money I have in the bank, the two 401k’s and the cash in the safe is ALL I have. During the recent recession, I turned a blind eye to the concept of investing any money into mutual funds or stocks, as I had a fear of losing it all, as many others did. Truthfully, I really didn’t understand investing, the stock market and mutual funds – I still don’t, but I’m doing a bit better now and am learning more and more each day, especially from your blog. I am fully aware that my money in the bank is losing at least 3% of it’s value every year as a result of inflation whilst at the same time, I am deriving no income from it whatsoever.

    I have read your posts in which you strongly recommend to people that they invest their funds into Vanguard VTSAX and you are not the only person making this suggestion.

    In an ideal world, and I emphasize IDEAL, I would like to invest the $40k into a fund that will generate an income of $800 per month to cover my income for the next 5 years till I’m 70, without any depletion of the principal. I would then turn down the heat so to speak, to a safer allocation of funds at percentages that would allow me to sleep at night….That would be the ideal, but I presume it’s not going to happen in the present financial climate and that I’m going to have to work part time to supplement my income – like it or not- or alternatively claim social security sooner.

    After all of that, my questions are:

    1) Is your recommendation to invest into a Vanguard VTSAX geared more towards younger folks who still have years of investing time ahead of them, or does it apply equally to someone such as myself who has already reached retirement age?

    2) If it applies to me, could you please suggest whether I should invest the full $40k into a Vanguard VTSAX?

    3) Alternatively, do you have another suggestion as to an investment into another kind of Vanguard fund that will produce a better monthly dividend?

    Thank you very much in advance and I will look forward to your reply!

    • jlcollinsnh says

      Welcome Arnold…

      and thanks for the kind words.

      Instead of directly answering your questions, let me give you two paths to consider.

      But first, there is no investment that can return $800 a month ($9600 per year) on 40k. Using the 4% rule, that would take 240k.

      Second, the break even for delaying SS until age 70 is ~83 years old. Unless you are pretty sure you’ll live past that, taking it at 66, your full retirement age, might be the better choice. Of course if you plan to marry your lady and your benefit would be greater than hers, she could take it over upon your death. That would make waiting on your SS an advantage for her.

      That said, the good news is that since you only need $800 a month, you can make that income happen pretty easily.

      Path 1:

      You have 73k in total: 40k in the money market, 18k in the old 401k and 15K in cash.

      Roll all of it in to VBIAX at Vanguard.

      This is a balanced fund: 60/40 stocks and bonds, a low ER of .09% and a dividend of 1.87%.

      Once it is there, instruct Vanguard to sell enough shares each month to transfer $800 to your bank account for your spending needs. (If you call them they will walk you thru getting this all set up.)

      73k/800 = 93 months or 7 1/2 years. If the market moves in your favor, it will last even longer. If it moves against you, it should still get you thru the five years until you reach age 70.

      If it’s a disaster, you’d just have to go on SS a bit earlier.
      But if you’ll collect $1700-1800 at 70 and you only need $800, you’ll be golden even then.

      I’d also have them send the dividend to your bank. At 73k x 1.87% that’s an extra $1356 a year. I’d use that for extra “free” spending.

      Once you reach 70 and SS and no longer need to draw on your VBIAX fund, you can just leave it to grow or continue to spend the money, but now as extra. Depends on whether you want to leave money to anyone. If you do, you might also consider switching to the more aggressive 100% stock VTSAX at that point for better growth potential.

      Path 2:

      Take SS starting at age 66. If you are going to get $1700 a month at age 70, you’ll get ~75% of that at 66 = $1275. Very comfortably over your needed $800.

      The 73k you can invest in VBIAX as above and either let it grow, or draw it down to have still more to spend.
      If you plan to leave it untouched for your heirs you might consider the more aggressive VTSAX for more growth.

      Please understand that both VBIAX and VTSAX will both be volatile and you have to be prepared to ignore this and stay the course for either of these plans to work. If you are used to holding cash this can be very unsettling.

      If it is too unsettling or you are unsure of your ability to ride out the drops, you could implement this same strategy just drawing down your cash. But, as you observed, this means watching it erode at ~3% a year to inflation and giving up the chance for growth.

      The truth is you are in excellent shape due to your modest needs of $800 a month, coming SS and 73k.

      Hope this helps, and enjoy your journey!

      PS: This is a post you might enjoy —

  37. Nic says

    First, love the blog – thank you! It’s been a game changer for me and I’m always passing it on to my firends!

    One question I haven’t been able to answer is, where do you put money you’re trying to save for a short time? For example, if I wanted to purchase an investment property in 10 months, where would you recommend saving the money I need for the downpayment? Assuming it would be in a private savings account with Vanguard 100% allocated to VMMXX?


    • jlcollinsnh says

      Thanks Nic…

      Glad it helped and I very much appreciate you passing it on.

      Is “firends” a typo or a cool version of friends: FI-rends? 🙂

      Short-term money belongs in a FIDC insured savings account or a money market fund like VMMXX. And 10 months is very short term.

      For longer short-term, say five years, a bond heavy stock/bond mix can provide a bit more return for a bit more risk. Betterment is an easy tool to use for this as I describe here:

  38. Tyler says

    What is the best way to rebalance if you are still in your portfolio building stage?

    For example, my AA is the following (or I want it to be):

    Total US Index: 80%
    Total Bond Index: 10%
    Total International Index: 10%

    Obviously, in my 401k, I have the future allocations set so that it deposits funds in the above ratios. This means with market swings it will get out of whack. But with my IRA, where I deposit $1,000/month (mine and my wife’s), should I try to rebalance every month, so to speak, or just deposit 80% to VTSAX, 10% to bonds, etc. like I do with the 401k?

    In the latter case, I guess I would never need to actually go into my 401k and rebalance unless things got really crazy with the market. My IRA deposits would be an act of rebalancing. In the former case, I suppose I would just rebalance once or twice a year.

    Is there any data that suggests which strategy would be better?

  39. PedroA says

    Hi Mr.jlcollinsnh,

    I’m 27 year old, graduated from college two years ago with no debt. I currently work for a TV network pursuing my career. Unfortunately, I not happy with the industry that I work in because I feel like a slave. I wish a had F-money, so I could quit. For many years, my mother and I have been interested in becoming Investors, but like you say in many posts, people make it seem is very difficult to get in.

    Currently, my mom has 60k sitting in the bank. We are either planning to open a business or invest it in the market. She told me that if I learned who to invest in the market, she would trust me the money to invest.

    So my question is What would you do in my case with 60k? Would you spend it in buying 100% VTSMX?
    How long does it take to start living from the dividends?

    Thanks for your attention

    PD: Your blog is amazing and very easy to understand.

  40. grbkeb says

    So maybe this is the wrong place to ask the question, but just looking for somebody to slap some sense into me on what I am thinking. I read that the greatest risk to early retirees is the sequence of returns and the first 10 years will be a major tell if your pile will last. Since I have about 40 years or more (hopefully) to fund, and I’m planning on going on a round the world trip over the next 4 years what I am considering doing is the following:

    1) take 35% of my net worth and purchase municipal bonds (not a bond fund, but the actual bonds themselves with no greater than 5-7% of the total in any single bond) that are triple tax free, this amount will easily support my lifestyle and needs for the foreseeable future. None of them will have a maturity beyond 4-5 years, I will have the interest payments taken out automatically and sent to a separate account monthly or quarterly which I will live off of. Upon returning in 4 years or so I will be close or have all my original principle returned. I will be eroded by inflation on this amount yes I understand.
    2) 60% of my net worth will remain invested and exposed to the rigors of the market through alternative investments and VTSAX.
    3) the other 5% of my net worth is just the “stuff” I own that I don’t want to part with.

    I realize that this is kicking the can down the road a little bit, but it also gets me 4-5 years down the retirement path with very little risk. Luckily the net worth is a large enough number where the bond interest gives me the freedom to live the way I want.

    Please poke holes in my crazy idea & tell me why it would be a huge mistake. I am not a market timer, but if the markets had just crashed 30% or more like ’08 I would not do this. I have thick skin…let her rip!

  41. soulrider says

    Hi Jim!
    I am trying to get some ideas to help my mother and I was wondering if I can pick your brain!
    My mother is planning on moving to the US after she retires (currently she lives in South America, but because of many reasons she wants to spend her retirement here in the USA).
    I want to help her have the best financial situation possible. Her money is worth way less here than it is in her country, unfortunately.
    But this is what she will be dealing with:
    150K cash
    170K home in South america, available for sale if that’s the best option, vs renting it out for 600 dollars a month
    30k per year pension
    What should she do with her money? Would you recommend investing the whole thing in a vanguard account, and pull 4% per year? That would give her 42,800 yearly income. I will be able to supplement that income by paying some of her expenses, such as rent or health insurance if necessary. If your recommendation is to invest, what portfolio allocation would you advise?
    BTW she will be 62 when the move occurs.
    Thanks in advance!

    • jlcollinsnh says

      Hi SR…

      I’ve met a lot of US retirees moving to South America, but your mother is the first South American planning to retire here. 🙂

      Tell her welcome for me.

      The post above outlines my thoughts on how to invest using only two funds. How to allocate between them I discuss here:

      I would personally sell the house. Long distance land-lording is tough and at $600 a month the return on the 170k is only 4.24%. And that is before the expenses associated with maintaining the property.

      As you point out, with the house sold she’ll have 320k to invest and pulling 4% provides $12,800 to add to her 30k pension. That should give her enough to live comfortably in most parts of the country.

      For more, keep reading this Stock Series and/or pick up my new book. 🙂

      Hope this helps!

  42. Kris says

    Great article. I’m wondering how does one “rebuild our cash position for the next cycle” when they are retired? This scenario only seems to work as long as someone has a means to earn money in order to rebuild their safety net. What about the person who is no longer employable?

    Thanks for any insights. I’ll keep reading the rest of this marvelous series!

    • jlcollinsnh says

      Thanks Kris!

      Ah, that’s the rub. Letting the stock portion recover and rebuilding the cash position is a bridge too far. At least, I haven’t figured it out.

      Thanks why I don’t use it.

      But I put it out there in case someone smarter than me came up with a solution.

      • Kris says

        Other than re-filling if the stocks really take off and transfer their div’s and cp’s. . . .
        that’s a big if.

        So what do you use? Or perhaps I’ll discover as I continue reading 😉

  43. Betty says

    Hi Jim,

    Fantastic stock series, thank you! I have forwarded to my husband so we can learn together. We have been investing with Raymond James, paying 1% fees for their “financial advice”! After reading your series, I am very excited to invest in VTSAX. My question to you is this- currently 80% (~300k) of our investments is in equities of approx 50 stocks; the other 20% is in cash. I want to convert our equities in Raymond James to Vanguard 80% VTSAX/20% VBTLX. I’m not sure what is the best way to do this. Can you provide some guidance as to how to transfer our money from RJ to Vanguard? Liquidate at RJ then transfer to Vanguard? Transfer like-for-like then liquidate at Vanguard? Also tax consequences we need to consider?

    Happy thanksgiving by the way! I know I, for one, am thankful I found this series!

    • jlcollinsnh says

      Happy T-day to you as well, Betty!

      As for the mechanics of transferring your assets, I’d call Vanguard and ask them to walk you thru it.

      If you are holding these assets in a taxable account and you have capital gains in them, you might face a capital gains tax. This will depend on your tax bracket.

  44. Quin says

    Hi Jlcollinsnh,

    I loved your series. I’m 19 and just opened my first account after reading it.

    My question to you is: VTSAX, or VTI? Yours is a mutual fund and VTI is an ETF.
    Is there a reason you chose the VTSAX over the VTI etf? The analytics seem very similar to me, and I was wondering if there was an important difference. Thanks,

      • Steven P says

        For example, with the VTSAX mutual fund you can set up automatic buys on a specific time period (say every month or pay period). With an ETF like VTI, you can not automatically do that since the price changes often during a trading day for an ETF. You would have to do this manually. (A mutual fund only can be bought/sold at the end of the day and has one price change so you can do automated investments).

        Anytime you can automate investements over a period of a very long time is a good thing to keep you from stopping to invest in a turbulent time.

  45. Peter Swarn says

    Fixing my terrible comment. Ishares ETFs like ITOT, IVV, AGG and others have lower Expense Ratio than Vanguard now if you check. I know Vanguard was the first and they are owned by customers but in the end what matters is the expense itself !

    • jlcollinsnh says

      There are a few index funds offered by other companies that have slightly lower expense ratios than Vanguard. For now.

      It is important to understand that they use these as “loss leaders” to get the unwary in the door. Their motivation is always to charge as much as they can get away with and those low ERs can disappear at anytime. If you have substantial capital gains when that happens you’ll be paying a tax bill to escape.

      Vanguard is the only investment firm that seeks to continually lower costs for its investors as a core value. As such, they are and will remain the only investment firm I can recommend.

  46. Manu says

    Hi JLcollinsnh,

    First of all thank you for all the great info you have been providing over the years. I have been a visitor of Mr Money Moustache for a number of years and found your website about 2 years ago. Since then I have read all your posts multiple times as I keep learning new things each time I read them.

    I invest through Vanguard Growth Index Fund (wholesale) as I live in Australia. Link below for your info:

    My wife and I are both high income earners and invest $10k per month into this fund. However, if I look at the P/E ratio of the (funds within this fund), the Australian fund component is sitting at around P/E ratio of 28 and the International Shares fund is sitting at P/E of 22.

    Is there some point at which you would recommend that I stop investing my money into this fund (if the P/E ratio is historically high) until the market corrects itself or it doesn’t matter and I should just blindly keep investing?

    Any guidance is much appreciated.

    • jlcollinsnh says

      Hi Manu…

      One of the cornerstones of my approach is understanding that timing the market, that is being able to know when it is too high and ready to fall or too low and ready to rise, is an impossible task. By extension, this means that markers used to try doing this are meaningless.

      If this the Aussie market P/E is currently 28, it only means that willing sellers and willing buyers are willing to transact shares at that level in this environment. As to which move will prove more profitable over the next year is unpredictable. Were it otherwise, there would be no buyers or no sellers.

  47. kindoflost says

    This is pretty cool. I like the cash and stock option. (I also have rentals, but I am re-thinking them.) How would you go about deciding when the market needs to re-heal? How do you tune the amount or percentage of cash?). I want to keep minimal cash because I still think I am in the growing phase. I’ve thought about “timing” the market (I know this is a mortal sin) looking at the P/E ratios. So I could say if the P/E is 12 then I keep 12% cash, and if the market is too hot and P/E is 20 I keep 20%. Although the delta between the cash performance (now near zero) and the hypotetical 7/8% market return may be a part of it. Maybe during the growing phase cash can be 50% of the P/E so if P/E is 14 you keep 7% cash.

  48. Craig says

    Hello, Great great article and love reading the replies. My wife had about $260,000 in her traditional IRA (funds ACINX & ACRNX) Acorn international. We are both 53 and now she needs to decide where to slide this money to. We have the other amount of our investments in VTI. We are onboard with your advice to have a large portion in VTI, but she still feels the need to have some international. Am curious of your thoughts regarding this. The international fund we are looking at is VXUS. Many many thanks!!

  49. Gringo in Rio says


    This is my second time through the Stock Series (thank you by the way!) and can’t seem to get my head around an elementary question:

    The Simple Path approach (and variations) is based on “returns compounded annually”. If we’re buying stocks (VTSAX) and holding them long term without capturing any gains by periodically selling shares, then reinvesting… I don’t understand how the gains from stock appreciation are captured and thus “compounded”.

    I understand that any dividends received are reinvested, but as all stock do not pay dividends, how do the gains from stock price alone compute as part of the “compounded interest” equation?

    Apologies if this has been addressed elsewhere, and again a sincere thanks for a excellent blog!

    • jlcollinsnh says

      Hi Gringo…

      Think of it this way: If you buy a stock at 10 and it goes to 12, you don’t have to sell to have that gain. If you hold and it goes to 15, 20, 25… You hold and your gains compound.

      For instance, other than selling shares for income to live on, my holding period for VTSAX is forever.

      In this post I discuss the ways a company can return value to shareholders, of which dividends are only one:

      Perhaps that helps?

      What are you doing in Rio?

      • Gringo in Rio says


        Thanks for the reply, it means a lot considering how much attention the blog gets these days. When re-reading the dividend-growth-investing post, the line about the “four things” companies can do w/ profits stood out. It makes more sense now that reinvesting profits / buying other companies, etc can yield just as much of a compounding interest result (the opportunity cost of not paying dividends).

        I’m from CA, but moved to Brazil 2 years ago as my wife is from here. I work remotely for a US company, and spend most days on Ipanema beach drinking coconuts 🙂 Tchau, obrigado!

    • Tracyl5 says

      I think of compounding of stocks that you never sell in this way: Say it makes 6% a year. You buy at $100, next year it’s worth $106. The next year it makes 6% on top of that, so 6% of $100 AND 6% of the extra $6 it’s worth for a total of $112.36. And so on… $119.10, 126.24, 133.82… Sound right?

  50. Tom says

    Jim, love the blog. I agree with the index approach. Wanted to know what your thoughts are on VINIX , VHDYX, ,PRDGX. I have a but 1/4 of my funds in those 3 and another 1/4 on PRNHX. I have a sizable account and am 54 years old and a little concerned I am such heave in stocks.

  51. M.T. says

    Hi Jim,

    I’m not sure if you’ll be able to answer my question, I’m in a unique situation. My husband and I are in our late 20’s. On my husband’s side, a trust was dissolved and he inherited his portion. The inheritance was given in the form of over 50 individual stocks. We know very little about investing, and most of the advice we’ve gotten is to just leave it and let it grow. I personally find it a little complicated, for example if I want to save more, which stock do I pick to buy more of out the 50? Should I just save into an index fund like you suggested and leave the stocks alone? Or should I sell it all and invest all of it into an index fund to simplify it?

    • jlcollinsnh says

      Hi MT…

      When stock and/or funds are inherited, the cost basis is “stepped up” at the time of the previous owner’s death. This avoids capital gains, a great benefit.

      So question one is, how long has it been since your husband inherited the trust and how great, if any, are the pending capital gains?

      If there is little or no tax liability, I’d be inclined to sell the stocks and move to something like VTSAX. More diversification, simple and you can hold it forever, for reasons I discuss in this Series. And I would certainly invest any new money this way.

      If there is a large tax bill pending, you’ll want to more closely consider holding them. Remember, before the days of index funds the best alternative was a wide selection of stocks across a range of industries. In effect, a mini-index fund. The more your 50 have that diversity, the better the case for holding them.

      You’ll also want to consider how big a portion of your net worth these stocks represent. If they are a small percentage, it is easier to just hold them. However, the larger the percentage the more compelling the case for moving them.

      In short…

      –Little or no capital gains due on sale, I’d unload and simplify.

      –The more capital gain tax due, the closer I’d look at keeping them.

      –The smaller the total percentage of my holdings, the closer I’d look at keeping them.

      As problems go, a nice one to have. 😉

      • M.T. says

        Thank you so much for your reply. This really helps with our decision, but we do have a lot to think about. Your simplicity philosophy speaks to me in many ways, so I have been leaning towards moving it all into VTSAX.

        I do still need to mull over your other points…. When I showed the stocks to my dad, he literally said “they’re beautiful, the diversification is beautiful”. This is the main reason I’ve been so hesitant to move them.

        The stocks, however, do represent a large amount of our holdings, it is everything we have outside of our retirement accounts (I do have a TSP though, which I was happy to read you like). We have some cash, and own a house (but as I also read, not as happily, the house isn’t an investment). 😉

        And we have owned the stocks less than a year, so I don’t think the taxes would be too bad..even though the last couple months things have gone up up up!

        The thing is, I just don’t think I have the smarts/luck/time/energy to constantly rebalance. So I think we’re thinking VTSAX.

        Thank you again, you’ve helped me more than I can explain. I haven’t received any solid advice on this issue from anyone I’ve asked. With the exception of my Dad of course haha :). I am going to have him read your stock series though!

  52. S.L says

    Hi Jim, thanks for making this a lot simpler process than the previous information I had received. I live in Australia and have some money sitting in american dollars ready to invest in your market and was delighted to see the idea of VTSAX being a good investment with little input required by me, but after trying to invest through my trading platform, it stated that I wasn’t allowed to do so because of my state/ country. Can you help please? S.L

  53. Itsuo says

    Greetings Jim, I echo all of the praise others have provided! I had previously read information similar to that which you provide here (i.e. A Random Walk Down Wall Street); however, it wasn’t until I found this blog (and heard the Masters in Business interviews with William McNabb (x2) and Jack Bogle of Vanguard) that I started making the changes to my savings and healthcare spending that allow me to work toward financial independence and not just “more savings.”

    My question today is about what fund to put in my “cash” in: I know above you site VMMXX (Prime Money Market). The settlement account in my Vanguard brokerage account is VMFXX (Federal Money Market). I compared the two on Vanguard’s website and while VMMXX has a better return it also has a higher expense ratio. Is there any additional reason why you keep cash assets in the Prime fund instead of the Federal Money Market ? Thank you again for everything!

    • jlcollinsnh says

      Thank you, Itsuo…

      Always nice (and encouraging!) to hear!

      Since I hold very little cash, and since interest rates are so low, either VMMXX or VMFXX are fine for me. I happen to use VMMXX at the moment.

      However, if I held larger amounts in cash I’d look for accounts that paid the most. In the past this was almost always a money market fund. But these days banks seem to be much more competitive and worth a look.

  54. Bri says

    Hi Jim,

    I am fascinated by your blog and can’t seem to stop putting it down – so much knowledge out there to obtain and apply! Had a few questions for you, but first a little bit about myself.

    27, male, resident-physician in major US city currently doing first of 5-6 years, no debt (student loans, credit cards, etc), earning on avg 58k over the next 5-6 years; maxxing out Roth IRA, have option of a 403b that is currently not being used, saving about 12k of post tax, post roth IRA income yearly. I try to rent at about 1200/month.

    1. It seems like Vanguard ETFs are the only thing I can buy due to limited investment funds – as I read comments from years past, it doesnt seem like the ETFs are all that expensive to trade today – am I missing something?

    2. Hypothesized asset allocation with Vanguard ETFs in Roth IRA- tear it apart! I believe there are redundancies:
    Mega growth – 15%
    S&P500 – 25%
    Mid cap – 10%
    Small cap – 10%

    Total Bond – 10%
    All World ex US – 10%
    REIT – 10%

    3. Does DCA work with only purchasing when share price has dropped? I’ve understood the basics with DCA but have yet to comprehend the limitations.

    4. I just read your Bond post. Almost feels like bonds are more complex with multiple risk factors to assess prior to investing. Is an investment in total bond index sufficient and logical if done concomittantly with a more complex strategy for equities?

    Thank you so much!


  55. Christine says

    I’m sorry if this has already been answered down below… I am 23 and just getting into investing. I was able to put $3000 into a Vanguard account and I am now trying to figure out what Index funds to buy. I can’t afford the minimum investment of $10,000 to purchase the VTSAX right now. What are some other options in the meantime? Maybe I am not understanding this correctly; I still have a lot to learn.

  56. Bill says

    First let me start by saying I glad I found your web site (through MMM). Second, I wish I would have found it years ago.

    I’d like to ask the opinion of you and your followers, I know this is a group that will have real feed back, not trying to sell some point of view or product.
    Some general information, DW and I are both 61 and we hope to retire December 30th 2018. We have no debt, we own our home. According to we will have $32k a month combined at 62.5 years old. Our annual budget for first 3 years after retirement is $52k (budgeting for taxes and health care for 3 years) and would like a total income of 59k for first 3 years in retirement (cushion and to pad emergency cash fund). I say retirement however it would be semi-retirement as we both will work part time the first 3 years bringing in $10k total to help reduce 401k draw down in the beginning. I am generally thinking of the “Bucket” approach in the retirement plan.
    Our “Nest Egg (s)”….
    Wife’s 401k IRA – $250k – This is a company plan that will get rolled over to Vanguard.
    My 401k IRA – $400k – This is a company plan that will get rolled over to Vanguard.
    Roth IRA – $30k – Yes I should have started this earlier but its better than nothing.
    Cash – $25k – Emergency fund.

    Bucket #1 – $51K
    This will be cash in my 401k to draw out $17K per year for 3 years. (Plus part-time work of $10K per year and SS at 32k per year = 59k per year.

    Bucket #2 – $250k in Vanguard VWIAX. This would be all DW’s IRA.

    Bucket #3 – $250k in Vanguard VBIAX – $50k in VTSAX – $50k in VWEAX (Plus the $54k cash for first 3 years draw down).

    Bucket #2 – is it to much in one basket in your opinion? We know bonds are not producing that well but we need to be somewhat conservative.

    Bucket #3 – is it worth having the $50k in VTSAX and VWEAX each or put it all in VTSAX or some other index?

    As mentioned we’d like to draw $17k the first 3 years then $27k there after adjusted for inflation as needed.

    What is the opinion of these fund and do you think they will last 25 years? (Vanguard calculator gives it a 97% if I did it right).

    Thank you and you followers in advance for the wisdom that is sure to follow.

  57. Nicholas says

    Currently I earn about 180k a year and put all of my 401k and roth IRA money into VTSAX or a S & P 500 fund. VTSAX isn’t available at my workplace 401k but the Fidelity S & P 500 is so I just use that there. Lately though instead of investing into VTSAX in my taxable brokerage account, I have been putting money into a short term bond index fund because I may need the money in two years or so. I am considering a career change that will need me to go to college for two years. I am 29 years old.

    All that to ask is this a good plan? At 29 years old and about 225k saved in my retirement accounts already, is putting money into a short term bond or money market account a good idea if I know Ill need about 80k available during a career change where I wont make much money. It kills me to do that because I know that stocks are the better performing asset class and I dont want to lose to inflation even if it is for about 4 years (2 years until I go to school and 2 years in school).

    If you are wondering why I would give up such a great paying career its because I ship out as a merchant mariner for a living and being away from my wife and daughter of 10 months old is rough on a guy. I thought before having my daughter I would still be able to do this kind of work being away from home for months at a time, but leaving is a drag and not getting any easier. No amount of money can make that feeling go away. Thank you!

  58. Marcus says

    Thank you Mr. Collins for imparting your wisdom upon us. Your guidance greatly impacted my life’s outlook and my strategy for investing. I am 32 years old and started investing 2 years ago but I wish I had this growing knowledge when I was younger. The good thing is I still have a lot of time in front of me and my mindset is always to invest long term. I just bought 7 copies of The Simple Path to Wealth in Amazon today,which I will distribute to my nieces, nephews and friends this Christmas hoping it can change their outlook as it has for me.

    I wanted to ask you for a comment on how I have invested my money so far and also an advice below how to use my SEP IRA. I have basically invested all of my money in stocks: traditional IRA ~ 44K all invested in VTSMX, ~20K in Vanguard all invested in VTSAX, and ~35K Individual Brokerage (I started investing by picking individual stocks but stopped when I read your stock series but kept this portfolio as I am up about 29% YTD). As mentioned, I am planning to stay for the long term and is in the wealth building stage but was wondering if I am overly too aggressive.

    In addition, I received around ~30K of SEP IRA recently but have not invested it yet. I was wondering if I should keep a portion of it as cash or invest them all in VTSAX/VTSMX? I have a small amount in emergency fund and savings as I prefer that my money is working.

    Thank you in advance to your response.

  59. Aanya says

    Hey there!

    I’m 23 and am a complete foetus in the world of investing so I’m finding your stock series so very enlightening. My folks haven’t had any luck with investing (mutual funds) so in my mind, it’s always been a big, scary gamble that mostly fails the average person. This blog is a goldmine of empowering information, though, and it’s making me see things differently. So, first, a huge thanks!

    Now, I have a couple of questions I’m hoping you can help me with.

    I live outside the US and so do not have access to a lot of the funds that have been discussed. A little Googling showed me that we don’t have Index Funds in my little South East Asian country. Real bummer. We do have like seven ETFs though, and I’m wondering what you think of them? I gather that Index Funds are preferred, but in their absence, are ETFs the next best thing?

    I did look up buying American Index Funds through reliable online trader sites likes Saxo Traders and the like but have found that dividends are heavily taxed (like 30%) if you’re not a US citizen. Others from the region suggest buying from other markets, such as the London Stock Exchange or the Hong Kong equivalent because there is little to no tax but their suggestions included ETFs as well and I’m not sure why. I realise that your focus tends to be on the US but I was wondering if you could share some thoughts on this.
    Here’s a link I found written by a finance guy from a neighbouring country:
    You can skip to the case samples to get an idea of the options we have.

    Thank you for your time!

    • jlcollinsnh says

      Hi Aanya…

      First, thanks for the kind words.

      Second, I’m afraid I don’t accept reading assignments. 🙂

      My thoughts are expressed as clearly as I can here on the blog and in my book. Once you’ve read them you can decide for yourself how/if to implement the ideas using whatever other sources make sense.

      Despite the title, the comments section in this post –

      – has become a forum discussing ways to implement my stratgies around the world. You might post your question there.

      You’ll also want to stay tuned. I have a guest post coming up with more on this.

  60. csky says

    Hi Jim,

    I have some questions about the 4% cash position. Is it correct that the 4% cash position is intended to tide you over during bear market and you are sort of estimating that bear markets will last around one year?

    Second, is it also correct to say that with the 4% cash position, you have no plans to add on to your positions at the market low? So this 4% cash position is really a maintenance mode kind of portfolio, especially for a retired person, since they will have no other income coming in.

    I am wondering why do you not hold a higher percentage in cash to take advantage of market crashes, or do you have any posts on why that would not be a wise thing to do?

    Thank you for your sharing. I have read about index investing but haven’t been able to pull the trigger on putting all in stocks now whenever I think about how I can buy more so much cheaper when the crash comes.

    Thank you.

    • jlcollinsnh says

      Hi csky…

      Not sure where you are getting this 4% cash position?

      In the post I describe a portfolio holding 5% cash and another holding 12%. In both cases the idea is to have some “dry powder” for market corrections.

      But as I also say in the post, cash is idle and lazy money. Its value erodes with inflation. This is why I wouldn’t hold too much of it. Indeed, personally I hold only enough to meet anticipated spending needs.

      I take advantage of market dips by adjusting my stock/bond allocation to maintain its 75/25 split.

      Finally, your last paragraph indicates you think you can time the market. This is a fool’s game. Before you invest at all I urge you to read the complete stock series here and/or my book. Of especial interest should be the post/chapter: Investing in a Raging Bull first written in 2014.

      Good luck!

  61. csky says

    Hi Jim,

    Thank you for your reply. I meant 5% cash as you corrected me. I think I got it mixed up with the 4% draw down value. I guess I never really recovered from the scar of starting my first investment in 2007 and seeing my investment fall to less than half the value.

    Worse, I sort of went into a denial/got busy with life and young kids and did not keep up with the stock market until recently. So I actually missed on on the bull run since the market crash 🙁

    As it is today, I am even more afraid to enter since the market is even higher than before and scared to death I am going to repeat my 2007 experience. I might be really unlucky like that.

    I am thinking of being 50% in cash, so even if the market crash by 50%, I could cushion the level of loss to 25% with the cash in hand.

    Do you sell your 25% bond to buy stocks when the market crash? Given the current rising interest rates, is it then normal to suffer some loss in bond when market crash to switch over to stocks?

    Thank you.

    • jlcollinsnh says

      Hi csky…

      When the stock market drops I rebalance my allocation between stocks and bonds. This typically means selling part of VBTLX to add to VTSAX.

      Yes, rising interest rates will drive down bond prices.

      It is possible to have both bonds and stocks dropping at the same time. However, since stocks are likely to drop much faster and harder, bonds still cushion the fall.

      The Stock Series has posts on both Asset Allocation and Bonds.

      Your fear surrounding the market and your pain from the hit you took in 2007 are perfectly understandable. But both indicate you don’t know how the markets work, what to expect and how to deal with it.

      As I said in my last reply, before you invest, take the time to read my stock series and/or my book. Maybe a couple of times. Then you will understand what you are getting into and how to navigate the storms when they come.

      • csky says

        Thanks Jim.

        I went through the series once. I probably have to do it a couple more times. I am a slow learner unfortunately.

  62. JT says

    I apologize if you’ve already covered this. What are the taxes on dividends from this index fund, and what are the taxes on any withdrawals from the fund? Do you have the option of automatically rolling dividends back into the fund if you don’t currently need them? Thanks!

    • jlcollinsnh says

      Hi JT,

      Assuming you are holding the fund in a taxable account, as opposed to an IRA/401K type tax advantaged account, the dividends are taxed in the year they are paid out and if you sell shares any capital gain is taxed in the year you sell.

      Yes, you can automatically have your dividends reinvested if you choose, but they are still subject to taxes.

  63. JH says

    Hey Jim,

    I’m planning to follow your advice and put my holdings in a total market index such as VTSAX. However, the broker I use is Charles Schwab and they have their own version of the total market index SWTSX.
    It has a slightly lower expense ratio and seems to very slightly out perform VTSAX in the long run. I also don’t get charged fees because my broker is Charles Schwab.

    Would that be a valid choice or am I missing something that VTSAX offers better?


  64. Bill says

    I am new to your site after seeing you on a YouTube video at Google. I like your simple investing approach.

    I saw where you had mention that one might consider 88% stock and 12% cash as a hypothetical aggressive mix. This reminds me of Dave Ramsey’s all stock mutual fund recommendation. I’ve never heard Dave talk about how much cash to keep on hand, except an emergency fund….the 12% you mention or 2-3 years of living expenses does sound reasonable.

    I’m kinda liking this 88 stock/12% cash suggestion….very aggressive but could be quite a ride.

  65. Edward says


    As I invest into VTSAX fund outside of a IRA/ROTH/etc, would I just pay taxes for dividends ever year?

    • jlcollinsnh says

      Yes, with any mutual fund held in a taxable account, you pay tax on any dividends each year.

      You also pay tax on any capital gains distributions paid during the year, but broad-based index funds like VTSAX rarely have these.

  66. Jon O says

    I personally use the ‘Wealth Building with Cash Insurance Plan’. My cash allocation is based on my budget for 12 months and is essentially the same as my emergency account in my working years. It stays in a taxable account only. I will gradually adjust the allocation to a 36 month cash budget reserve by retirement. The allocation percent of cash will therefore vary by my budget needs (going steadily down as my debt is paid off and children leave the nest), relative performance of my equity portion, and my gradual increase to 36 months of budget cash insurance. My equities are in FSKAX (Fidelity Total U.S. Stock Fund – only 1.5 basis points!) and my cash is in FDLXX (Fidelity Treasury Only Money Market Fund). 90/10 ratio at the moment. Simple. Works for me. I am a self employed physician with my own corporation and have a SEP. My wife has a 403b and is employed by the local hospital. We maximize both each year, then contribute after tax dollars into the cash account to maintain or exceed our goals as noted above.

      • Jon O says

        I was paraphrasing the cash/stock allocation portfolio that Mr. Collins refers to at the beginning of this blog that he had aptly named “The Wealth Building with Cash Insurance Portfolio”. The ‘insurance plan’ is simply enough cash to ride out most stock market downturns without having to dip into your stock portfolio while its down. I was describing how I have implemented this plan years ago and I though it interesting that he had mentioned it as an intriguing idea for a portfolio structure. It leaves out traditional investment grade intermediate term bond funds and instead uses cash (technically really just super short term treasury bills and coupons with maturity dates of less then 60 days that are highly liquid). It basically puts all the risk on the stock side of your investments. So right now I have about 15% cash (FDLXX) and 85% in a total stock market index mutual fund (FSKAX). I love the simplicity of it. The cash lets me sleep at night. I wonder if anyone out there does something similar?

    • jlcollinsnh says

      I could care less about your comment. So much less, I corrected the post.

      Glad someone finally caught that. 🙂

  67. LM says

    This post was written almost 7 years ago and I am looking to start investing and manage my retirement plans on my own. I am in my late 20’s with a stable income and can tolerate being fairly risky with my investments. With the downturn in the market would your advice for the heavy VTSAX allocation still stand or would you put more in bonds at this time?

    • jlcollinsnh says

      I wrote this Series and my book to stand the test of time.

      Downturns in markets are a gift for those in the Wealth Building stage.

  68. Andy says

    Why do you recommend VTSAX over the other Vanguard funds? I’m looking at Vanguard’s website. I picked out some funds and I used their “compare” tool. Three examples are:
    VGHCX – Vanguard Health Care Fund
    VWNDX – Vanguard Windsor Fund Investor
    VWUSX – Vanguard U.S. Growth Fund Investor

    They all seem to have performed better than VTSAX since inception.
    VTSAX – inception date of 11/13/2000, return since inception is 6.00%.
    VGHCX – inception date of 05/23/1984, return since inception is 15.99%
    VWNDX – inception date of 10/23/1958, return since inception is 11.01%
    VWUSX – inception date of 01/06/1959, return since inception is 10.28%

    (It appears these returns are all without dividend reinvestment. I don’t know what the numbers would look like if we added in dividends)

    In fact VWUSX really stands out because it has beaten VTSAX on a 1-year, 3-year, 5-year and 10-year basis as well. VGHCX has also beaten VTSAX on a 1-year, 5-year and 10-year basis, but not on a 3-year basis.

    These funds have higher expense ratios, ranging from 0.38% to 0.42%, but the higher return seems to more than make up for it. I haven’t gone through all the funds, but it seems there are others that fall into this category as well.

    So this makes me wonder: why do you recommend (and also choose for yourself) VTSAX and not say VWUSX?

    • Chelsea says

      I am just starting to invest after reading The Simple Path to Wealth, and listening to the ChooseFI podcast. I just signed up for a Vanguard account and have this same exact thought. Would love to hear the answer to this as well!

  69. Bret says

    Mr. Buffett stated when he goes he recommends 90% sp500 and 10% cash for his wife, so your 88/12 is not so crazy!

  70. Vanessa says

    Hi Jim,

    I was about to invest my $55k in VSTAX today, but saw that the transaction fee was $40 per trade, regardless of the amount of the trade (my accounts are with Schwab). Once I start work in August, I plan on investing half of my paycheck every month. But it seems like $4o is a pretty hefty fee to be paying every month, especially considering it would just be on $2000. So would it make more sense to invest, for example, every three months rather than every month to reduce that cost? Please let me know your thoughts on this. I apologize if the answer is obvious– I’m just starting out in the investing world. Thank you 🙂

    • Jon Older says

      SWTSX is the Schwab total U.S. stock market index. It should be free to purchase if you are with Schwab, is cheaper then VSTAX with an ER of .03 and holds essentially all the same stocks.

    • jlcollinsnh says

      Hi Vanessa…

      $40 is a ridiculous fee to buy any fund.

      Open an account directly with Vanguard and you can buy VTSAX anytime for no fee.

  71. Kachapan says

    Dear JL Collins

    I’ve just found your blog last week and have been reading previous Stock Series everyday. Thank you for such easy to understand and very focused series.

    My question:
    What is your advice for people who are starting to invest seriously very late in life, in their 40s. They have some saving in cash and mutual funds.

  72. Christopher G says

    Hey Jim, thanks so much for the interesting read. I would be interested in hearing your thoughts on this:
    I have used Fidelity Investments solely for the fact that it has been what my company has used to match etc. About a year ago, I did some research and put money into a fund called FSMEX – a medical MUTUAL fund (not index) that has a 21 year track record of returning nearly 15%! It’s expense ratios are around .75%, so definitely not at an index level. Using Dave Ramsey verbage – get into a fund that returns around 10% or better and outperforms the market. Is this a bad idea? I mean I agree with everything you are saying, but funds like this have signficantly blown away the S&P 500. The difference between 11% and 10% later in life is quite literally millions of dollars, let alone an average of >13% after expenses. Using a compare chart, 10,000 dollars in this fund 21 years ago would be over double what a standard S&P index has returned. What am I missing here? Why does a philosophy like this not jive with the low expense index philosophy? I’d love to hear your thoughts and thanks in advance!

    • jlcollinsnh says

      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.

    • Jon Older says

      1.) Past performance is not a good measure of future performance.

      2.) The mutual fund you have is in a concentrated sector which combined with active management is very high risk. Active managed funds are almost always a bad bet. Google SPIVA.

      3.) Dave Ramsey does not advocate a health sector bet for a mutual fund choice. Dave Ramsey is not a good source of investing advice. He has a schtick for becoming debt free. That’s as far as I would go with him.

      4.) I would suggest FSKAX ( Fidelity Total Stock Market Index) which is super low cost, indexed based, total market fund which has over 3,000 stocks across every sector and market cap (including all the health care stocks in your current mutual fund).

      5.) Besides JL Collins book, I would suggest reading Jack Bogles book ‘Little Book of Common Sense Investing’.

      6.) is a great wiki website and forum to understand investing.

  73. Nantha K Tangavelu says

    Hi Mr. Collins,

    Can you let me know how to calculate personal savings rate? Do I include pre-tax accounts such as 401k and HSA’s or simply a percentage of my net take-home pay after taxes and pre-tax deductions? Thank you sir! Your articles are a blessing:)

    • jlcollinsnh says

      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.

  74. Cynthia says

    Great information!! This is what I’ve been doing now for about 5 years, regarding Vanguard ETF’s. However, I’m using the VTI Vanguard Total Stock Market ETF, as my vehicle. Is there some reason I should be using your suggested VTSAX???

    Please reply, I’m eager to hear back from you.


    • jlcollinsnh says

      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.

  75. Erin says

    Well I am 39 and just figuring out how to invest and save for retirement. Better late than never I guess. First, I am a teacher and I am debt free. Here is my plan for 2020… I am doing this all alone and using only what I have learned from you and ChooseFi. Here is my plan…
    1. 5% in my TRS Plan 3 as required by my School District. They contribute to this as well. ($50k current balance)
    2. Open a 457 (DCP) and invest in the Large Cap Equity Fund (S&P 500)
    3. Open a Vangaurd Account with $1k in VLXVX until that gains $3K and then roll over into VTSAX.
    4. Save cash in my Ally online savings account with a 1.8% interest rate.
    I have the option of opening a 403 (b) should I? Am I missing anything? Like I said I am on my own here so any guidance is much appreciated.

  76. Katelyn HL says

    I’m cruising through the stock series and appreciate the knowledge sharing. Just to note, it is always too soon for a slave analogy.

  77. Rita says

    I am new in investment. I would like to ask if you sell index fund like VTSAX when you see you will gain profit from selling? Or just leave it and continue buying the index fund whenever you have cash available? I just need some thoughts of when you will sell the VTSAX?

  78. Aaron says

    I just wanted to say thank you for sharing all the great information. I have been using it to guide my investment strategy and have shared it with many family friends. I have a 401K at work and for awhile was allowed to invest in VTSAX. Recently our 401K took that option away and replaced it with DFUSX. Would you be able to help me contrast and compare the two options? I want to make sure i’m investing as close to VTSAX as I can get. Thank you in advance. I appreciate it.

  79. Sam W says

    jlcollinsnh thanks for all of the advice here. What do you think about VOO (Vanguard S&P 500 ETF)? Seems to have lower fees at 0.03% and similar returns.

  80. Kevin Hamilton says

    “You could easily pull about 4%/40k from it each year for your living expenses and ride out most financial storms. But you are giving up a big slug of wealth building potential. Since most financial storms last less than three years, maybe there’s a better way. What if we did this:

    88% of our dollars working full tilt in the hot sun. 880k
    12% napping in the sun on the cash beach. 120k”

    Hi Jim, was just curious if you had any additional thoughts on this vs 80/20 Stocks and Bonds?

  81. Grisselda Hernandez says


    I started investing in VTSAX a year ago and have maxed it out since, however, in the moment I am a full time student. Any suggestions on where I can invest my money?? I know typically when you have an employer who provides it, its recommended to direct money to 401, but this is not my case. I’d really like to keep momentum on my FI journey.

  82. Jim says

    I currently have my investments with Vanguard through my employer.
    I have them manage my account. I have $567,000 invested and $200,000 in company stock
    They have split between 5 funds.
    VTPSX 20%
    TR2030 30%
    Vanguard Institutional Total Bond Market Index Trust 15%
    Vanguard Institutional 500 Index Trust 20%
    Vanguard Institutional Extended Market Index Trust 15%

    Expense ratios are pretty low but I was wondering if I should/could move this to VTSAX and VBTLX (not sure this is the right symbol for the Total Bond Market).
    or would the target fund be good? I’m currently 57 and my wife is 53 and we have approximately $1,050,000 in investments and cash. I plan to retire at 62 and would like my wife to be able to retire at the same time at 58. She is a teacher and will have a pension. We contribute approximately $50,000 per year into our investments.
    To do this would there be expenses to move these? If I could do this I would manage my own account.
    Please let me know your thoughts.
    Thank you.
    JT and MT

  83. Theresa says

    Hi there!
    I have just recently come across your information and ideas with regard to investing and they completely resonate with me and are reasonable/straightforward. To keep this short since you must have many emails to read, thank you for your wisdom, sharing your failures and also sharing what you have learned along the way. Your daughter is lucky to have such guidance and love from her father. I wish I had come across this information long ago, better late than never!!
    I have just turned 60 and certainly have many healthy years left. No debt, house (no mortgage), car free and clear. My money is sitting in a money market account until I just learned what to do. 117k in MM, 37k in IRA, 7500 checking. Question: is putting 100k into 70/30 stocks/bonds unreasonable risk at this age? Would really appreciate your input (if you have time) for guidance. Many thanks, Theresa

    • jlcollinsnh says

      Hi Theresa…

      That is really a question only you can answer for yourself. But maybe I can help frame it in your mind.

      The more you hold in stock, the better your returns are likely to be over the long-term. But also, the more volatile the ride will be.

      The more you hold in bonds, the smoother the ride will be over the long-term. But also, the lower your long-term performance.

      My only caveat will be, for your portfolio to survive for the long-term you need the growth stocks offer and should have at least 50% in them.

      Hope this helps!

  84. Silvia says

    I think my situation is worse than most every person asking questions here.
    I am 50, living in the US for only 12 years (naturalized citizen), and the company that I have been working for more than 8 years doesn’t offer 401k or any kind of retirement plan. My husband is also 50, his company does have 401k but he didn’t want to enroll on it, for some reason that I still cannot comprehend. We have very little savings and lots of expenses like a house mortgage and college for our daughter starting in 4 years.
    I am trying to learn about the stock market and I have been reading your series, but it is very difficult to understand the ins and outs and all the details. If we cannot even put $3000 on a Vanguard account, what would you suggest we could do to create at least a little wealth until our retirement? How do you start at such late age of life?
    Any comments, suggestions or advice you can provide will be very much appreciated!

    • jlcollinsnh says

      Hi Silvia…

      Yours is a tough question to answer as it is so broad. The answer really is this Stock Series and my book The Simple Path to Wealth. You are at the beginning and need to lay a foundation to move forward. There is no simple “do this one thing” answer.

      Your first step is to get control of your expenses. Until you do that, as you say, you will struggle to even put $3000 into Vanguard.

      You must learn to live on less than you make. That is how you free up the money to invest. At 50 you have the time and your situation, while needing work, is not hopeless.

      Here’s part of a note from another reader sharing her sucess:

      So, if a young widow—with three young children and an elderly mother, no education, limited English in a foreign country, working as a housekeeper, earning minimum wage (or less in lean years), doesn’t touch stocks or bonds—can achieve FI in 37 years, so can the average and below-average American. And in a much shorter time if they desire.

      Hopefully this will give you some inspiration.

      Good luck!

  85. Christos says

    jlcollinsnh thanks for all your advice and work you put on this stock series. I believe it is invaluable and timeless, and a great source of knowledge on how to reason about the market, even if the particular examples / data ends up becoming outdated. I have taken this advice to heart and am trying to put it to good use to start my investment journey.

    My only concerns are the following –

    1) given China’s prominent rise in GDP I am considering whether the US economy will start falling behind in 10-20 years time and how this might affect the overall investment strategy. My thoughts are that the US is still ahead and will continue to be for at least the next 10 years so we could potentially start with a VTSAX investment and transfer to more China / world based index funds if they start providing a larger return on investment in the future (but in that case there might be taxation costs relevant to moving from one index fund to the other?)

    2) I am UK based, and I am concerned that there might be currency associated risk / cost investing in a US based fund. I’m not sure if there are any additional expenses although from what I can see UK vanguard offers the “US equity” index fund with only a 0.1% operational cost (in comparison the suggested “FTSE All-World UCITS ETF” gave less returns historically and has more than double the operational cost (0.22%).

    I’m just worried I’m gonna be caught up in one of those unexpected fees that makes the whole investment go south and would love an input, but either way I am grateful for this series and will continue doing my research so no pressure to reply or anything.

    Thanks for all your hard work and insight!

  86. Marisa says

    As someone who grew up without a father and in a poor family not fluent in investing, I am so grateful to have stumbled across your book and blog which has helped me tremendously. Navigating this whole investing thing as a single female can be overwhelming but you make it easy to understand. Thanks ‘Dad’.

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