Stocks — Part VII: Can Everyone Really Retire a Millionaire?


“I wonder if it would actually be possible for every single person to retire a millionaire?”

That very provocative question was posed in the comments by reader mmrempen a few posts back. It’s been rattling around in my brain ever since.

The short answer is a qualified “Yes!” It is possible for every middle class wage earner to retire a millionaire. But it’s never going to happen. And that’s not because the numbers don’t work.

The numbers tell us that, compounded over time, it actually takes very little money invested to grow to $1,000,000. Over the 40 years from January 1975 to January 2015 the market averaged an annual return of ~11.9% with dividends reinvested (~8.68% if you spent your dividends along the way)*. At that rate just $12,000 invested in the S&P 500 stocks in 1975 would be worth over a cool million ($1,077,485) in 2015 (when this post was written).

Don’t have $12,000 lying around? That’s OK. If you started in January 1975 and invested $130 per month ($1,560 a year) by January 2015 you would have had $985,102**. Not quite a million, but not a handful of mud either.

Want nothing less than the full million? Kicking it up an extra $20 to $150 per month, $1,800 a year would have gotten you to $1,136,656**. Your million plus a new Tesla and Corvette.

If you think about it, this is pretty amazing considering all the financial turmoil of the past 40 years. However, it’s important to know that compounding takes time, so it helps to start young. Here are the calculators I used:

Of course, a million dollars is a very arbitrary goal. Perhaps the better question is: Can everybody achieve financial independence?

Tiny House

Living Small

There are countless stories of people of modest income who by way of frugal living and dedicated savings get there in remarkably short time. You can find some here. If you can live on $7,000 per year, $175,000 gets it done figuring an annual withdrawal rate of 4%.

Then too, I remember having lunch with a friend of mine a few years back just before Christmas. He’d just gotten his annual bonus: $800,000. He spent the lunch complaining that it just wasn’t possible to make ends meet on what he made. Listening to his expenses, he was right. He’s burning thru more than $175k every three months. Financial independence is a distant dream for him.

Money is a very relative thing. Right now I have roughly $100 in my wallet. For some people out there $100,000 has less relative value to their net worth. For others, $1,000,000. For still others it might be more than they’ll see in an entire year.

Being independently wealthy is every bit as much about limiting needs as it is about how much money you have. It has less to do with how much you earn—high income earners go broke while low income earners get there—than what you value. Money can buy many things, none of which are more important than your financial independence. Here’s the simple formula:

Spend less than you earn – invest the surplus – avoid debt

Do simply this and you’ll wind up rich. Not just in money.

If your lifestyle matches or, god forbid exceeds, your income you are no more than a gilded slave.

Let’s consider an example. Suppose you make $25,000 per year and you decide you want to be financially independent. Following some of the examples here you organize your life in such a fashion as to live on $12,500. That’s a 50% saving rate. Two important things immediately happen. You’ve reduced your needs and you’ve created a source of cash with which to invest.

Now let’s use our calculators to play with some scenarios.

Assuming you’ll be financially independent when you can live on 4% of your net worth each year, you’ll need $312,500 ($312,500 x 4% = $12,500). Investing your $12,500 each year in VTSAX and assuming the 11.9% annual return of the market over the last 40 years, you are there ($317,175) in ~11.5 years.***

At this point suppose you say, “OK I’m done with saving and I’m going to double my spending and spend my full earned $25,000 from now on. But I’ll leave my $312,500 nest egg alone.” In 10 short years it will have grown to $961,946*** without you having to add a single dime. That amount yields $38,478 a year at a 4% withdrawal rate. You can now not only quit working, you can give yourself a (rather substantial) raise.

*** (use the “end amount” tab)

For simplicity sake, yes, I’ve ignored taxes. But we’ve also assumed you’ll never see an increase in income. We are just doing a bit of “what if” analysis to help see that your money can buy you something far more valuable than trinkets and trash.

But few will ever even see this as an option. There are pervasive and powerful marketing forces at working to obscure the idea that such a choice exists. There’s a lot of money to be made persuading folks they really simply must have the latest in trinkets and the most fashionable of trash.

There is a huge marketing effort designed to keep people spending and in debt slavery. We are relentlessly bombarded with messages telling us that we need this, we must have that and if you don’t have the money, no problem. That’s what credit cards and payday loans are for. This is not an evil conspiracy at work. It is simply business. But it is deadly to your wealth.

The science behind the art of this persuasion is truly impressive and the financial stakes are huge. The lines between need and want are continually and intentionally blurred. Years ago a pal of mine had bought a new video camera. It was the best of the best and he was filming every moment of his young son’s life. In a burst of enthusiasm he said: “You know, Jim, you just can’t raise a child properly without one of these!”

Ah, no. Actually you can. In fact, billions of children have been raised over the course of human history without ever having been videotaped. And, horrific as it may sound, many are still today. Including my own.

You don’t have to go far to meet someone who will tell you about all the things they can’t live without. You likely have your share. But if you want to be wealthy, both by controlling your needs and expanding your assets, it pays to reexamine and question those beliefs.

One of my key objectives with this blog is to present another way. If you’re still not so sure about the cost control part of the equation you might check out:

Our pal mmrempen followed up with another question:

“I wonder how much of our economic strength is based on reckless spending, and what would happen to it if EVERYONE started acting more responsibly with their money. I might well be out of the job! After all, who needs to spend so much on movies? (He is a filmmaker and you can check out his work here.)

“It’s no knock on your financial advice, now. Just a thought experiment.”

Still from a mmrempen film

No worries, MMR……my advice should be expected to stand up to a few knocks. :)

In fact, the whole wealth building point is to have plenty of money to do with your life as you choose. Some you’ll invest, some you’ll spend and both help drive the economy.

Your concern is based on a widely held view that consumption is the primary driver of economic success. Counterintuitive though it may be, it is only one part of a far more complex mosaic.

The concern that everyone might suddenly become responsible is a classic “non-problem.” “Non” because:

  1. It is unlikely to happen.
  2. If it does it will be at a very gradual rate allowing for easy adjustments.
  3. If it does it would be a very good thing. Less consumption would make for a far more sustainable world. No small consideration with 6.5 billion of us running around. Certainly such a change would cause a round of “creative destruction” as companies making and peddling trinkets and trash faced major adjustments.
  4. In a society with frugal, debt free, financially independent people the necessary and highly beneficial process of “creative destruction” vital to a dynamic economy is far less traumatic.

Note: The examples in this post are meant to illustrate the power of compounding. It is not to suggest that the market will always return 11.9% over any given time frame. Different periods can and do have vastly different results. If you play with the calculators you can see this in action for yourself.

Addendum: Some suggest the 50% target savings rate used above is too aggressive. Others that it is too wimpy. That’s for you to decide. But if reaching financial independence is important to you, the chart below will give you a good idea as to just how powerful your savings rate can be.


The numbers in the chart above assume an 8% annual investment return and that you’ll live on the classic 4% withdrawal rate which implies assets of 25 times your annual needs. So, this is not a gospel, but a guideline.

The chart is taken from my pal Darrow’s (Can I Retire Yet?) book.


Case Study #14: To Dream the Impossible Dream

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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.
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  • 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

    This is your best article so far Jim. I’m impressed. I wish that everyone can read this and try to live by every word you’ve written. We will have a different world — more content and prosperous.

  2. Fuji says

    Do you think there are methods with which people can develop some resistance to marketing? It seems like some individuals are less prone to marketing than others, but the vast majority of the world are so vulnerable to it. I look at China and the zeal for branded Western goods and I flinch at how much money is being poured away. I know, good for the economy, but still…

    • jlcollinsnh says

      Hi Fuji….

      The first step is becoming aware that we are all taught (brainwashed?) to want a lifestyle of endless consumer goods.

      Both China and India (and the rest of the world) are avid consumers of Western, mostly US, media. TV, movies, music videos and the like all paint the “good life” as one of material excess.

      As the middle class in India and China (BTW, each of these countries now have a middle class larger than the entire population of the USA and it has happened in a single generation) has exploded, it should be no surprise that they are seeking what has been dangled beyond their reach until now.

      Both countries have rich histories and cultures that espouse more deliberate and modest approaches to life. My guess is that as their experience with consumerism and its shallow rewards expands those approaches will return with a renewed vigor.

  3. Pachipres says

    Hi There,
    I know you from the MMM site. Could you answer me this question. I don’t get this 4% withdrawal rate. We have nearly 1 Million in investments but last year it made 2.3% and now in 4 months it has made 1000.00 total. Had dropped alot in last month. So how can my dh and I retire when the market isn’t even doing the 4%. I am trying to keep my expenses at 40K per year/

    • jlcollinsnh says

      Hi Pachipres….

      Welcome and glad you found your way over here.

      the 4% rule comes from some research done a number of years ago. Various portfolios were analyzed against how long they’d last using various withdrawal rates. The idea was to come up with a percentage that would have a likely chance to last for 30+ years before depleting. It assumed that each year the amount withdrawn would be increased to account for inflation.

      Basically they found that withdrawal rates of 3% or less reliably made the distance. between 3-4% did very well. 4-4.5% had something like a 90% chance. Much over 4.5% and the odds moved against you.

      As I recall, they used a 60/40 stock/bond ratio.

      As you can see, there are lots of assumptions built in, but 4% has become the widely held rule of thumb. but it is not infallible.

      somebody unlucky enough to retire in mid 2008 would not have survived with it. too big a hit early on. one the other hand, someone retiring at the start of a bull market will do far better.

      From reading this series you’ll have noted that the market from 1975 thru 2011 rose at a 12% annual rate. But, of course, the last ten years haven’t even been close to that. the 80s & 90s were far better. There is a huge difference between an average annual rate and what the market does in any given year.

      What you experienced last year is a good illustration. 4% proponents would say you’d still take 4% in that down year and later stronger years (say the market is up 8% and you still take only 4%) will close the gap. the research backs them up.

      If this uncertainty makes you uncomfortable, you might try this. Take 4% each year, but no inflation increase. over time the market does rise and your portfolio should too increasing the amount you can withdraw. but now you are only increasing on strength.

      hope this helps!

      • Pachipres says

        Wow, thank you so much for your explanation. No one has a crystal ball including our financial advisor and in 2010 he said we could withdraw 2K a month but the way the market has been going, I am so glad we never started doing this. With 4 children still at home and helping another older one out, it would not have been wise. So far this year, the market has only made 1K on 985k. It was 108,000, 000.00 three weeks ago but my dh says it’s dropping because of Europe. So I guess we’ll see how much our portfolio makes by end of 2012. Thank you once again Jim(saw your name from another person).

        • jlcollinsnh says

          my pleasure!

          At 2k per month/24k annually on a 1m portfolio your withdrawal rate is only 2.4%. VTSAX has a dividend of around 2% so you could almost do this and never touch principle.

          sounds like your advisor has given you sound and conservative advice.

          care to share what you are invested in?

          • Financial Noob says

            Thanks for your blog! It’s a lot of fun to read and I’ve learned a lot from JLCollinsNH, MMM and friends (Saturday morning cartoon idea?).

            Anyway, I’m new to all of this stuff and have been going over my options for when I start into the workforce. I notice you mentioned the VTSAX as approximately a 2% dividend payment, which I’m assuming will fluctuate very mildly with inevitable market crashes (as I understand it, the big payers won’t change what they’re doing in that circumstance). Withdrawal rates are great and all, but I’m hoping to retire living off of mostly dividends (reinvesting them prior to retirement, of course) so my portfolio can continue to grow. Are there any indexes with Vanguard that focus more on dividend payers rather than the whole market? I’d still be fine just taking a piece of the whole market and letting it ride, but I really do like the idea of dividend payments vs. withdrawal rates. I’m curious as to what your thoughts are on these strategies, as well.


          • jlcollinsnh says

            Thanks FB…..

            ….Saturday cartoons, eh? 😉

            There is indeed an index fund focused on div stocks: VHDYX

            As I check this AM the payout is 3.17%. Certainly not a bad route to go if you are more comfortable with it. My only caution would be to understand that dividends are not a “free lunch.”

            For more on that, check out:


          • jcw says

            Here’s a weird question. What would the market look like if we were to convince *everyone* that VTSAX was the way to go and they all moved their money there? What would the market look like? Would it function or would it grind to a halt?

            Just wondering…8^)
            — jc

          • jlcollinsnh says


            Beats me. But we will never know.

            There will always be people convinced that they can outwit the market.

            More importantly, there will always be people who know how much money there is to be made off people convinced they can outwit the market. So there will always be heavy and convincing marketing at work designed to lure them into trying.

            Kinda like the gold rush. The big money was made selling the supplies to the miners, not digging for the stuff.

  4. vinoexpressions says

    Inspiring, as always! I read that Michael Jackson’s brothers and sisters all went bankrupt, although they had earned plenty during their lives. So, you are right – it’s all relative. And, like basic thermodynamics when heating a structure, you want heat in to equal, or exceed heat out. So quantify your income, quantify your expenditures, and make certain you always have some to invest. Love your web log!

    Tom M.

    • jlcollinsnh says

      Thanks Tom….

      …always nice to see you here.

      Entertainers and pro-athletes have a terrible record in hanging on to their money. It’s a skill set they never developed and they tend to think of wealth in terms of spending. It flows out even faster than it flows in.

      Add to this the ever present circle of sharks in that pool and the surprise is they don’t all wind up broke!

  5. femmefrugality says

    Oh, my gosh. An $800,000 bonus and he’s still not making enough? I think I just threw up in my mouth a little. Someone needs to scale back.

    Thanks for that tool…oddly enough I was looking everywhere for something like this earlier today.

  6. Reido says

    I greatly enjoy your blog!

    I just wanted to share a couple thoughts… For one, bonds are much much worse investments as a result on income taxes. If you make 8% in a bond and are in the 25% tax bracket and inflation is running at 4%, then your after tax and after inflation gain will only be 2% – you have to subtract away 25% x 8% and then subtract 4% from that number. If you only make 2% per year it will take 36 years to double your money.

    Compare this to stocks with the assumption (very conservatively) that stocks beat inflation by 4% per year. Since you don’t have to pay taxes until you sell, the money grows until you cash in… and by that point you’re probably retired! This would double in 1/2 the time!

    Also, I think you underappreciate the REITs to some extent. In actuality, they’re just small companies that happen to act as managers for real estate. As a result, they perform about as well as a small cap index would – and over long periods can even OUTPERFORM stocks assuming you reinvest dividends.

    My personal portfolio is 50% Stock index ETF’s and 50% REIT’s

    • jlcollinsnh says

      Thanks Reido….

      glad you’re here and I appreciate your comment.

      Great point on the tax considerations of bonds. That’s why I hold mine in my IRA accounts. The REITs, too, as they throw off a pretty good dividend.

      The stocks – VTSAX – I keep outside the IRA.

      Points well taken on the REITs too. If I were to trim my bond allocation I’d likely divert the captal into more REITs like you have. But that would increase the risk profile and at my age and in my situation my 50/25/25 is bold enough.

      That said, your 50/50 will, over time, outperform mine. The important point is that, with just these three funds (asset classes) everyone can fine tune what they need.

      good luck and hope to see you around here more.

  7. Chad says

    Cool blog. I found my way here from MMM and really enjoyed your guest posting over there. I will be poking around over here and looking for more good info.

    I’m curious if you discuss using “average annual return” assumptions or talk about which avg annual return rates you use much elsewhere?

    You reference actual index returns for the total stock market as being 12% over the past 37 years. One, VG didn’t have a total stock market index going back that far and if you look at VG it has returned only 8.56% since inception in 93 and the S&P 500 has returned 10.6% since inception in 76. These are great returns but 8% isn’t maybe the slam dunk this post makes it sound like.

    • jlcollinsnh says

      Welcome Chad….

      Thanks for the kind words and for stopping by.

      The 12%/37 years is the actual return of the Dow Industrials rather than the Total Market Index, which as you point out, hasn’t been around that long. But since the Total Market tends to slightly outperform the Dow, it is not a bad proxy.

      Average annual returns are very tricky business. The percents will vary depending on the exact start and ending years one chooses. However, since most fall between 8-12% or so I simply went with the lower end to be conservative.

      So, maybe not a slam dunk but not unreasonable either.

      • Mike says

        But the Dow did not return 12% over those years… As shown on the graph from your “the market always go up” article, it went from 577.6 to 13252.76 in 36.5 years. That’s 8.96% per year on average or 4.77% after inflation since the CPI went from 55 to 230. Applying this to the hypothetical $15,000 investment you mentioned in the introduction would result in a fortune of about $344,000, or $82,000 after inflation. This is MUCH different than your claim of $1 million. Am I missing something? Great article otherwise.

      • Mike says

        Furthermore, the case of 1975 to 2012 is not a conservative one to begin with at all. When people talk about how the stock market returns 8% or 10% or 12% or whatever over the long term, they do what you did and assume perfect market timing: investing right after a crash and pulling out at a peak. Here’s a different scenario: say you invested at the peak in 1966 and pulled out after the crash in 2010. That results in an average annual return of 4.37% or -.67% after inflation over 44 years.

        I think both scenarios are unlikely and reality would be somewhere in between. My point is that people greatly exaggerate the long-term returns of the stock market by assuming perfect market timing in their calculations, all the while preaching how market timing is impossible and how attempting to do so will lower your returns.

        The sad truth is that precisely when you enter and exit the market matters a lot. I think this graphic from the NY Times illustrates it well: You could maybe get slightly better returns than they show by avoiding taxes and fees more, but the conclusion is still the same: it’s a lot harder to make solid returns on stocks with buy-and-hold index investing than people will admit, even if you have 40 years, and especially when you only have 10 or 20 years.

        Do I still put most of my investment cash into stocks? Yes, but without the strangely common expectation of an effortless 12%.

        • Zack says

          Thanks for posting that NY Times article! I saw another group of graphics like it on Reddit FI thread but is shows success at different withdrawal rates instead of market returns. If I were a better person I would find it and link it.

      • Mike says

        Okay, one more reply… It occurred to me that I did not factor in dividend re-investment in my calculations. With dividends included but inflation not, I get an average return on the S&P 500 of 11.36% from 1/1975 to 5/2012. That’s much closer to 12%, so I admit I was wrong there. However, I stand by my comments about the high degree that entry/exit timing matters and how people tend to use unfairly ideal examples. The NY Times graphic I linked does factor in dividends, by the way.

        I have to say, there seems to be a very disappointing lack of tools available online to analyze stocks with dividends, inflation, and fees included. Morningstar and Vanguard at least include dividends in their “growth of $10,000” graphs, but they skimp on inflation and fees. I realize now how useless Google Finance is for tracking anything involving dividends. Anyone aware of any good tools for this type of analysis beyond grabbing raw data and making your own spreadsheets? Here’s where I got the S&P raw data if anyone is interested:

      • jlcollinsnh says

        Hi Mike…

        Thanks for your input. Points well taken.

        As it happens, I didn’t chose a start of 1975 to create an ideal example. That just happens to be the year I started investing. 🙂

        Still, you are absolutely correct that various start dates and time periods produce vastly different results.

        My intention wasn’t to suggest that 12% returns can be counted upon for any given time frame and it never occurred to me anyone would take it that way. Rather I was looking to illustrate the power of compounding.

        In any event, I’ve edited the post to hopefully make this more clear.

        I appreciate you bring the issue to my attention.

        • MarredCheese (Mike) says

          Ah, you were just lucky enough to start in ’75 then, haha. Sorry, I didn’t consider that possibility. Thanks for replying. I’m almost done powering through your stocks series and it’s been great.

          • Tonny says

            I live in part of the world that spweaks very little about stocks with our stock market just having 9 publicly listed companies… Trust me I look at opportunity provided by index funds in U. S like the coming of the messiah!

  8. Beatrix Josephy says

    Just made my way over from MMM site – love your blog. I’ve known for a while that I should move from my financial planner to index funds. MMM has been talking up the Vanguard series of funds as well. You too seem a fan. Problem is – I’m a Canadian. Any advise for us up here in the north? I believe, perhaps mistakenly, that Vanguard is not open to us, and I know there are more and more index funds on the market, which now reminds me of the earlier mutual fund business – and that the fees are starting to creep up. I used to buy high and sell low – but I hope I would now see a low market as an opportunity to buy. So perhaps I’m now mature enough to do my own set up and not be incapacitated by fear of getting it wrong by buying out of greed or selling out of fear. Here’s hoping anyway.

    • jlcollinsnh says

      Welcome Beatrix…

      ..glad you’re here and delighted you enjoy the blog.

      You are correct, I am a big believer in Vanguard. Indeed I have been accuses of writing posts that are commercials for them. I can see where my enthusiam might read like it, but I have no financial interest.

      I am also completely ignorant of the unique investment considerations in Canada, or any other country outside the US for that matter. That said, I’d be very surprised to learn Vanguard funds were not sold there. I’d suggest you click on one of the many links in my posts and give them a call to ask.

      If not, other fund company do offer Index Funds tracking the total market and/or the S&P500. To be competitive, most have very low costs. Think .25 or less. VTSAX is .06 as a reference.

      Finally, don’t worry too much about when to buy. That’s market timing and it is a loser’s game.

      Rather, give some thought to your risk tolerances, a question only you can answer. From there you can select an asset allocation of stocks, bonds and REITs using index funds as described earlier in this series. You will do at least as well as your advisor and very likely better since you won’t be losing returns to fees.

      Good luck.

  9. Malachi Rempen says

    Never expected my comment to be answered in such detail! You respond to every single comment on here, with good humor, smart, thought-out answers, and humility. I don’t think you understand how the internet works. Where’s the trolling and flame wars I’m used to??

    Seriously though, I have another question that my mother couldn’t answer (believe it or not). It goes in the for-dummies section, so don’t go making another post about it or I’ll be embarrassed.

    This is how I understand my situation, and correct me if I’m wrong anywhere: I’ve got these stocks in this Vanguard fund. This particular fund has stocks all over the place, including Disney, Apple, etc. Vanguard takes care of the busy work of paying attention to which companies are performing in ways that I’ve told them to keep an eye out for, and for that they take a percentage. Other than that, Vanguard is a kind of middle man between me and my stocks. Is that right so far?

    If so, my question is, what would happen if Vanguard were to crash somehow? Or if their website died, or their office building got nuked, or all the employees caught the plague? How would I access my funds? Technically they don’t belong to Vanguard, right? I’m not buying stock in Vanguard per se, I’m buying it in these other companies that Vanguard is collecting for me. So if their site went down, or the company went bankrupt, how would I get my stocks back? Or would the whole portfolio die with Vanguard?

    I feel I’m misunderstanding part of the process, but that’s why you ask questions, right? And I can’t think of a more knowledgable person to ask, and neither can my mom.

    Malachi / Mikey

    • jlcollinsnh says

      Well Malachi…

      ..prepare to be embarrassed! The questions you pose regarding Vanguard are excellent. In fact, a couple of other people have expressed similar concerns so I’ve already been working on a post tentatively titled; “What if Vanguard gets Nuked??!!”

      As for your other points…..

      Thanks for your kind words on my responses. So far I’ve managed to respond to every comment, at least if there was a question. I enjoy it and I appreciate the people who take the time. Perhaps there will come a time when the blog grows to where that’s not possible for a lazy retired guy like me. But what I’ve also noticed as the blog grows is that several readers are accomplished investors/wealth builders in their own right. So all the answers might/need not come from me.

      Fortunately the flamers and trolls have been mercifully absent here and I intend to keep it that way. The calibre of comments and questions has been gratifyingly high. So far, I’ve only had to delete one comment. But my axe is ready!

      I may not know how the internet works, but I know how it’s going to work here in my little corner. 😉

      Are you back in Morocco?

  10. Trisha Ray says

    Jim, another question. I have some of my savings in the VTSAX, as you suggest, but – since I own my own company, and I’m not a kid anymore, I figure I have enough (business) risk there.
    The bulk of my savings is in a Vanguard balanced fund, 60/40 bonds/stocks, VBIAX.
    I saw another post that mentioned that holding bonds is not as advantageous for tax reasons. Does this also apply for bond funds? Is there something about bonds I (still) don’t understand?
    Thanks –

    • jlcollinsnh says

      Hi Trish…

      Bonds are all about interest and interest, held outside a tax advantaged ‘bucket’ is taxable. So, as a rule of thumb, bonds are best held in tax advantaged buckets like IRA & 401k.

      As you point out VBIAX is a balanced fund with 40% bonds. It is yielding a bit over 2% at the moment since interest rates are so low.

      At these levels I wouldn’t worry much about it. If interest rates rise sometime in the future you might want to revisit it.

      Make sense?

  11. Apple says

    I wish there’s info on breakdown for us canadian investors…the only thing i’ve found so far is TD e-series index funds…and to open an account seems very complicated…I have to decide how many percentages (if any) to which fund. Examples on available funds are Fixed Income (TD Cnd Bond Index Fund, TD Balanced Index Fund), Cdn Equity (TD Cnd Index Fund) or US Equity or International Equity….How is one suppose to find out which is best and why?

    Thank You again for your blog for it has greatly improved my investment knowledge !!!!

  12. Jim Ryan says

    I just got here from MMM, and I am delighted with what I am reading! Just the kind of thinking I needed to hear!

    In your “Living Small” example above, I don’t see any inflation included in your projections. If inflation is averaging 3% – 4% per year, don’t you have to assume that your $12,500 living expenses must increase by that amount to maintain that standard of living, and wouldn’t your projections be affected accordingly?

    • jlcollinsnh says

      Welcome Jim! Glad you like it!

      The underlying assumption is that while 4% is begin withdrawn to live on the portfolio will in fact earn somewhere between 6-12%. That excess is what provide the growth that allows for inflation adjusted investment income in the years to come.

      Check out Part VIII on withdrawl rates for more.

  13. Mark Hulburt says

    I did what you said at 20 took 15% of my pay and did this every week. By 55 had 1 million. At 61 have 1.6. Never made more then 70,000 com bind but paid cash on everything. Paid house off in 10 years. Bought new cars and ran them until they were dead. I now live on $40,000 and not worked for 6 years.

    • jlcollinsnh says

      Welcome Mark…

      Well played.

      But since I only started the blog three years ago, somebody else deserves the credit for setting you on the path. 😉

  14. dave says

    I’m in my mid 30’s, have no debt, and currently save at least 50% of my 52K salary and have over 100K just sitting in a savings account. I live in Northern Nj where real estate isn’t really an option for me and super safe investments like treasury bonds and CDs make no interest these days. Being completely in the dark about investing, I’m trying to find ways to make my money work for me and your suggestions in your stock series are the most convincing and easy to understand that I’ve come across. However, when I google “4% rule” I get no shortage of recent articles proclaiming that it doesn’t work anymore due to low yields, which is discouraging me from attempting the plan you recommend. Do these criticisms hold any weight? Thanks for all the time you put in to your informative blog!

    • jlcollinsnh says

      Welcome Dave…

      As you’ve already realized, holding your money in cash is a slow death as low interest rates and inflation steadily destroy your wealth.

      I’m aware of the articles you reference and they have almost always been around. People love to predict disaster and nothing garners more attention. I look at it this way:

      During the last century we had two world wars, a great depression, countless smaller wars and financial panics. The market grew from 66 to 11,400.

      My guess is this century will be equally traumatic, although I certainly pray we’ll skip the world wars this time. We’ve already had a major financial panic second only to the great depression and the so called “lost decade.” Yet here we are with the Dow trading at 17,000.

      The market always goes up:

      In fact there is a Wall Street saying, “The market climbs a wall of worry.”

      My bet is that 20, 30, 40, 50, 60, 70, 80, 90, 100+ years it will be far higher than it is today. Those that bet on it, and stay the course thru the wide ride it is sure to force us to endure, will wind up rich.

      But that said, there will be deep and dark plunges along the way. All the same gurus will be saying “I told you so” and those that listen will be left bloody on the side of the road having sold and locked in their losses. After which, as it always has, the market will resume it’s relentless ride upward.

      Please don’t invest until you are absolutely sure you can stay the course when it gets rough, ’cause it will.

  15. Trickzippy says

    In you example situation you say, “Investing your $12,500 each year in VTSAX and assuming an 8% annual return (far more modest than the actual 12% of the last 37 years) you are there in less than 15 years”. So, you say put all the money into VTSAX, but if you are only allowed to put $5,500 per year into an IRA where do you put the rest of the money? What if you want to invest $30,000 per year?

    • jlcollinsnh says

      What makes you think IRAs are the only available option for investing?

      There are several other tax advantaged accounts, such as 401Ks, and you can always open a regular taxable account and invest however much you like.

  16. KiMMY-TFN says

    Sir, Two questions for you, if you please:

    1. The link in this sentence is not working: “Following some of the examples here you organize your life in such a fashion as to live on $12,500.”
    Do you mind resending it?

    2. Could you address the impact of tithing for those that practice charitable giving (10% or more) both before and after retirement/FI?

  17. KiMMY-TFN says

    Sir, I have a third question for you.

    All of the examples throughout the Stock Series thus far seem to suggest a low annual cost of living, as do many of the other early-retirement blogs. But we’ve also noticed that the examples never seem to include couples with children. How do families live off of (for example) $18K/yr with children?

    • jlcollinsnh says

      Hi Kimmy…

      1. Thanks for letting me know about that link. It is fixed and should work for you now.

      2. Tithing is like any other kind of spending, at least in terms of its impact on your finances. That is, if you tithe 10% of your income, that is 10% no longer available to spend on anything else. This is exactly the same as if you bought a car and the payments required 10% of your income. As with any type of spending, only you can decide what works for you. You might be interested in this:

      3. The suggestion here on this blog for reducing living costs is to free up money to invest. In fact I suggest thinking of investing as a form of spending. We all spend our money based on what is most important to us. FI was very important to me, so naturally that’s where I spent the largest portion of my income.

      But this is not a frugality blog, so I don’t explore the details of such choices. The blog that does that best, IMO, is Jacob’s ERE:

      That’s also where you’ll find the stories of real people doing it in that link you had me fix:

      Hope this helps!

  18. Debbie says

    I’ve just started reading these blogs about retiring early and FI. And it gets me excited to think of that possibility. But as a single, 40yr old who has never invested before, and JUST started an IRA recently, I feel like it may just be too little, too late for me…

    My income is about $73,000 gross a year.
    I have $65,000 in online savings account (terrible, I know)
    I have $9,000 in checking account
    I have $20,000 in 401K at work
    I have $11,000 in a Roth IRA Vanguard, through Ameritrade

    I have no debt. My major expenses are:
    $15,000 on rent/yr
    $6,400 on medical/yr
    $1,700 on transportation/yr
    $13,000 charitable giving/yr

    I know I have to start investing ASAP… I’ve just never known how to do it, or where to invest. I think fear has worked against me the past 15yrs in this regard (esp in how to deal with taxes after investing)… Do I do taxable, through traditional IRA, or Roth IRA? I am just starting to read your Stocks Series now.

    Do I have any chance of retiring early or financial independence at all?? Or is it just the impossible dream, as they say? I’m still hopeful…

    • jlcollinsnh says

      Welcome Debbie…

      I’m glad you’re here!

      Too late? At only 40? Of course not! 🙂

      But you have work to do.

      Continue reading the Stock Series and the related posts. They are designed to explain how this investing stuff works and how it is best done. In the process this knowledge should eliminate your fear, and least somewhat, and help you better understand the level of volatility with which you’ll be comfortable.

      One thing that leaps out at me is your $13,000 in charitable giving, an enormous amount given your situation. I hope you are not falling prey to the charlatans who separate generous people like yourself from their money in the name of religion and/or good deeds.

      While I am a believer in giving – – you must first right your own ship.

      Impossible Dream? Not at all:

  19. Nathan Everson says

    Hi Mr. Collins. I am reading these posts after arriving from a link via Go Curry Cracker. I like your advice on just putting your money in Vanguard and letting it go to work instead of having an investment manager do it for you. However, my one question is: “Say that you put 100% of your money in Vanguard (I’m 33 so I can be more aggressive), how do you perform the tax loss harvesting on your account? Do you wait for the market to downturn at some point during the year and then sell, wait 30 days and then buy back? If not, how would you recommend doing this?”

      • Zack says

        Would tax loss harvesting still be beneficial even if you had 100% VTSAX? You could sell just before a year of holding on a down year and wash out an equal amount of income as the losses that year. You would need to miss a month of being invested to avoid wash sale rules, but it wouldn’t be an attempt to time the market. You could even buy the S&P 500 index in the interim to stay invested.

        This would effectively replace taxes on your earned income at your marginal tax rate now with taxes on long term capital gains later, a much lower rate.

        • jlcollinsnh says

          Sure, you could do that.

          You could also tax-gain harvest in years where your tax bracket is 15% or less and your capital gains tax is 0%. Just be sure you don’t sell so much the gain moves you beyond the 15% bracket.

          • Zack says

            Thanks for replying. I am loving your site! I felt I knew a lot about investing before finding you, but you sold me on the 100% stocks over the more “all weather” asset allocations seen in the ivy endowments and Ray Dalio portfolio from Money Master the Game. You also convinced me to stop market timing using the Shiller PE10. I appreciate the well thought out unbiased information. It’s funny how the more I learn about investing the simpler my strategy becomes!

  20. Sunny says

    Hello, Jim.
    It is an awesome article you wrote and I totally agree. In fact I think I should start invest right now. Can you do an article about how and what to invest in Vanguard? I want to start but know nothing about it. Thanks.

    • jlcollinsnh says

      Thanks, Sunny…

      Glad you liked it.

      You’re in luck. The Stock Series is all about how and what to invest in.

      Enjoy the read.

  21. ZJ Thorne says

    It’s amazing when you see it in stark numbers like this. If you could put your investments away and let them do their thing for long enough, voila. I still think there would be a market for junk (poorly performed movies, bad books, etc). Even if everyone could afford “nice” things, we won’t all agree on what counts as nice.

  22. Mark Gunter says

    I use Index Fund Advisors( to get access to Dimensional Fund Advisors index funds. Have you heard of DFA funds? If so any recommendations. thank you.

    • jlcollinsnh says

      Hi Mark…

      I am unfamiliar with DFA funds, but a quick search indicates they are sold thru investment advisors. My guess is they are thus actively managed/high fee funds.

      You should look closely at the expense ratios of the funds you hold and any other fees you are being charged by DFA and IFA. It likely isn’t pretty.

      • Bobby Stinebaugh says

        JLC, You need to become familiar with DFA funds. They are not actively managed, but rather are managed by algorithms. Their algorithms are based on the very latest available academic publications. Their fees are higher than Vanguard, but much lower than most actively managed funds. In many but not all comparisons, their performance exceeds that that of Vanguard.
        I do not currently own any DFA funds, but have in the past. They are sold only by authorized dealers, most of whom charge an AUM fee (Assets under management), which I refused to pay. Some authorized financial advisers, who sell DFA funds, charge an hourly fee only.
        You can learn about them by reading Larry Swedroe’s column in He is the research director for Buckingham Advisers, gives excellent advice, and has written over a dozen books on investing and personal financial planning. He is always happy to answer your questions by email, even if you are not a Buckingham investor.

  23. Gary Tran says

    Hi…so I’m new, but I have one important question.
    I recently started a Traditional IRA and already maxed out the $5500 annual contribution limit. I still have about 25k left over; 15k is in my checkings, 5k is in my savings, and 5k is cash (just…sitting there….idly). I don’t have any financial obligations (no need to pay rent, or water/gas bills), and I make 36k a year (before taxes). Should I just invest a huge chunk (80%) of what I have saved in my checkings and cash stash into the VTSAX? I also opened a Charles Schwab brokerage account to mess around with the stock market (Nintendo and Sony stock because I’m a gamer ^.^), but after reading a lot of your Stock Series, I’m regretting the choice to not invest in the VTSAX in the beginning.
    I really want to retire early. I am also willing to just leave money in an account and just ignore it (unless I need to rebalance the IRA….that’s the correct term right?) because the market recovers.

    • Zack says

      I know it is a hassle opening a new account but if you are buying VTSAX there are no transaction fees if you get a regular account at Vanguard.

      Warren Buffet essentially chose 100% VTSAX to beat some top hedge fund managers so that is probably they way you should invest also, but it is human nature to do better than average so, if you have the urge to buy individual stocks, I recommend they charge $5 to buy stocks and $0 to sell. That is $5 round trip vs $14 at Vanguard. Keep this gambling money as small/non-existent as possible. Remember when you pick stocks you are likely buying from a professional that can spend all day researching stocks and likely knows more about it than you.

  24. Francois says

    I just want to point out that the woman in the poster for the 50ft woman movie is way more than 50ft, which is very inaccurate and quite upsetting.

  25. SFuchs says

    I’ve seen the savings rate chart at MMM and love what you both are doing (as well as Mad FIentist).
    Help me with my thinking…I’ve calculated my savings rate including FI savings and debt repayment (principle portion of mortgage, loan payments) and I’m just over 30%. This isn’t enough so I’m increasing it but I feel that it’s also inflated because of my mortgage payments. Does it just seem this way until one day I’ll have my mortgage gone and then my savings will take a huge jump? It feels like my FI date is closely tied with when I finish payment my mortgage as that’s my largest monthly expense. Thoughts?

    • jlcollinsnh says

      Hi SF…

      Sounds to me as if you are thinking clearly.

      Once your debt is paid, you can and should simply divert that money to your investment account.

      The principle portion of your mortgage payment goes to increase your equity in your house, so this too can be considered in figuring your savings rate. Like the other debt, once the mortgage is paid off you can simple diert those payments to your investment accounts as well.

      You are on a good path.

    • Tara R says

      Agreed! I read the Simple Path to Wealth earlier this year, and enjoyed each chapter. I’m now on to the Stock Series. It’s amazing how much information, and bad information at that, is out there.

  26. Shira K says

    What you are saying is true. One of my coworkers complains about money to me. Yet, she spends a fortune in clothes, takeout, and fancy manicures. I asked her if she could cut things out and she said no.

    I work in the civil service as well. If you have college credits, you get paid more money. I immediately gave my transcripts to HR to get a raise. She told me that she doesn’t have time to go to HR.

    I do dollar cost averaging every month with my taxable account and my Roth Account. My hopes are to eventually become a millionaire. If I was like my coworker, I would probably be broke. I would rather put $60 in stocks a month than spend it on manicures.

    • jlcollinsnh says

      Solid plan, Shira.

      Being a millionaire seems a distant goal, but it is like powerlifting. You add a little bit at a time and before you know it you are stronger than you thought possible.

      You might not reach some arbitrary goal, but you will be lifting more than your friend who never started.

  27. Colton Sharp says

    Probably a weird question here but oh well.

    First off I love the blog, just started listening to ChooseFI and they gave you some kudos so I came to check it out and its great content thank you so much. My question is when you refer to Savings I am currently using a local bank account, an online bank account for majority of savings, an HSA, a traditional IRA, Roth 401k, and a traditional 401k.

    Are all of these accounts considered “Savings” or only the ones that are accessible today or?

    • jlcollinsnh says

      As it is used in the post, “savings” refers to the money you set aside to save, invest and fund 401Ks/IRAs and the like. That is, money used to build your wealth rather than spent.

  28. Victor Emanuel Vulpescu says

    You had an article discussing about MSCI World as alternative for VTSAX for European investors. Where can I find it again?

    • jlcollinsnh says

      Hi Victor,

      Thanks for your comment!

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

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

    • jlcollinsnh says

      Thanks Zennon…

      …not only for identifying a problem, but for providing the solution. 🙂

      Update made!

  29. AM says

    Hello Mr. Collins,

    Wonderful blog I must say. Thank you! I happened to see your Google talk, heard couple of podcasts, and eventually made my way here.

    What I learnt from my upbringing, my grandfather’s frugal mentality, debt free living, saving, and my father’s frugal mentality, lack of saving, with considerable debt – shaped my life habits and morals from a very young age. I was sold on the idea of index fund investing when I looked at the 401k options at my first job, 4 years ago. Your blog just reinforces the ideas I have had for a while now. I learnt few important lessons – not to panic when markets go down and resolved myself to stay tough during the next crash . Easier said than done; but with your teachings I resolved myself to do it.

    This blog is intended to teach your daughter how to invest in a simple manner. I wonder, how we can effectively teach our kids to learn this equally important habit – live within ones own means, not to influence them with the wealth we are building – to make sure my daughter (and your daughter) learn this other aspect of financial independence. I takes one generation for a middle class wage earner to become financially independent and put the next generation on successful path. Without teaching our kids to be frugal it will just take one generation to bring it back down.
    Interested to hear your thoughts on this and perhaps a blog series.


  30. John Kim says

    Hi Mr. Collins,

    Thank you so much for this Stock Series!

    I am relatively new to investing, and while I am convinced of the power of compounding, I’m still not really understanding how exactly an index fund compounds. Some resources I’ve read say that index funds just grow in value, which only resembles the exponential nature of compound growth. Others say that reinvested dividends are the way index funds compound, but as you say, dividends are not a “free lunch.”

    Thank you!

  31. Ashley Jenks says

    Hi J.L,
    I’ve read your book and am a big fan! I am 31 and have retirement accounts but I am trying to get myself some Vanguard stock index funds as you recommend. This may seem like a silly question, but how do I navigate to do this? I am working my way around the vanguard website, and am not sure how to “buy” stocks. There seem to be so many products; I want to make sure I am choosing the right one (aka, the set it and forget it) simple option. Could you provide specific guidance on this? Thanks, Ashley

  32. Jimin says

    Hi J.L.,

    Been a fan of yours and a follower of your Simple Path since 2017 – thanks for your great content.

    I’ve been trying to do the math myself as well as conducted some Google searches to no avail, so am hoping you might have an answer: Does it make a difference how frequently we make additional contributions to VTSAX (or any other compounding interest account) if the net amount is the same?

    For example, will there be a difference between me contributing $100 a week versus contributing $400 a month to VTSAX?


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