The Smoother Path to Wealth

Smooth path

Update by JL:

It’s fun for me, and I hope for you too, to read these posts from a decade ago. Mostly it shows how well the principles in them stand the test of time. But some minor things change or make me reconsider. There are two in this one.
First, the money market fund VMMXX is now closed to investors and Vanguard will steer you to the Admiral version VMRXX. This is the one I use now and it is the lower cost option with an ER of .10% vs. .16% for VMMXX.
At the moment, VMRXX is yielding 4.77% so holding money there is more interesting.
Second, in the post I reference the fact that banks offer FDIC insurance while money market funds do not. There is an implication here that bank accounts are thereby safer. Not really. VMRXX invests primarily in short term US government securities and those are about as safe as you can get. 
Basically I see bank accounts under the FDIC limits and MM funds as about the same safety wise, but I find VMRXX more convenient. 
Enjoy the post!


Last time we discussed Putting the Simple Path to Wealth into Action.  That post grew out of a comment/question from reader KLR and, as I described, this gave me a chance to review how The Simple Path to Wealth might be implemented.

For a quick Simple Path review:

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

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

The investing part consists of two phases:

1.  Wealth Building.  This the time when we are working and saving/investing 50%+ of our income.  Since stocks are the most powerful wealth building asset class, and since a Vanguard Index Fund is the best way to own them, VTSAX is the chosen tool to get us there.

2.  Wealth Preservation.  At some point we’ll want to focus on preserving what we’ve built.  Typically, this comes when we begin to approach retirement.  For some this might be around the traditional age of 65.  For those that implement the 50%+ saving rate I suggest it could come much, much sooner.  

For this phase we’ll add a couple more funds to smooth things out.  (The details of this phase and the funds I recommend for it can be found in Post #9:  What we own and why we own it.)

What we have then looks like this:

Phase 1:  The Wealth Building Portfolio

100% = Stocks held in VTSAX

0-5% = Cash held in VMMXX (for upcoming expenses)

Phase 2:  The Wealth Preservation and Building Portfolio.

75% = Stocks held in VTSAX (growth)

25% = Bonds  held in VBTLX (deflation hedge)

0-5% = Cash held in VMMXX (for upcoming expenses)

With interest rates at record lows, you’ll notice both these approaches call for minimum cash.  In fact, I don’t even include the percent for in in the totals.  I keep mine in the Money Market Fund VMMXX and in my checking account.

Back in the good old days, when short-term interest rates were higher, money market funds like VMMXX routinely paid more interest than bank accounts. But now the reverse is true, making back accounts the better choice. Plus you get the FDIC insurance.

While stocks, and by extension VTSAX, are the most powerful wealth building tool available they are also very volatile.  Before you take this step, I strongly advise you read my series on this starting with Stocks — Part I:  There’s a major market crash coming!!  Investing in VTSAX will make you rich over time, but make no mistake, it will be a wild ride.  Yer gonna have to be tough.

But what if you don’t want to put up with the gut wrenching ups and downs of the market?  What if you’d be willing to give up some performance to sleep better at night?  Is there a smoother path for you?

Reader/commenter COMatt put it well saying “Recently, I have found I can stick to my strategy better if I see at least something going up. Am I crazy to think this? I feel like everything in one fund will really test my nerves especially early on when I have little emotional investing experience.”

Matt’s not crazy at all and, yes, there is a smoother path.  It might get you there a bit more slowly, but that’s ok.  What’s far more important is that you:

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

So what is the magical smoother path?  Well, at the risk of being anticlimactic, it is simply this:

Implement Phase 2 from the start.

Remember, Phase 2 is designed for wealth preservation while still offering growth.  Moreover, you can customize it.  Want a still smoother, but slower, ride?  Just increase the percent you hold in VBTLX, the bond fund.  Want more growth?  Increase your stock percent with more in VTSAX.

Now in implementing Phase 2 we’ve strayed into what is called Asset Allocation in the investment world.  Done right, it is a very useful thing.  But it requires a bit more work.  Namely, about once a year, you’ll want to rebalance your funds.  Many folks do this on their birthday so it’s easy to remember.  So what the heck is rebalancing and how is it done?

Let’s suppose you choose the same 75%-25% allocation I use.  On your birthday next year you take a look at your two funds.  Perhaps stocks have had a bad year and VTSAX has lost value.  In the process, it is now only, say, 65% of your portfolio.  Meanwhile your bonds are now 35%.  Your allocation has shifted.  To rebalance you simply sell enough of the bond fund to return it to 25% and reinvest that money into VTSAX returning it to 75%.

In the process, over time, you will have in effect bought low and sold high, without having to predict what the market is going to do.  This improves performance and provides the smoother ride.  Most times, as reader Matt looks for, you’ll be able to point to something going up.

To be clear, this is not to say there will be no bumps.  Sometimes both will head down and at other times they’ll march up arm in arm.  But even then they’ll each drop or rise at differing rates.

Here at jlcollinsnh we know the advantages of keeping things as simple as possible, but most Asset Allocation strategies use far more than just two funds.  The most common addition is an International Stock and/or Bond fund.

Next post,  Stocks — Part XI:  International InvestingI’ll talk about why I don’t feel the need to add these funds.  I’ll also recommend the two best to use if you decide you want to.  Shortly after that I’ll post telling you about Target Retirement Funds which offer asset allocation with minimal effort.  We might call these the “Even Simpler Smooth and Simple Path.”  Stay tuned.

For more check out:  Stocks — Part VI:  Portfolio Ideas to build and keep your wealth.

There you go.

Whether you choose the wild and powerful ride or smooth sailing — if you avoid debt, spend less than you earn and invest the surplus — Financial Independence will be yours.  At that point you’ll need to worry about how to spend all the money your money is making for you.  You might even want to start to Give Like a Billionaire.

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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. Mr. Risky Startup says

    Great point about rebalancing automatically improving performance. You are right, if your X investments grew in value, and you take some of that growth and invest into underperforming vehicles, simply by the law of averages, you will end up improving your picture over time. Awesome advice! My wife and I have been saving about 30% of our after tax income, and we expect starting next month to be able to put away 50% of after tax income. Our next goal is trying to reach 50% of NET income going into savings. It will be hard, but if we make it, it should take less than 10 years to have enough to be FI. I only wish we were smarter 15 years ago 🙂

    As I find your blog closest to my own fiscal beliefs, I wanted to ask you your opinion, I hope you do not mind it is in the comments (if you do, please feel free to remove it). My question is, am I stupid as people tell me, not to buy the condo (or a house). Here is the story:

    About 6 years ago, my wife and I realized that we were heading towards disaster with our insane spending and lack of savings. So, we made some major changes, and we went from being 75K+++ in red to $130K in black. Big part of this was moving from a huge house with a pool and yard into a rented condo. At the time we moved, condo was worth $150K, but now, it is only worth about 130K due to tough economic situation in our city and drop in house values. My rent was and still is $1000 (no increases over 6 years).

    Obviously, had I bought the condo by taking a mortgage 6 years ago (as my friends and family were urging me to do), I would have lost 20K in value, not to mention interest (I would have only had enough for 5-10% downpayment). Good thing I was listening to myself in that case.

    However, now I have enough money in investments that I could slowly cash out and use to buy the condo for cash. Everyone tells me I am stupid to pay rent, but this is what I think:

    $1000 rent actually includes $240 condo fees (which covers water and some other little items), about $200 in taxes and perhaps $50 in insurance. Then, based on our 6 years here, our landlord spent at least $100-$150 per month in maintenance (last year furnace alone was $5K, then he had to replace washer, dryer, dishwasher… fridge and stove are next, and he also paid 2K to paint the place and fix it up before we moved in)… So, by my calculations, only about $400-$450 of my rent goes towards the mortgage my landlord has. If I would to buy the condo for $130K, I would save $400-$450 per month (I am in Canada so we do not have much in the terms of tax breaks for home owners as you guys have in the US).

    My point is that with my $130K in investments, based on the past 3 years, I am on average month making 5% or $430 per month in interest/growth (in fact, last few months were MUCH better). Since I am still not sure if I will remain in this city for many more years (if my Risky Startup fails, I may have to get a job outside of my current location), my feeling is that buying the condo today would be idiotic. Again, people in the gallery (who are mainly in debt to their eyeballs because they own huge houses they do not need), keep telling me that I am dumb for not buying the condo or a house. I think exact words are that I am “paying my landlords mortgage” or “throwing the money out of the window”.

    What is your take? Feel free to be tough on me – I can take it. I will appreciate your opinion over just about anyone else’s. Am I missing something here? Did I convince myself not to buy the house because I do not want to go back to zero savings as some people are telling me?

    P.S. In a funny twist of irony, good chunk of my money is invested in the mutual funds related to banks and mortgages (in Canada, our banks are strong so those investments have been doing quite well). So, in a way, I am actually making money on the mortgage that my landlord has 🙂

    • jlcollinsnh says

      Hey Mr. RS…

      …always nice to see you here.

      Thanks for the kind words and congrats on moving toward the 50% mark.

      Yours is an inspirational story, both as an immigrant from a war torn country and your shift from debt to capital.

      Regarding your condo, if you haven’t already check out my post:

      In some quarters folks have taken this to mean I oppose home ownership. Not at all. I simply recommend that people run the numbers so they know what the privilege of homeownership costs.

      For instance, because I track my expensive closely, I know owning my home costs an extra $5-8000 per year (depending on the maintenance required) over renting the apartment we’d want if we moved. In my case it is no longer worth it (my daughter’s off to college and school systems are no longer and issue), but selling the house has proven to be a nightmare. For now we’ve given up as the effort is simply too unpleasant.

      This is a good thing to keep in mind: It is almost always easier to buy than it is to sell, and that applies to more than houses.

      In a few weeks I’ll be returning to Ecuador for a month and one of the things I’ll be doing is looking at property. On my return I’ll do a post running the numbers on one or two of these.

      For now, let’s look at yours. Using the formula I provide in the linked post and using annual numbers:

      Rent = $12,000


      Opportunity cost* = $4212** or $6500***
      Condo fee = $2880
      Maintenance = $1500, using $125 per month, splitting your $100-150 estimate.
      Utilities covered in the rent = 0? You didn’t mention these. Frequently apartment rent includes heat and/or AC
      Taxes, insurance = $3000

      Total = $11,592 or $13,880 v. $12,000 rent

      * If you buy the condo you will be tying up your 130k and losing its earning ability. As a proxy I like to use VGSLX, Vanguard’s REIT Index Fund:

      **VGSLX pays a dividend of 3.24% as of this writing. 130k x 3.24% = $4212. Yes the conod might gain in value, but so might VGSLX, so we can call this a wash.

      *** Using the 5% you are currently earning on your 130K

      So depending on how you look at your OP, you range from -$408 to + $1880 on your decision to rent. Certainly close enough to let your heart decide.

      Reading between the lines, I think you heart says “Rent!”

      Oh, and if you are uncertain that you’ll be staying in you current city the added flexabity of renting makes it a no brainer.

      Good luck with your venture!

      • Mr. Risky Startup says

        Thank you so much for taking time to elaborate. Indeed, since we are still planning to have at least one more child, and due to changes in my industry, I am not sure we will be staying here long. And you are right – it is much easier to buy than to sell. By the way, sorry about your nightmare with selling your place. Is renting it out, or doing some kind of rent-to-own set-up not appealing to you?

        That is another thing we like about condo living – we take month long vacations almost every year (although we did not do so this year and the last due to 2-year old cramping our style :). Still, when we feel like traveling, we can just lock the door and drive away… We take these super-long drives to western US – places like Yellowstone which is my favourite place in the US, Dakotas, Utah National Parks, Rockies… Since we both have families in the western US, many of the nights are free lodging and by taking back roads and scenic routes, you get to meet real people and see unusual attractions people usually just fly over. Just having an Ontario licence plate while in Colorado for example is a great conversation starter. And, since we drive diesel car (Jetta), we get 55-60 miles per gallon so it is cheaper than flying. 🙂

        None of my business, and feel free not to respond, but are you considering living full time in the Ecuador? I was thinking about that option as well (except I am more inclined towards Adriatic or maybe Panama or Argentina… Ecuador feels too warm for my taste, although I have never been, so I may be wrong). Since we started saving late, living in a less expensive place may mean less money required to save, which in turn could render us FI sooner.

        In fact, if I ever end up buying the business I currently manage, my first course of action will be to start working remotely 9 months per year, so that I can travel the world while working.

        Thanks again for your time.

        • jlcollinsnh says

          we’re not much interested in the alternatives to selling the place. Too much hassle.

          We’d prefer to move on to the carefree life of renting again and being able to “lock and leave” whenever we travel like you do. That said, it’s a nice house and there are things we like about it.

          We do think about moving to Ecuador, but it will be several years if ever. My wife still loves her job and as long as she wants to work we’ll be here in NH. Kinda like the house, we’re ready to move on just for a change but NH is a beautiful place so staying is hardly a hardship.

          Because Ecuador is right on the equator the climate varies by altitude rather than season. We like cool and dry so we’d be in the mountains. To the East you have the Amazon jungle if you like lush and tropical and to the West you have the Pacific Coast if ocean breezes are your thing.

          Ideally when the time comes I’d like to move around the world living 6-18 months in each place one at a time.

          given your business/lifestyle plans you might enjoy the stories in this post:


          • Mr. Risky Startup says

            Thanks for the links and advice. Fact that you have a choice to stay in place, or move to Ecuador, or whatever else you decide to do is a best example of how being smart with the money leads to better life. Sadly, many people nearing retirement age are not so lucky.

  2. Dave Thomas says

    so glad I came across your blog via the “Moustache Guy” I’m 47. we have always worked hard, never been extravagant in our spending….and have always been broke. our thinking has changed and we are on a different path thanks to MMM, a little David Bach, and you. so, thanks so much for sharing your experience.

    Q: if the Vanguard funds you suggest are “closed” (VTSAX for ex.), do you recommend others/similar V funds?

    Dave (The Rookie) Thomas

    • jlcollinsnh says

      Thanks Dave…

      …I’m always honored to be mentioned in the same breathe as Mr. MM. In a sense I see our two blogs as complimentary.

      Mr. MM tends to talk about how to joyfully live your life to avoid debt and save 50% of your income. For readers unfamiliar with his stuff, here’s a good start:

      Here at jlcollinsnh we talk more about how to make the 50% you save work hard for you.

      VTSAX is still open to new investors, but it does require a 10k investment to start. The same portfolio is available as “Investor’s Shares” with slightly higher costs and a 3k minimum.

      If 3k is stil too high a hurtle, you can access the Traket Retierment Funds at 1k. I’ll be doing a post on these soon. With some small reservations they can be a good choice. Meanwhile, you can check them out here:

      Good luck in your new path!

      • RW says

        Jim, I ran into the same thing Dave ran into, was told no new investors for VTSAX.

        Dave, I was told it was closed to new investors even when the Roth IRA I was rolling over had 10k and would meet the requirements. Just wondering if Fidelity was involved when you attempted to purchase of VTSAX? Of course they recommended using an index that they sold…hmmmm

        • jlcollinsnh says

          Thanks for the info RW….

          Very odd.

          I just checked the Vanguard site. VTSAX is open for new investors. As a broad based index fund it would be very surprising were it not.

          I even looked up all the funds Vanguard does have closed:

          It’s not on the list.

          Who told you no new VTSAX investors? Fidelity? That would surprise me. While I don’t recommend Fidelity, I’ve never seen anything that would lead me to believe they engage in that sort of underhanded tactic.

          There are a lot of misinformed human resource folks running 401k and 403(3) programs. Maybe you are both victims of innocent misinformation.

          My suggestion would be to call Vanguard directly. Good luck and please keep us posted.

          • RW says

            I will thank you. Do you have any recommendations instead of Fidelity? Right now my employer uses Fidelity, but next year things will change and I am looking to roll over the 401k…

          • Jason says

            fidelity isn’t allowed to sell “admiral” shares on their platform…Fidelity can sell investor class shares though.

          • Jason says

            I haven’t dug in other than a phone call earlier today. After seeing your REIT suggestion VGSLX, I realized I had the investor class VGSIX. Having almost 30k in it, I wanted to trade up to the admiral shares to save on cost, and they looked it up in their system and said it wasn’t available. I just tried to execute a trade to see if I could purchase it with 10K and got the following message:

            Trade Message
            (010952) The mutual fund you attempted to trade is an Advisor Fund, and is not available for trading. You can search for tradable funds using the Mutual Fund Evaluator.

            Oh well….the fees aren’t that far off.

            Enjoying your sight.


  3. femmefrugality says

    I’m so glad you write these posts….I’m so lost in this arena! Great, great info. We have to work on increasing our income so we can save that 50%.

    (P.S. Sorry I’ve been absent lately…for a little while wordpress wasn’t letting me comment on any of their blogs. Was very uncool.)

  4. Shilpan says

    You have made it so simple that no one should ever pay fat fees to so-called experts on the Street. Your article is simple enough for anyone who has desired to be come rich.

  5. Julie M. says

    I know I’ve said it before, but I’ll say it again: I wish I’d found your site (and that it existed!) so much sooner! In just a few minutes of reading, you keep answering all of the questions that I had a few years ago and that I spent hours researching. Your approach aligns with my own instinct, but it’s different from so much of the mainstream advice out there that I always assumed I was wrong. Of course, I don’t know you and you could just be making things up, but somehow I don’t think so 🙂 Thanks for providing all of your great insights to all of us who are still learning!

    • jlcollinsnh says

      Shhh! Julie! you promised not to tell folks I’m just making it all up….

      other than that, thanks for the very kind words. I’m trying to write what I wish I knew back in the day. “Your approach aligns with my own instinct, but it’s different from so much of the mainstream advice out there..” is as nice a compliment as I could hope to have.

      Most “mainstream advice” is designed to line the pockets (often by picking yours) of the advice givers.

      Here, together we’re trying to line yours. Thanks for the encouragement!

  6. Trish Rempen says

    Jim, 2 questions:
    I’m in that 50-60 age group you mention, and I’m holding a Vanguard balanced fund (VBIAX), which has both bonds and stocks – isn’t this the same as doing what you suggest, holding both VTSAX and VBTLX?
    And – can you explain dividends to me – some funds pay dividends, others don’t? Am I taxed on the dividends right away? Or only when I pull the money out? Do only bonds have dividends?
    Guess that’s more than 2 questions!
    Love your blog, I pass it on to everyone I can.

    • jlcollinsnh says

      Hi Trish…

      Your balanced fund, VBIAX, holds 60% stock/40% bonds. It rebalances for you so you never have to think about it. Plus, there is no tax consequence to this rebalancing. Expense ratio is .10%.

      As long as 60/40 is the balance you want (and it’s a good one) and you are holding it in a taxable account so the tax advantage matters, it’s a great choice.

      If you use VTSAX and VBTLX instead:

      –you will have a slightly low cost ratio since VTSAX is .06%. VBTLX is also .10%.
      –you can make the balance whatever you choose.

      —in a taxable account each time you sell shares to rebalance you’ll owe capital gains taxes.
      –you have to remember to rebalance.

      So, assuming you want 60/40 stocks/bonds use:

      –VBIAX in a taxable account or if you don’t want the hassle of rebalancing.
      –VTSAX and VBTLX in a tax advantaged account.


      To get all technical on you, only stocks pay dividends. Bonds pay interest.

      All bonds pay interest. A bond is a loan to the issuer. Could be government or a company. You loan them your money for a set amount of time (the ‘term’ in bond speak) and they agree to give you your money back at the end of that time along with paying interest along the way.

      When you own stock you own a piece of the company. Companies use profits to increase shareholders value in several ways. 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.

      Each company chooses which of these make sense to them. So, some pay dividends and some don’t. Growth companies tend to reinvest in building the company. Older established firms tend to pay dividends. For more:

      Taxes are due on both interest and dividends in the year they are paid, even if you choose to have them reinvested. The only exception is if you hold the investment in a tax deferred (401k, IRA) account. Then they are taxed when you withdraw the money.

      It is also worth noting that at the moment dividends enjoy a 15% tax ceiling. If you collect them in a tax deferred account, when withdrawn they are taxed as ordinary income. For many people that’s a much higher rate.

      Hope this helps!

      • Trish says

        Yes, it does help! Bonds have always been a bit confusing, with their ‘yields’ and all.
        Another question:
        I see Vanguard funds called “Tax-Managed” or something similar.
        VBIAX is a “balanced” fund. Would it make more sense for me to be holding VTMFX – which looks similar – but “tax-managed”? Is this the same as “tax-deferred”? I wouldn’t think so.
        I don’t have a 401k and I don’t think I qualify for a Roth.
        Thanks – !

        • jlcollinsnh says

          Great. I also have a post in the works about bonds for even more on that stuff.

          You are correct: the “tax-managed” in tax managed funds is something completely different from “tax deferred.” Tax deferred refers to the investment buckets like IRAs and 401Ks we discussed here:

          Taxes due on investments held in these ‘buckets’ are deferred until withdrawal, usually during retirement.

          Tax-managed funds are designed to invest in such a way as to minimize taxes due. So you’d want to hold these in taxable ‘buckets.’ It would be pointless to hold them in a tax advantaged account.

          Funds create tax liabilities for their investors in two ways:

          1. The dividends paid by the stocks the fund owns are taxable.
          2. If a fund sells a stock for a capital gain, that gain is taxable.

          Each year your funds will send you an IRS 1099 form outlining what your fund has paid for reporting on your 1040 tax return.

          A tax-managed fund seeks to minimize capital gains (by holding the stocks it buys for the long term) and dividends (by holding stocks that pay small or no dividends.) Of course they avoid bonds which pay taxable interest.

          Vanguard offers two of these funds. Let’s take a look:

          Expense ratio: .12 Yield: 1.84% Turnover*: 2.1%

          Expense ratio: .12 Yield: 2.14% Turnover*: 5.6%

          *Turnover is a measure of how frequently the fund trades stocks in its portfolio. The lower this percent the less likely capital gains are created.

          For comparison let’s also look at our Total Stock Market index fund:

          Expense ratio: .06 Yield: 1.84% Turnover*: 2.1%

          VTGLX is an odd duck. It is a Growth and Income Fund and income is by definition taxable. It seems a bit at odds with the tax-managed concept.

          More important, note how VTSAX compares. Virtually identical, at half the expense ratio.

          Index Funds don’t trade the stocks in their portfolio seeking performance. They buy the stocks they need to own and hold them literally forever. This makes them inherently tax effiecnt. Tax-managed, if you will, with out the managing effort and expense.

          And that is why I don’t bother with Tax Managed funds.

      • Prob8 says

        Capital gains tax issues are definately something to consider. I think that should be a part of the thought process when starting your investment journey. Let’s say you have mostly taxable accounts and have opted to use VTSAX as your heavy lifter. If you choose to rebalance that fund many years later during the wealth preservation stage, capital gains may be a serious issue. Although federal capital gains taxes are at 15%, one should also remember to calculate any state capital gains taxes too. I believe that adds 5% in my state.

        • jlcollinsnh says

          excellent point, Prob8!

          One way around this is that as retirement approaches invest your new capital in the alternative funds to VTSAX. Depending on your time frame and savings rate, this should get you into balance without having to sell VTSAX shares.

          Of course, as always, this is not eliminating the taxes but only delaying them. Eventually, you’ll pay when you sell….

          …unless you can hold off until you die. In that case your shares go to your heirs with a new cost basis: the price of those shares on the day of your demise.

  7. R. D. says

    Howdy Mr. Collins,

    I noticed your part where you said [quote] Perhaps stocks have had a bad year and VTSAX has lost value. In the process, it is now only, say, 40% of your portfolio. Meanwhile your bonds and REIT are now each 30%. Your allocation has shifted. To rebalance you simply sell enough of the bond and REIT funds to return them to 25% each and reinvest that money into VTSAX returning it to 50%.[/quote]

    (I wonder if the software allows the quote tags and shows it as a proper quote?!)

    My thinking was that it might make more sense to actually invest more money into the VTSAX from income elsewhere to increase its stake to 40% again rather than taking the money out of the bonds and REITs?

    Of course, that assumes that you’re still looking to invest instead of actually living off the investments.

    Personally, I have a left-over 401(k) that I am rolling into VTSAX. Not only for my own investments sake, but also to have a concrete example to show the less frugal GF that there can be a nice and simple investment she can do and just contribute to monthly/annually instead of thinking of what stocks to get, when and how to sell them if need be and other hassles. “Just keep adding to VTSAX, honey”.

    Oh, and yes, we have completely separate finances. 😀

    • jlcollinsnh says

      Absolutely, RD….

      ….and an excellent point!

      My example was assuming a fixed amount of invested dollars. But if you are in the wealth building process and adding new money to your stash, using this new flow to keep things in balance is the way to go.

      Further, for those who focus on VTSAX in their wealth building years, this is the way to expand into bonds and REITs when the time comes. Using new investment money to build these positions as retirement approaches avoids the capital gains taxes triggered by selling a part of the stake in VTSAX to fund them.

      Good luck sharing these concepts with your GF. I hope she becomes a jlcollinsnh reader!

  8. Prob8 says

    I’ve done some serious fund re-allocation since following this blog – my VTSAX fund better have broad shoulders as it is holding a lot more for me these days. I’ve wanted to re-allocate for several years but was lacking the motivation. You’ve given me the kick the pants I needed to do some research and get things done. Thanks! I’m looking forward to your post on Target Retirement Funds as I have a few IRA’s I’ve been meaning to consolidate.

  9. Jeff says

    I thought on one of your articles describing the funds you hold that you mentioned using an intermediate term bond index fund rather than the total bond index fund as a current precaution. Now I can’t seem to find that reference. Am I dreaming? Or am I looking in the wrong place? I’m leery of the potential drop if interest rates rise (and I don’t see how they could go down- up seems the only likely direction). What are your thoughts on this?

    • jlcollinsnh says

      Welcome Ruben…

      Glad you like it.

      This time last year I was in your beautiful country.

      I’ve seen that video. Very interesting perspective.

      Here in the USA most folks in the middle class choose to spend their money on “stuff.”

      They are easily luring into buying more car, house, toys and things.

      For me, the most valuable thing you can buy is your freedom. And that means buying investments.

      Once you do that, the power of compounding begins to, slowly at first, build your wealth. As time goes on, this accelerates dramatically.

      This blog is for those few who chose to this path.

      For those who need help adjusting their lifestyle to free up investable money I suggest:

      Have a wonderful and prosperous New Year!

      • ruben says

        Thanks to you for your valuable posts!

        Unfortunately not only in the USA most folks in the middle and low class choose to spend their money on “stuff.” AS you may have noticed, here in Spain now we are recovering from a housing and credit bubble that seems to last longer than we expected.
        In fact, i think that things won´t be the same for my generation and upwards (i´m 43) maybe next gens will do it better…

        Thanks again for your time and work!

  10. Peter says

    Hey Jim,

    Doing some research on other sites, I’ve come to realize that your style of investing is basically a lazy portfolio, specifically the four core, just without the international (

    I’d be interested in knowing what you think of some of the other lazy portfolio’s, especially the Permanent Portfolio, which I’ve been reading a lot about.

    • jlcollinsnh says

      Sorry Peter…

      I afraid I’m not familiar with those. But if they are that similar to mine, my guess is I’d approve. 😉

    • jlcollinsnh says

      Thanks Prob8…

      …great catch. I thought I had updated everything but this one slipped past. I very much appreciate your sharp eye.

      It should be good now…

      Missed you at FinCon this year!

  11. JohnNH says

    Mr Collins,

    I came across your blog through MMM, and I really enjoy your stock series. I am also partial to anyone from NH having grown up there myself! I realize this post is a couple years old but I’m hoping you get a notification when I post this question…

    I have a savings account with CapitalOne 360 that pays 0.76% APR. Why would I put my cash in VMMXX, versus a savings account like this? It’s FDIC insured to 250K, and, as far as I can tell, pays me a lot more than VMMXX would. Am I missing something?


    • jlcollinsnh says

      Hi John…

      I’m afraid I’m actually from Chicago, but we moved to NH in 2000. Where in NH did you grow up?

      You’re not missing anything.

      Back in the good old days, when short-term interest rates were higher, money market funds like VMMXX routinely paid more interest than bank accounts. But now, as you observe, the reverse is true. Plus you get the FDIC insurance.

      Because rates are so low, I hold virtually no cash these days other than what we need for immediate use. This we hold in our checking and small savings accounts.

  12. Anthony says

    Hi Jim,

    Seeing as my other comment made it on the page I’ll post what I really wanted to post lol. First off thank you for posting all of this information. I stumbled onto your stock-series from Reddit and must say wow there is a wealth of information. I am a bit new at the idea of using the stock market for investment as my wife and I have mostly just used the traditional banking system to grow our money. We are both in our early 30s and from reading through your series I think that we are really taking a wrong approach to saving. I do have some questions for you as I did seem to get a bit confused. I apologize as well if I commented on the wrong page of your series.

    1) I started a DIY roth IRA through scottrade and was advised to have a specific split at 23% large cap, 7% mid cap, 5% small cap, 15% International Equity, 43% fixed income, and around 7% in Cash. Within those areas Ive invested into multiple funds (though now I think I really should have just picked 1 ETF/MF per category) What are your thoughts on that breakup vs what you are suggesting to use Vanguard VTSAX or TRF? Pouring ROTH contributions into 1 fund seems easier to me, but then again I don’t know much. Furthermore would it work to make use of both the VTSAX and a TRF if thats possible or use the 75%-25% between VTSAX and VBTLX?

    2) You commented to this being a Vanguard commercial and honestly it does read exactly like that. Why do you like Vanguard above other companies so much? What is the vote of confidence in using them for all of your investing?

    3) My final questions are related to your wealth expansion plan. I recently graduated from graduate school and honestly just joined the work force full time so I am just starting out in the savings department (I prioritize my Roth and then HSA first) and don’t have the capital to invest in VTSAX but can invest in VBTLX as it has a 3k minimum. Would it work to have as much as of my money as i can afford invested in VBTLX and then adjust once I can afford to invest in VTSAX? Or would you suggest instead to find an appropriate combo of low cost index funds that mimic VTSAX? Finally, do you personally use the same strategy for your Retirement funds as well as your Savings funds going all Vanguard with the same 75-25 split?

    Again thank you so much for making this series. It really is very informative.

  13. jlcollinsnh says

    Hi Anthony…

    Actually, your comment/questions would have been better posted under “Ask jlcollinsnh” for which you’ll see a button at the top.

    That’s OK and we’ll answer your questions here, but it does tell me you haven’t spent much time around here.

    1. What you are asking here is do I think the approach I’ve presented in the Stock Series is better than the approach provided for you by Scott Trade. That is for you to decide. In the Stock Series I’ve outlined my ideas as clearly as I am able. Once you read it and understand it, you can decide if it resonates with you or not.

    TRFs are a simpler alternative to an allocation between VTSAX and VBTLX. See:


    3. In this post you’ll find there is an Investor Shares version of VTSAX available for a $3000 initial investment:

    I don’t have separate saving and investment funds.

    Please take the time to read thru the Stock Series, or reread it if you already have. All of your questions are answered it it, and probably a lot more!

    Good luck!

    • Anthony says

      Thanks for taking the time to reply!

      You are most definitely right I have not spent enough time here and I apologize for that. The good thing is that now I definitely plan on spending a large portion of my time on reading through and learning as much as possible. Thank you for your direction.

  14. Sbae says

    Hi Jim,
    I’ve seen VBTLX mentioned quite frequently for use along with VTSAX in a portfolio allocation. Had a quick question, does the interest on VBTLX get taxed as regular income if held in a taxable account? Is there something else people recommend in place of this or does it come out to not be a very material difference? thanks, find your blog very helpful.

    • jlcollinsnh says

      Hi Sbae…

      Yep, bond interest paid in a taxable account is taxed as ordinary income.

      This is why I prefer to hold bonds/bond funds in tax-advantaged accounts and my stock fund, VTSAX, in my taxable account (I also hold VTSAX in my tax-advantaged accounts)

      Hope this helps!

  15. Justin says

    I am interested in investing in the vanguard funds you recommended above. Do you recommend selling old ETFs to purchase these funds or just transfer old accounts into Vanguard and “start fresh” buying the recommended funds? Thank you for your help!

    • 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.

  16. Michael Clements says

    Just is just a thought: what if, instead of using VTSAX and VBTLX for your investment mix and have to concern yourself with rebalancing every year, why not just use the LifeStrategy Growth Fund (VASGX) instead? It is more 80%-20% rather than 75%-25%, and it does include the international indexes. This way, you won’t have to rebalance. Just a thought. What are your thoughts on this fund?

  17. Komi says

    Hello. Thank you for this updated article. What is the equivalent money market fund to VMRXX in Canada? Thank you!

  18. Nicole says

    Hi JL,
    I’m confused. You said VMRXX was yielding 4.79% and that is indeed the compound yield on Vanguard’s website. After reading that, I thought I would move my emergency fund into VMRXX (currently my emergency fund is earning 3.5% APY in my bank’s savings account-CapitalOne). But the YTD return for VMRXX is only 1.43%. So now I don’t know which option is better. I guess I don’t really understand how to compare the APY of 3.5% to the YTD return of 1.43% with a compound yield of 4.79% and an expense ratio of 0.1%. Which is better? Can you explain this to me?

    Also, what do you think of VMFXX? It seems similar to VMRXX. Any reason to choose one over the other?

    And from what I understand, you can move money in and out of a money market fund easily and without any tax implications. Is that correct?

    thanks so much! I hope you can clarify this for me.

  19. Harvey says

    Great post. I now keep excess cash for either expenses or reinvestment in Vanguard’s VUSXX which is their Treasury Money Market Fund. Since this fund invests in over 50% in Treasury Bills, the ordinary income generated from the interest is exempt from state local taxes. This is meaningful for me since I live in NY and ordinary income taxes are high. Hope this helps anyone else living in a high income tax state.

  20. Kashan Tariq says

    Hello Mr Collins,
    I read Simple Path to Wealth almost daily for 15-30 minutes. I now remember most of your teachings by heart.
    My question is i am earning 90k a year and investing 25 percent of my income in VTSAX. I I started doing Roth IRA because considering modified AGI I am in 12 percent tax bracket. When do you recommend I switch back to traditional?
    Also, i have 10 k emergency fund saved and invested in VBTLX and around 1 k saved in cash. Do you recommend saving my emergency fund in VMMXX or its admiral version ?Also hwo much do you recommend I save for emergencies. I am married with one child. Both me and my spouse work.

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