Sell! Sell!! Sell!!! Sell?

Intro by JL’s Team

Is the bear market over, is it “on pause,” or is it just taking a nap before roaring back to life? 

Truth is, it doesn’t matter. In this post from 2017, JL addresses when is the right time to buy—and when is the right time to sell…

Empty toilet paper roll

Based on some of the recent questions/comments here on the blog, it seems folks are getting ready to.

I routinely get questions like “I have a lump sum to invest, but this market looks to me like it is about to crash. Should I wait?”

Typically, I trot out my standard lecture about how market timing is a fool’s errand, point them to Investing in a Raging Bull and go about my business.

But recently, these concerns have taken a spike up, as has the flow of new subscribers here. So, maybe it is time to explore this subject again. If you are already a jlcollinsnhinista, you already know the drill. There’ll be nothing new to see here. Move along.

But if you are new to all this, together we’ll explore this market and what to do about it.

Let’s get started.

Back in October 2007, the market peaked at ~1549 and then began it’s long, ugly slide to its ~735 bottom in February 2009, losing over half its value in what was the worst financial meltdown since the great depression. Of course, no one really knew that was the peak, or the bottom at the time.

Warren Buffett “lost” 25 billion dollars. “Lost” is in quotes because he didn’t panic and sell. So, when the market recovered and marched on up to new heights, as it always does, so did his fortune. So did the fortunes of all who stayed the course.

Since that low in February ’09, the market has had one of the great Bull runs in history. Its rise has been relentless, interrupted only on occasion with modest ~10% “corrections” as Wall Street calls them. These, of course, sent the media into full panic mode:

Man running with suitcase

Nightmare on Wall Street: will the blood bath continue?

Mr. Market’s Wild Ride

Since November 2016 the market has accelerated from ~ 2086 to a peak reached early March 2017 of ~2396, for a remarkable 4 month gain of ~15%. In the media, this has come to be known as “The Trump Rally.”

Now, the market is a huge and complex creature, and I am always very skeptical of pundits who so glibly claim…

“today the market rose (or fell) because investors worried about (or celebrated) X (or Y or Z)”

But, to the extent this has been “The Trump Rally” I suspect the prospect of these campaign promises becoming reality are the key reasons:

  • Healthcare reform promising lower cost and better coverage
  • Tax reform lowering corporate tax rates and reducing regulations (more profitability and competitiveness)
  • Tax reform lowering personal tax rates (more spending power)
  • Massive new infrastructure spending
  • Better trade deals, favoring US businesses and US employment

In the past few weeks, however, the effort to rewrite healthcare failed and, to paraphrase the President:

“Who knew how complex this stuff is and how difficult to get done”

Since the March 1st high, the market has drifted down about 3% closing April 13th 2017 at ~2329. It kinda feels like it is holding its breath.

Add to this the fact that in various fancy versions of P/E (price/earnings) ratios, the “P” is getting larger and larger while the “E” seems stuck. Given they are again reaching historic heights and, after an incredible 8-year Bull run, the market is “due” for a Bear, it is not surprising that some investors, in some quarters, are getting very nervous. The market seems “priced for perfection” and if these good things it is anticipating fail to materialize, things could get ugly.

Surely, we are poised for a plunge and you should sell, sell, sell! Or at least wait to deploy new cash.

But, things are never this simple and the future never that clear. If it were, everyone would already be heading for the exits. Instead, it could be, we are set for another powerful move up.

The Trump administration could regroup and start notching up victories on each of those bullet points above. Or the market, fickle as it always is, could decide those things are not all that necessary after all and some new thing(s) have its heart all aflutter anew.

Could be, rather than the “P” falling,  the “E” will start catching up and those P/E ratios will start to drop to more comfortable levels.

Plus, as the saying goes, “the market climbs a wall of worry” and there is certainly a lot of worry out there just now. Markets are far more prone to crashing when everyone is euphoric than when they are nervously looking over their shoulders.

So, what is really going to happen next? Beats the bloody hell out of me. I have no idea. Neither do all those media gurus who claim they do. I’m just willing to admit it and/or am not delusional.

So, what to do?

Well, first, let me reiterate as I have throughout this blog: market corrections (~10%), bears (20%+) and crashes (30% on up) are a normal part of the process. They can’t be predicted or avoided. They are best simply ignored. Warren Buffett:

“The Dow started the last century at 68 and ended at 11,497. How could you lose money during a period like that? A lot of people did because they tried to dance in and out.”

(confession: that quote is drawn from my memory and is likely not exact. I gave up trying to find the exact quote in order to finish this post. I’m sure one – maybe even you – of my astute readers will point us to it in the comments below. Thanks!)

From reader Ryan in the comments below:

The original quote is in the YouTube link interview.

Thanks Ryan!

Market timing is a losers game. Even if you guess right and this market does plunge shortly, you still have to predict how far that drop will go and when to get back in. Most often, those that get it right sit on the sidelines while the market drops and then recovers leaving them to buy back in at higher prices.

Don’t believe me? No worries, at least for me. Go ahead. Give it a try, and learn the hard, expensive way.

But this doesn’t mean we are without tools around here to mitigate the risk.

Those of you who have read through the Stock Series know we think in terms of two life stages:

  • The Wealth Accumulation Stage, where we use cash flow to mitigate the risk
  • The Wealth Preservation Stage, where we use bonds or courage to mitigate the risk

Briefly, here’s how this works…

During the Wealth Accumulation Stage I recommend holding 100% stocks, ideally in VTSAX. During this stage you are working and have earned income. Since you are aspiring to financial independence, your savings rate is very high. Each week or month you are adding this new cash flow to your VTSAX fund.

Anytime the market drops, your cash buys more shares. On sale, if you will. Market plunges are a gift, even as this new cash flow serves to smooth the ride.

During the Wealth Preservation Stage we have two options.

1. We could add bonds to smooth the ride. That works like this…

Whenever the market moves enough, in either direction, to alter your chosen asset allocation you rebalance. This means selling what has gone up and buying what has gone down or stayed the same.

For instance, my allocation preference is 75% stocks/25% bonds. The run up in stocks shifted this allocation and once it reached 80/20 I rebalanced to bring it back. This means I sold some of the stock fund and bought more of the bond fund. If stocks continue to rise, I’ll do that again. Should they plunge, I’ll sell some of the bond fund and buy more of the now cheaper stock fund.

2. Or, instead of smoothing the ride, we could just use raw courage and endure it.

This means holding 100% stocks and just ignoring the wild and crazy ride. This is something my pal Jeremy is thinking about and he makes the case here:

Roller coaster

The Path to 100% Equities

However, this is not something to consider if you are using the 4% rule and you need every penny to make ends meet, and unless you are absolutely, positively certain you won’t panic and cut and run during the next market crash, whenever this might be. Jeremy meets both these tests.

In fact, unless you lived thru the Crash of 2007-8 and stayed the course, I’d advise against even thinking about this. It is easy to say you’re tough enough sitting on top of this great Bull. But it is an entirely different feeling when the world appears to be collapsing around your ears and all the “smart money” is lining up on the window ledges.

Trust me. I failed in this myself in ’87, and never could have stayed the course in 2007-8 without that costly lesson under my belt. A hard eyed assessment and a little humility regarding yourself can save you a lot of grief and a ton of money.

Bottom line

So, if you are aggressively adding cash each month to your VTSAX account you can smile if and when the market drops. As you can when you reallocate if you hold bonds.

If you are 100% stocks and living off your portfolio, like Jeremy plans to, you’ll just grin and bear it knowing this day would come and this, too, shall pass.

As for me, I’ve been thinking about following Jeremy’s idea. A nice, sharp market plunge would be just the thing to move me off the dime. Maybe if the market drops 10%, I’ll move a third of my bonds into stocks. If it goes on down 20%, I’ll move another third. If it drops 30%, I’ll move the rest.

Maybe. Or maybe I’ll just keep my nice 25% allocation of bonds and rest easy.


Still skeptical about holding on through all these plunges?

Word is, Fidelity reportedly conducted an internal performance review of accounts held between 2003 and 2013 to find which did the best. The results:

  • First: Dead people
  • Second: People who forgot they had the account

That’s right, the dead performed best, followed by those who just forgot about their accounts altogether.


Addendum 1:

My pal Alan sent me the chart above which comes from the British blog

It is worth taking a look at the next time someone assures you this market simply must collapse shortly. Understand, of course, this is not to say this market must go higher, only that it can.

Addendum 2:

Sir Isaac Newton and the South Sea Company: How the man some regard as the smartest who ever lived dealt with the famous bubble.


Before you comment:

I realize I have touched on politics in this post and hopefully I’ve done it in such a way that my own political views remain obscure.

I saw no other way to discuss the market’s recent moves. But this is NOT a political post and I don’t want the comments on it to become a political cesspool. There are enough of those out there already.

Any partisan political comment will be deleted and any partisan political points embedded in an otherwise useful comment will be edited out.



Some books for your consideration:


Yuval Noah Harari has become my favorite non-fiction author and this…

…might just be my all time favorite non-fiction book. A close second, which I’ve just finished, is his…

Both are extremely well written and a pleasure to read. Especially, if like me, you are interested in where we came from, where we might be going and why we believe and do all the silly crap we believe and do.


Mr. Money Mustache brought this one to my attention with his review. He calls it “This tiny and simplistic and charmingly outdated book from the 1950s completely changed my life.” We’ll have to take his word for it having changed his life, but the rest I can vouch for.

Great concepts and principles, wrapped in a 1950s sensibility that’s like climbing into a time machine. Interestingly, Schwartz routinely refers to female executives in his various examples and stories. Such creatures were not all that common in the ’50s, but then neither were a lot of his cutting edge views.

I wish, like Mr. MM, I’d come across it as a teenager.


A friend of mine originally from Minnesota recently introduced me to two book series, each set in that state. These are entertaining reads in the crime/detective/adventure genre. Both have a central character, along with supporting characters that reoccur in each book.

As he suggested, I am reading them in order, and here are the first book from each series:

Sandford is probably the better writer, although I find both engaging. But Krueger’s characters are more interestingly drawn. Either is a fine way to pass a quiet evening after a long day.

For more book ideas check out:



New Podcast:

Recently the guys over at ChooseFI had me on their show. We had a blast! If you want to give it a listen it goes live Monday April 17th: jlcollinsnh interview

They’ve already interviewed Mrs. Frugalwoods, Go Curry Cracker and The Mad Fientist, so if you just can’t wait till mine is up check ’em out!


Other random cool stuff:

For my daughter, and all the other wild and free spirits out there…

Here’s to all the girls who’d rather catch flights than feelings

More on how it used to be in the 1950s:

The Krystal Counter Code

Subscribe to JL’s Newsletter

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. Mark says

    Any particular reason why you always recommend VTSAX and not ETFs for instance? Any advantage of holding funds instead of ETFs that we do not know? All the others advocate in favor of ETFs as being more tax favorable so I keep asking myself why the great jlc like VTSAX so much !

      • Mark says

        OK. Thanks. Although that article doesn’t point out any advantages of VTSAX and even lean towards VTI (ETF) which is the one I choose. I guess I’m fine then.

        • dandarc says

          Title “What if you CAN’T buy VTSAX”. Article is written assuming VTSAX is not an option – why would it go into great depth there?

          The advantage of VTSAX over VTI is lower costs. “But they have the same ER” you say. True, but in addition to the ER, you pay the bid-ask spread every time you transact an ETF. Cost is small, but non-zero.

          Then an ETF may be trading at a premium or discount to net asset value. As an individual investor, you have very little control over this – you might wind up buying at a premium and selling at discount. The opposite could happen too.

          On an ETF with good liquidity, like VTI, both of these things are minimal, but they are still there. VTSAX is typically a slightly cheaper way to own the same fund.

    • Greg says


      ETFs and mutual funds have some subtle differences, but for most purposes they work the same way. Here are some of the advantages and disadvantages of ETFs:

      ETF Advantages
      1. Minimum purchase amount is lower (e.g. 1 share vs. $3,000 for VTSMX)
      2. ETFs can be traded before the end of the day, like a stock
      3. Expense ratios can be slightly lower than the mutual fund version

      ETF Disadvantages
      1. Cannot purchase fractional shares
      2. Automatic investing may not be available
      3. Trading ETFs may cost you commission, bid/ask spread
      4. Prices fluctuate throughout the day
      5. Can only be held in certain types of accounts (e.g. brokerage)

      Vanguard has some more information on the differences:

  2. DIY Money Guy says

    I couldn’t agree more Jim! I have been telling my friends and family the same message in response to questions about what to do with the market being “overvalued”. I tell them to just keep the big picture in mind and to keep saving and investing. As you pointed out, if someone does try to “time the market” they have to guess correct not only when to buy but also when to sell. And since no one has been able to consistently make money timing the market I think I’ll spend my time on other things that I am much more likely to succeed at. The basic principles of investing never change! Keep up the good work!

    • FinancePatriot says

      Do your friends try to time the market? I have only one friend who has ever done this, and each time he’s been on the wrong side of the bet. Lucky for him he’s frugal and he’s made a lot of money over the years, so he still has a fair amount of wealth in spite of himself.

  3. Mr. Grumby says

    Mr. Collins, you are the man! Excellent post. Just what I needed. We’re allocated about 75/25 (Mostly VTSAX and VBTLX, but were starting to waver since our retirement timeline is about 11 months. Thanks for your wisdom.

      • vorlic says

        Well, it’s working with us across the pond. IE00B3RBWM25 is in our portfolio. World Developed Markets Equity ETF. Translates to our Long position with… (drum roll)… VANGUARD!

  4. wishicouldsurf says

    You’re a crack-up. Here is a non-political comment… Have you seen the paper written by another super highly intelligent FI thinker who also happens to be a economist?

    I liked this research because it provided data to back up all the things (and more) I’ve been thinking about that could happen and would nullify the 4% rule and render me destitute. My takeaway is that the sweet spot for stock/bond ratio is between 70-80% and if I can follow a 3.25% rule, I should be ok. There is a lot of detail and great analysis contained in that information. I’ve read it through a couple of times but my little brain is still digesting it all.

    Personally, I can’t help but think that I am about to “early retire” right when the sequence of returns risk is off the chart (retirement date June 30, 2017). But I’m still going for it!

  5. Fritz @ TheRetirementManifesto says

    JL, thanks for sharing your wisdom. As an “older guy” myself, I find myself telling the “younger folks” at work that the best thing for them would be a full on, raging bear. “Don’t stress, just keep dollar cost averaging.”

    With 1 year to go til retirement (I’ll retire in June 2018, at Age 55), I’m selling some winners to start filling Bucket 1 for my Bucket Strategy. Aiming for 3 years, safe and liquid. Love your work.

  6. Syed says

    Very timely and much needed post Jim. You hit it on the head to succeed at this market timing thing you need to be correct when you sell and correct when you get back in. I’m sure there are still some investors who hightailed it out of stocks in 2008 and are still waiting for the “right” time to get back in.

    If you’re investing for the long term, market swings should already be baked into your plan.

    • Jeremy says

      Also, if I have some cash sitting around and there’s news of a crash, would it be better to ‘wait’ for it (given a ceiling of X days/months) and buy index funds low/cheap? Or would I just want to proceed with buying regardless of market conditions? Generally, I know it’s wise to avoid timing the market, but is this a case that would make sense in terms of “waiting to buy low?”

      • John @ The Millennial Plan says

        Just read through this chapter in your book and loving it so far. I think where people go wrong is mixing the idea of investing with trading (or gambling). As you’ve said the market bias is always higher, so if you do for whatever reason have a strong feeling that the market is going to drop, then at least give yourself a “stop-in” point to buy stocks if you turn out to be wrong. Given we are 2.5% or so off of the all time highs in the S&P you could take the view that you’ll buy either on a 5-10% correction lower from these levels or if you’re wrong, you’ll buy on a move back through 2400. As long as we fully acknowledge the lower probability of actually being able to buy 5-10% lower and realize we are “trading” instead of “investing,” then it may make sense to use a strategy like this from time to time. Although it is probably easier to just stick to playing poker with your buddies once a week and let the market do its thing.

  7. Kapil says

    A simple solution to your reallocation dilemma is to rebalance to 75/25 if the stock market falls and to let it ride if the stock market rises. You equity allocation will slowly rise over time.

  8. ex-Sgt Pepper says

    OK, even though I knew what you’d say I had to read it anyway :). Thanks again for the wisdom. Remarkably for me, I was able to sit still through the 2007-2009 crash and let it all come back in spades. I’m at a 70/30 split (VTSAX-70, & 3 bond funds @ 10% each), withdrawing and successfully living off of 3.9% now, but I have to admit I’m a tad nervous about the coming slump anyway. That is hilarious about the Fidelity study, I have to google that one and share it. Thanks for the books recommendations, I heard Yuval on Sam Harris’s podcast (Waking Up) recently, which I highly recommend as well.

      • jlcollinsnh says


        Just finished listening, and very much enjoyed it.

        That said, I feel I should warn my readers…

        The first 12 minutes or so Mr Harris spent complaining about a previous guest and the public reaction to that podcast. Then he went on a long-winded guilt-throwing pitch for listeners to support his podcast financially.

        Overall, it made a very poor impression and had I not been so keenly interested in Yuval I would have stopped listening.

        I’m glad I didn’t as Mr. Harris actually did a fine job with the interview and Yuval was every bit as fascinating as I had hoped and expected.

  9. Physician on FIRE says

    Benjamin Graham has stated that one should never hold more than 75% or less than 25% in bonds. I’m personally OK with a riskier allocation, so I hold 90% stocks and 10% bonds.

    As I transition into retirement, I plan to transition to holding a number of years worth of expenses in bonds. If my portfolio grows throughout retirement, which is the most likely outcome with about a 3% withdrawal rate, I expect to have a decreasing percentage in bonds as time goes on.

    I had a low 4-figure sum invested in stocks in 2000 and a low 6-figure sum in 2008. When the next Bear roars, I’ll have a 7-figure sum, and I’m confident I’ll ride it out like I have the others. I’m not gonna lie, though. It will hurt a bit more.

    Cheers to your rational advice!

    • jlcollinsnh says

      I like your bond strategy.

      As similiar approach occurred to me a while back: Basically holding a fixed amount in bonds that was able to cover basic living cost with the interest payments. Then, just let the stocks run.

      As for the drop hurting more with having more…

      Back in ’08 I was irritating my friends by saying “I wish I’d could have lost 25 billion like Buffett!” The implication being, of course, if I had like Buffett I would still have ~32 billion left. 🙂

      • Jeff says

        Mr. Collins,

        I have been pondering a “safe” strategy at retirement, and I was curious if you thought it was a good or crazy idea.

        I am 50 now. At 65, my nest egg should be 5M. I am pondering taking 1M, buying a 20 year immediate annuity, which estimates to pay out $5500/month (with a guarantee of at least 1M paid out to heirs if I die).

        With that “safe” $5500/month plus combined SS (including spouse) of about $3000 or so, we’ll have a healthy $8500/month guaranteed for 20 years. That is more than enough for us to live on (house is already paid for).

        Then, with that 20 year window, the 4M left over goes to 8M, then 16M (estimated) by 85. My goal was never to spend all my money. I’m looking to leave wealth to my family in trusts so it can’t be abused.

        So, outside of how you may or may not feel about leaving the wealth, do you think that is a solid plan? I’ve considered bonds and low safe withdrawls, but I always come back to the annuity seems MORE guaranteed, and I would never have to sell low over that 20 year period. Thoughts?

        • jlcollinsnh says

          Sounds like you’ve been talking to insurance salespeople, Jeff. 🙂

          I am probably the wrong person to ask. I hate annuities and have never read anything to soften my feelings on them.

          I see them as expensive and, while they are sometimes backed in case of default, I am unwilling to bet on the success of any one company over the course of decades.

          Here’s one of the most balanced views I’ve found from my pal Darrow:

          If after reading that you still like the idea of an annuity and understand the risks and costs, your overall strategy seems sound to me.

          Good luck!

        • wendy says

          Some thoughts:

          Most immediate annuities do not pay anything to heirs on the death of the annuity owner, but since this one does, how much will $1M buy if you pass away 20 years from now. Both the $1M payment and your $5500 monthly payments are probably not indexed to inflation, so think about what $5500 will buy in 2040 when a Big Mac costs $50.

          You also have to hope the company paying you stays in business for decades.

          I think a better plan would be to buy some term insurance and invest the rest in VTSAX and a percentage of bonds that lets you sleep at night.

          Annuities are an insurance product, and in my book, insurance is not an investment, unless you have dependents.

          Immediate annuities appear to be ideal for folks who don’t have any heirs (or cant stand them) and need to get more bang for their buck, but as stated above, at a price.

          Years ago I bought a equity variable annuity, and was sold based on the projection tables ( total BS), and found 22 years later that I had underperformed the S&P 500 by about 4 percentage points per year. I lost thousands. Every now and then I like to ponder that, when I am not crying.

          Before you buy ANY annuity, check out Vanguard’s annuity calculator. You can put in the exact product you plan to buy, and compare it to Vanguard annuities. Vanguard will be cheaper, and I finally figured this out after 22 years, but better late than never.

          • Nice joy says

            I helped my friend to roll over anuity into an vanguard IRA. It cost her 18000 but she is going to come way ahead. Annuty is not good for hers either. The pay out to hers is very much reduced but these numbers are very hidden. I took me at least 2 wks to clearly understand how the annuity payment are designed they made it soooo complicated so nobody understands what a peace of shit it is. RUN from annuity s. They can get you in if you don’t have good defense.

        • wendy says

          One other thought:

          The sales commission paid to the broker selling you the annuity can be up to 10%. So on my $100,000 annuity purchase the salesperson made a cool $10,000. Now I know why my annuity salesperson appeared so eager to get me into this product, and why they told me I was a fool to pass on the opportunity. In addition to the “load” at purchase, there were fees each year that tethered the performance. I estimate I lost about $240,000 of pretax dollars over a 22 year period on this “investment”. Now, back to crying.

          • Wendy says

            One other thought:

            Even though the salesperson on my $100,000 annuity made about a quick $10,000 on the deal, my statements indicated that my annuity had a value of $100,000 shortly after the purchase, not $90,000. So, you may wonder, how does this work? Where is the missing $10 grand? Well, the missing money would not show up unless I cashed out the annuity within the first year or two after purchase, at which point I would pay a “surrender charge”. The salesperson would have to refund the commission if I cashed out. That is where they hide the $10k, but don’t worry, the insurance company will more than make up for the fat sales commission over time by paying you sub-par rates on your “investment”. Think about that for a minute– this product was sold an EQUITY annuity, based on stock investments, with supposed stock-like performance, but hidden fees hobbled the performance of the product to the point where it was producing minimal growth, much worse than say VTSAX. No fees ever showed up on my yearly statements. None. Only subpar performance that didn’t even come close to the projection tables used in the sales pitch. Luckily I found out about the Vanguard comparison tool and exchanged my annuity to a Vanguard Annuity, and surprise, it is now growing much faster than before, but I lost out for 22 years, and will never listen to an annuity sales pitch again. As noted above, my “free dinner” with that annuity salesperson cost me about $240k pretax.

            To paraphrase Bill Bernstein, “annuity salespeople service clients the same way Baby Face Nelson serviced banks.” But, the servicing of you is done in small numbers, behind your back, over many years, and only after decades will you realize you have indeed been robbed–if you realize it at all.

            It is too late for me, being older and wiser, but I am thankful that I can at least impart this bitter lesson to younger folks so they don’t have to suffer the same fate.

  10. Dave says

    Jim – You suggest that “We could add bonds to smooth the ride.” No argument but, some more detail might to helpful.

    Elsewhere, you have written that for your bond allocation, you use the Vanguard Total Bond Index Fund, which has an average duration of 6.0 years and an SEC yield of 2.46%. By contrast, the Vanguard Total Stock Index has an SEC yield of of 1.77%, so you’re not getting much more income for a smoother ride.

    For bond investors, interest rate risk is one consideration. Duration is an important metric to understand in order to manage this risk. Perhaps you’ve covered duration in your blog but if so, I didn’t see a link for it.

    Generally, for every one percent increase in interest rates, the fund will decline by X% in value, X being equal to the fund’s average duration. And when interest rates decline…bond values increase.

    So a 1% increase in interest rates means Vanguard Total Bond Index fund would decline 6% in value. Well short of routine 10% “corrections” in the stock market, but bond funds are risky.

    The yield on ten-year Treasuries was 2.32% up from 1.74% a year ago. Where will interest rates go next week, next month, or next year? Who knows? Predicting the movement of interest rates is only slightly less problematic than predicting the future of the S&P 500, the Dow, or the Russell 3000.

    We are still at fairly low (by historical standards) interest rates. And, of course, we’ve had about a 30-year bull market in bonds as interest rates dropped from historic highs. You mentioned the lesson you learned from the stock market correction in 1987, which was about when the bull market in bonds was taking off. In 1982, the yield on ten-year Treasuries was about 14.6%, in 1987, they were about 7%. See:

    When interest rates increase, the value of Vanguard Total Bond Index Fund will decrease. I think this is a very fine fund, but it is not without risk of declining in value.

    Bonds are historically much, much less volatile than stocks. So you’ll smooth out the ride versus the S&P 500 or the total U.S. stock market for sure.

    That said, interest rates are still pretty low. Actions taken (or tweets sent) in Washington D.C. by the president, Congress, and the Fed impact interest rates. Don’t know if that means they’ll go up or down next…

    • grbkeb says

      I love bonds but hate bond funds. I think that once your pile is big enough and you can create your own portfolio of holding the actual bonds that is the way to go. Yes they “decrease” in value when marked to market but if you hold them to maturity who cares. I totally agree with everything Jim has said above, I do think there is something to be said though to “if you’ve already won why play the game”. For me my 30% of net worth bond portfolio covers my living expenses plus some, the rest I let ride. Good first world problems to discuss!

      • ddivadius says

        Are there any bond funds or ETFs that don’t sell the underlying bonds until maturity? That would be great. Just hold and collect interest to truly smooth the ride.

  11. Trish Rempen says

    Jim –
    I DID read “The Magic of Thinking Big” when I was a teenager.
    Still have it. Gave it to my kids.
    -Maybe that explains it.

    Thanks for the recap – I’m passing this post on to a few nervous friends.

    Again, thanks for the advice that keeps me traveling around the world.

    • jlcollinsnh says

      Now that is very interesting…

      Two of the people I most respect as to how they have created, organized and live their lives — you and Mr. MM — both read that book as kids. 🙂


  12. Gwen @ Fiery Millennials says

    Thanks for the recap of what the market has been doing lately. I hadn’t really been paying attention other than noting my net worth was going up faster than normal. I’ve been a bit busy with getting my first rental property all sorted!

    But like you say, I’d love to score some sweet deals on stocks! Now is the time for youngins like me 🙂

  13. Slow Dad says

    Interesting post, thanks Jim.

    I think good investors, just like good computer programmers, and fundamentally lazy ones! They do the least amount of work required to get the job done well, then step out of the way so their creation do its thing without further involvement or tinkering.

    Your observation about dead Fidelity investors performing the best tends to support this. Apathy wins out (providing it occurs *after* the investor has invested, rather than while they are sat on the sidelines).

  14. RJ Bruer says

    Thanks for the reminder Jim. I’ve been thinking a lot about my asset allocation recently. My wife and I have reached a significant milestone this past year as our net worth went into seven figure territory after only four years downsizing, hard work and serious saving/investing. FU money for sure, but not quite financial Independence by our own definition. We are getting close, however, and it had me thinking about going into preservation mode and increasing the bond allocation. On the other hand, we are still relatively young (40s) and could choose to keep working if the market does take a turn for the worst, at least part time anyway, to keep from drawing down or portfolio in a down market. So, I’m going to hold at my current agressive asset allocation. I was intrigued by Jeremy’s article on going 100% equities when he first wrote about it. Considering he is retired, I thought he had balls of steel for considering it and was hoping he hadn’t become a victim of recency bias due to the strong market that helped him reach FI. He did make a strong case for it though.

    Thanks again reiterating the wisdom that we need to be reminded of from time to time. Rehashing this stuff never gets old for me.

    • jlcollinsnh says

      Welcome to the 7-digit club, RJ! Well played!

      Your musing on asset allocation is a great illustration of how personal and customizable this tool is. Seems to me you are thinking it through correctly.

      As for GCC, he also has the risk-mitigating advantage of being a master at geographic arbitrage. 🙂

  15. Srujan says

    Schwab has come out with an total stock market index fund SWPPX at 0.03% expense rate compared with 0.05% for VTSAX. Do you think its worth moving to schwab to reduce the expenses even lower? Or am I missing any hidden fees in SWPPX

    • Physician on FIRE says

      That’s a difference of $200 per $1,000,000 invested, per year.

      If you’re starting a brand new account or investing new money and you have a lot of it, it might be worth giving Schwab (& Fidelity) a look. Also, look at other funds available and expense ratios on those. I do know both have undercut Vanguard slightly on the Three Fund Portfolio funds, but tend to have higher expenses on other funds.

    • jlcollinsnh says

      Great question, Srujan…

      This post explains the fundamental difference in approach between Vanguard and the others:

      Vanguard drives down fees as a matter of corporate culture hardwired into their DNA. The others only do it when forced to by competitive pressures. That alone is enough to keep me loyal to Vanguard, even if some other is slightly less.

      Vanguard’s index fund success has forced the others to do the same, with some funds, to be competitive. They use these lower cost funds as “loss leaders” to keep you or to lure you into the door. And, they can raise those fees whenever they so choose and will the moment they think they can get away with it.

      If you hold the fund in a tax-advantaged account, this is no problem. You can just switch back to Vanguard or another lower cost fund with no tax consequences.

      But, if you hold the fund in a taxable account, you could find yourself sitting on a sizable (and taxable) capital gain if you move it. So, you might be trapped in the higher fees to avoid the even worse tax hit.

      Other than that, the truth is aa index fund is pretty much an index fund, regardless of the investment firm.

      • dandarc says

        This gem was pointed out on the MMM forums recently:

        GRMAX. 5.75% load, 0.6% fees. For an S&P 500 fund.

        Illustrates how Schwab vs Vanguard vs Fidelity at current ERs is not nearly as big a deal as picking one of the low-cost guys vs. crap like this.

        • Fireby35 says

          One of my biggest early mistakes was mixing insurance and investing and paying a 3% load, .4 fees and an 8 year period where there is penalties if I withdraw. As far as big mistakes go, it’s better than an expensive house but always reminds me how easy it is to make mistakes at the beginning.

          • jlcollinsnh says

            You might be interested in my email response to a friend regarding mixing insurance and investing:

            “Regarding Universal/Whole life insurance, these are products that combine insurance with an investment. Other than insurance sales people, like Wendy (his agent), I have yet to see anyone say they are a good idea. In fact, most say they are a terrible idea. But they do have very high fees and commissions for the insurance company and their sales people.

            “The only kind of life insurance people not selling it recommend is Term: Far cheaper because you are only paying for the insurance part and far lower fees.

            “But even term life insurance is only for those who need the benefit to protect their family if they die and their income is gone. But you are FI and so if you die, Amy and Venice will surely grieve and miss you terribly, but financially they’ll be just fine. You don’t need any life insurance. Neither do I, nor do I have it. Before Jess was born and we were independent Jane and I both worked. If I died, she still had her income just as before we were married. By the time Jess was born, we were FI and so didn’t need it.

            “Unfortunately, you already have it and figuring out how and if to unload it is above my pay grade. I just don’t know enough to offer any guidance I’d be comfortable offering.

            “I will say, Wendy didn’t do you any favors. She sold you something you didn’t need as insurance and that no objective observer would recommend as an investment. In doing so, she generously lined her own pockets and those of the insurance company.

            “Now, in fairness to Wendy she maybe a true believer. Insurance companies seek out newbies they can indoctrinate. Indeed, the strategy is the company sells the agents first and then turns them loose on the customers. Like a cult. 😉 “

        • Fireby35 says

          JLC – I just saw this because your full post links to it. I had the opportunity to share my mistake with a close friend this week. He was going to meet with a “financial planner” to ask advice. I told my story, begged him to stay out of the wolf’s lair and got him to go see a CPA instead. Win all around – unless you are the financial planner.

          • Doug says

            My old accountants firm tried “helping” me by steering me towards American funds…..point being a CPA is no guarantee of solid advice

  16. Elephant Eater says

    Hey Jim,

    I just googled the Fidelity study of accounts of the dead and I couldn’t find anything that they actually published, but I did find this Business Insider article about it, and it made me laugh out loud and have a lot more respect for Business Insider for publishing it. No need to read the whole article, just scroll to bottom, read the last sentence, and check out the graphic. Pretty hilarious!


    • jlcollinsnh says

      Thanks EE…

      …for the link.

      Seems this was an internal report and so not available other than second hand, as you found.

      That chart in the article is great!

  17. JP says

    Hi Jim! Just to make sure I understand – when you say that in the The Wealth Accumulation Stage you “use cash flow to mitigate the risk” – you are simply referring to continuing to continuing to buy stocks through the bear market with the same aggressiveness as you did during the bull market. In other words, don’t stop investing or don’t start investing less (i.e. saving up more in cash). You’re not referring to anything else when you use the term “cash flow”, right?

    • jlcollinsnh says


      And, good point:

      If during a decline you stop investing, you lose the ride smoothing advantage.

    • Chad Carson says

      We are financial nerds, no doubt about it. Because no one else would find that entertaining. I on the other hand got a laugh picturing the little boy in the movie saying that with those big bulging eyes. Lol.

      Nice article Jim. The more I read about the stock-bond allocation interplay and how to decide your personal allocation, the more it makes sense. Thanks! Benjamin Graham’s discussion of this in The Intelligent Investor was one if the bigger takeaways for me. He argued back and forth and often landed on a 50-50 split as being a reasonable choice. I only invest in stock funds with my retirement accounts, so at 37 I am still all in stocks and probably always will be since I have income for expenses through real estate.

      • jlcollinsnh says

        now you’ve got me smiling and picturing that little kid again. 🙂

        Back in Graham’s day bonds were a bigger deal, but then they paid out bigger yields. In those days you could hold them to balance your stocks AND provide a handsome cash flow. Us geezers call those…

        “The good old days!” 😉

  18. Kane says

    In the last couple years it seems like I see more and more articles/blog posts from Vanguard about the importance of international stock index funds and why they are important for diversification etc.. The gist of it seems to be that while US market may be overvalued the international market is not -when one is down the other may be up, I guess. With so much respect for Vanguard I find it hard not to follow their advice. For years I have followed Jack Bogle’s and your advice about VTSAX (Vanguard total stock market index) being enough international exposure. Has your opinion changed at all about the need for an international fund/etf such as VXUS total international stock index fund? Thank you for your time and guidance over the years.

  19. Stan says


    I have a child going to college in the fall and one that will be a jr in HS. I have $120k in 529 and ESAs for each child that are in Vangard funds about 70% stock and 30% bond. I am thinking about taking at least 50% and moving to cash. Their undergrad college costs will be about $120k each so I have reached the goal. Maybe I should move 100% to cash? Any thoughts on this?

    • Dave says


      If you’ve reached the goal (accumulating $120k for each child to cover their college costs), first congratulations and second, why have any money invested in stocks?

      At this point, you could move into laddered CDs for both children.

      Accepting investment risk (in stocks) makes sense to attain goals. Funding college is finite and relatively known. You’ve won that game…stop playing.

      • Stab says

        Thanks for the feedback. I think I knew the answer, but had to hear it from an outside source. It is odd to put anything to 100% cash because the focus has been on growth for 30+ years. Part of it is that the hunt is more fun than the catch. Part of it is admitting that our kids are going to college soon (i.e. we are getting old).

    • jlcollinsnh says

      Hi Stan…

      Dave makes great points above and, yeah, I’d move at least 50% to cash. This is money you’ll need shortly and cash is the place for that.

      The rule of thumb is: If you’re going to need it within 5 years, keep it in cash.

      If you want to be more aggressive and take on more risk, you could keep holding the stock/bond mix — maybe tilting more heavily to the bonds.

      But keep in mind, while less volatile than stocks, bonds are not entirely risk free. Especially with rates having been so low for so long:

  20. Connie says

    Here’s the Buffett quote you were looking for Jim –
    “The Dow started the last century at 66 and ended at 11,400. How could you lose money during a period like that? A lot of people did because they tried to dance in and out.”
    Note that I am assuming you got it right the first time!

    Since the New Year I have shifted my asset allocation to 90/10 stocks/bonds and spent the rest of my time trying to mentally steel myself to ride out a big drop. I think mental preparation and setting up a strong system that runs on autopilot are much more productive than all the worry the media has been peddling. At this point I am looking forward to the “promised crash” with a mixture of trepidation and excitement.

  21. MrWoW says

    Insightful, and spot on as always. We’re still building, and as such we’re at like a 95/5 split.

    I technically rode through 2008, but I was young, ignorant and didn’t care. Just gotta keep that attitude. I don’t know that the Mrs. would like the alternative best performing scenario.

    Anyway, thanks again… Looking forward to sharing some Clubs with you in October.

  22. Linda says

    I plan on staying the course and investing my normal amount every time my paycheck hits my checking account. I’ve been debating whether or not I want to throw my extra savings into the market if it does drop 30%, or keep it for what it’s intended for-a new(to me) car when I finally need to replace mine. Tough choices!

    • jlcollinsnh says

      Wouldn’t be a tough choice for me. 🙂

      If I had the chance to buy into the market at prices 30% lower than today, or buy a car…

      …for sure I’d patch up the old jalopy and nurse it along. Then I’d buy the newer one with my profits once the market recovered.

  23. Mrs.Wow says

    I am almost done with your book and have loved every second of reading it. I’m one of those people that never thought that I would willingly choose and actually like reading a book about finances, especially since I am somewhat newish to the FI mindset, alas I am hooked. I have recommended it to so many people since I started too.

    I also just wanted to let you know that I have been lazy, I mean taking your advice, and not paying attention to market. Account? What account?

  24. calidude says


    Just want to say, I’m a huge fan of your blog. It has been tremendously useful as I used to have an advisor manage my money who kept underperforming the market and after reading your blog it made me realize I should just do the investing myself and keep it super simple.

    Had a quick question though. My portfolio is in the low 8 figure range and I talked with different advisors and they have differing advice on what % to put in equities and what % in bonds. For example, one says that the marginal utility of additional wealth is way less than a loss at this point since I can live off of the portfolio assuming 3-4% withdrawal rate, so better to be 30% equities / 70% bonds. (I’d be happy with a $300k/year spend. I’m also 34 years old). But your blog basically says 30% equities is too low. So I’d like to hear your thoughts on what would be a good % at this point for me.

    I’ve heard anecdotes of stories like a couple in 1999 who were worth $15m and put most of their net worth in tech stocks, thinking it would double, and they lost 80% and never got it back. And afterwards reflected and thought they really didn’t need such a high % of equities given that they would have been happy with what they had already, so really regretted it.

    Thanks again for this amazing resource.

    • jlcollinsnh says


      …I l-o-v-e your question!
      and am surprised it has never been asked here before. But I have even thought about writing a post along these lines as my view is so out of step with the mainstream.

      Let’s dispatch with your 1999 couple first: Their mistake wasn’t a high allocation in equities, it was a high allocation in one sector. This, like investing in one stock, is extraordinary risky as they sadly discovered. It is also why I recommend VTSAX, a TOTAL Stock Market Index Fund.

      OK, back to the main course…

      The vast majority of advisors and writers on this subject would agree with the advice you received:
      Once you have more than enough, focus on preserving it rather than growing it. Indeed, my personal hero Jack Bogle himself does exactly this with his own investments.

      If you listen to the very end of this podcast:
      Farnoosh asks me what I would do with $100,000,000 if I suddenly had it. My answer:
      I’d immediately put it in VTSAX.
      As you’ll hear, she is a bit stunned by this, although mostly I think because she was expecting the same sort of list of things I’d buy like most guests.

      But my thinking is that, even if the market plunged and cut it in half…
      1. 4% of the remaining 50 million would be more than enough
      2. The market would come back and go on rise ever further.

      Remember, stocks aren’t risky in the long-term, they are only volatile in the short-term.

      Certainly it is true that once you have more than enough, you don’t have to take risks or accept volatility. But, also, never before has accepting volatility been so, well, risk-free.

      Consider your situation:

      —The lowest 8-figure sum is 10 million, so let’s say that’s what you have
      —4% of 10 million is 400k
      —You only need/want 300k
      —7.5 million x 4% = 300k

      You could lose 25% of your 10 million and not break a sweat.

      You are certainly well positioned to forget about growth and focus on preservation. But you are also well positioned to even more aggressively focus on growth.

      So, which is best?

      Well, in terms of your lifestyle it really doesn’t matter much. You’re well covered either way. But are you only managing it for your own needs?

      In my case, I am managing my wealth first for my own needs and those of my wife. But not exclusively.

      I am also managing it as a legacy. My heirs, be they individuals or charitable institutions, have a long-term horizon and they benefit from a focus on growth.

      Your wealth will outlast you. Managing it comes down to:
      are you thinking just about yourself and your lifetime or about where it will go and what it can do beyond that?

      Thanks for asking!

      • Calidude says

        Great points! It would just be for my needs as I’m currently single with no kids, but then again that could change in the future. I prefer to die with very little money, but at the same time I don’t want to live my last years worrying about running out of money, and it’s hard to predict exactly when you are going to pass away. Also I forgot to mention, I also have a $9m primary residence that is 100% paid off that I have to pay property taxes, maintenance, and insurance for every year which ends up being around $100k/year. So the $400k/year actually ends up being $300k/year unfortunately. (If I had read your blog before I bought that I probably would have chosen to be a renter, but now it’s too late since the transaction cost of selling that is 5% agent fee + 2.5% transfer tax + capital gains….so, huge).

        I brought up that stocks in the long run are actually safer than bonds to that advisor who recommended 30% stocks, but he said that I’m assuming stocks always go up which is not necessarily the case. For example it took somewhere around 22 years to get back your capital (which includes dividend income) if you bought the S&P in 1929. Yes you eventually got it back but 22 years is a long time of suffering..

          • Calidude says

            Agreed that you’d have to be really unlucky to buy at the worst possible time in 1929 to have to wait ~26 years to have fully recovered. So probability wise the chance of that happening is very low.

            I’m thinking then probably 50% stocks/50% bonds is a good allocation for me or maybe 60% stocks/40% bonds. Was thinking stick with 50%/50% for now but if there’s a large drawdown in equities switch over to 60% stocks/40% bonds, or even 70% stocks/30% bonds if there is a 40%+ drawdown in stocks. Then if people start getting euphoric again like back in 2007 or 1999, go back to 50%/50%. I always wondered why people don’t start with the more conservative asset allocation and then if there’s a big crisis over-rebalance on the equities..I guess it’s a hard thing to do psychologically.

    • Ron Cameron says

      Calidude – one thing to remember is volatility IS your enemy when you’re taking income. You can have two “identical” investments earning x%, but if one is more volatile it can actually perform worse if you’re taking withdrawals. The way to think about it is if an investment ALWAYS made 4% every year and you were taking our 4% a year, you’re good to go. But if you have a heavily fluctuating investment averaging 6% you may end up with less money in the end due to the withdrawals on the dips. That’s one reason why total returns only tell part (albeit an important one) of the story. Bonds aren’t your enemy, they just need to be used for the emotionless reason of beneficially reducing volatility. Not so important while adding, super important while subtracting!

  25. Health & Wealth says

    Thanks for this excellent post. I am not too worried about my ability to ride any future downturn that may (or may not) happen. Although I haven’t really experienced one yet. I did have investments in a 457 at work through the downturn in 2008, but that was before I was educated so all my money was in high cost mutual funds and even though it was a 457, I didn’t realize it at the time so I didn’t think I could get to the money and so I never had to face the temptation of selling. I’m still a while away from FI, so maybe I’d be more concerned if I was closer to quitting my job. Nonetheless, I appreciated reading this as it helps keep the focus! I’ve also stopped checking my accounts so frequently. Early on it seemed like I was looking fairly frequently, especially when bored, but now I try to only look once a month (for tracking purposes) and may downgrade that to once a quarter if the market indeed takes a turn.

    My goal if/when it happens is to focus on how much more the money I’m saving is buying.

    Thanks for your calm and sage advice. I also appreciate you keeping this non-political. It’s nice to have a space like that.

  26. Justin says

    ““I have a lump some to invest, but this market looks to me like it is about to crash. Should I wait?””

    I get that question a TON. I even had one guy that wanted to pay me $125/hr consulting fee to discuss this question. Here was my (free) response along with a suggestion to save the $125:

    “In general, it’s best from a mathematical standpoint to invest all your lump sum up front. But that puts you at risk of taking a loss if the market happens to be at a top right now. No way to know we’re at the top until AFTER it drops, so it’s all a guessing game. One approach is to dollar cost average in on a monthly or quarterly basis over the next few months or a year. Not a whole lot of risk in waiting other than missing out on the gains in the next few months or year or so till you get fully invested.”

    I like your reference to bonds – got to get the asset allocation correct so you can withstand market volatility in the first place!

    • jlcollinsnh says

      Hey Justin…

      nice to see you here!

      To discuss it, eh? That usually means to argue about it and that could stretch into several hours.

      Mmmmm, at $125 an hour…. 😉

      • NathanJ says

        The best explanation I saw of “what should I do with a lump sum?” was some comments somewhere on MMM or bogleheads, if I recall correctly. Someone responded “What would you do if your cat jumped on your keyboard in five minutes and managed to sell everything you had invested? Wait and slowly re-invest it, or just immediately buy back what the cat had screwed up?”

        There’s probably some capital gains/loses details that aren’t particularly relevant to the metaphor, but to a novice that was the moment where “no, stop trying to time the market, and yes futzing around with investing a lump sum is trying to time the market” really clicked for me.

      • jlcollinsnh says

        Never saw that quote before, but it is pretty much my take as well.

        I’m not a fan of dollar cost averaging for the reasons I describe here:

        …not the least of which is that DCA is designed to avoid the pain of investing your lump sum and having the unfortunate experience of having the market plunge the next day. Of course, once you have painstakingly and slowly deployed your lump sum over time, the day after you invest your last chunk could be the day the market plunges. 😉

  27. FIRECracker says

    “jlcollinsnhinista” –> *points to self* Teehee. That’s me 🙂

    We’ve been getting lots of questions about “the upcoming crash” too. Clearly they have not read Chapter 6 of your book: “There’s a major crash coming…”

    Whenever it comes time to invest, novice investors only have one of two thoughts:
    1) The markets are overvalued. You’d be an idiot for jumping in.
    2) The markets are crashing. You’d be an idiot for jumping in.

    Kudos to you for having the patience to explain everything again rather than just tell them “read the book, stupid!” That’s why you’re the Godfather! 🙂

    • jlcollinsnh says


      …a way to sell more books 😉


      1) The markets are overvalued. You’d be an idiot for not jumping out.
      2) The markets are crashing. You’d be an idiot for not jumping out.

      Finally, as someone who admits to being a “jlcollinsnhinista” Have you considered therapy?

  28. Neal Landfield says

    “Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts,” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.”

    On a separate note, I am a huge fan of your blog and recommend your book to everyone who will talk to me. Thank you for your contributions to the personal finance space and the great benefit your writing has brought to my life.

    • jlcollinsnh says

      Thanks Neal…

      For the quote and the very kind words

      That’s not the one I was looking for, but it makes the point nicely.

  29. Samir says

    I won’t dance out of the market but there is no guru in this world that will make me put my 30% cash in the market before it plunges at least 20% . Period ! So much work for this money that I cannot afford to lose a penny!

    • jlcollinsnh says

      Of course, every day you hold cash it loses value to inflation.

      Once you have money you don’t get to choose to not have risk, only which risk you prefer.

      • Samir says

        This is terrible…It’s best to be deaf, blind and poor in this f… world !
        will give it all to charity and live as a’s simpler

      • jlcollinsnh says

        If you are willing to accept being deaf, blind and poor; give it all to charity and live homeless…

        …the prospect of financial risk should have no power over you. 🙂

  30. Friendly Russian says

    People lose on the market because of a) Fear b)Greed. They’re either too fear or too greedy to invest. And there’s always either ‘too high’ or ‘to low’.
    Thanks again for reminding about staying calm. Stay calm and keep investing!

  31. Kane says

    Jim, when will the audio book version of The Simple Path To Wealth with you narrating be available? Will listen on repeat until memorized! Then again yearly until retired.

    • jlcollinsnh says

      I’m not sure, Kane.

      It is now in the hands of Audible’s editing team and they tell me I might have to re-record some parts as needed. Beyond that, I really have no idea what is involved or how long it will take.

      But it’s nice to know at least one person is interested 🙂

  32. dave says

    Great content. A recession or market correction will come just as night follows day. Nobody knows, however, when it will happen. I follow your approach of keeping some of my assets in bonds to smooth out the ride. That is just for my comfort level. Everyone is different. The ride is also smoother if you avoid the financial media.

    • jlcollinsnh says

      “The ride is also smoother if you avoid the financial media.”

      Easier and less stressful too. 🙂

  33. Done by Forty says

    Excellent advice as always, Jim. We just got six figures to invest from our last house but, sadly, are not brave enough to lump sum invest everything at once. We’re lump summing 25% and then DCAing the rest over two years, as we’re fairly close to FI and figured a little of the wealth preservation column was in order.

    By splitting the difference, I figure we have a bit of a hedge (and a guarantee that we’ll kick ourselves for not just going full bore on one strategy or the other).

  34. Tracyl5 says

    *I* am the jlcollinsnhinista in my family! I’ve been putting my money in VTI faithfully every month since 2014 (when I discovered you and GoCurryCracker!). I convinced my husband to open a taxable Vanguard account in 2015, and he deposited a large-ish lump sum of cash. However, he hasn’t bought much since that time. I finally convinced him last week to buy some shares because VTI was down over 3% off its high. He *could* have just bought it when he deposited that money at 22% off the high! Ugh! At least he maxes out his 401K every year and that automatically invests, high or low! He still has a third of that cash he deposited sitting in cash… sigh.

    • jlcollinsnh says

      Every family needs at least one! 😉

      hope you can keep him inline when the market finally does take a plunge 🙂

  35. Jeff says

    Great article.

    Your thoughts please – I hope this makes sense. Regarding the 4% rule, I never hear anyone speak of taking 4% of the balance as it rises and falls – meaning, whatever the balance is when you make a withdraw it will be based on 4% of the balance at that moment in time. It seems that usually folks will have, say, $1m and going forward always withdraw 4% of $1m even if the balance drops to $700,000.

    To me it seems much safer to reduce your 4% to that of $700,000 instead of the $1m and always have your income a little more unstable. You would also get a bigger payday when the balance goes up. I’m self-employed so a variable income is nothing new to me.


    • Ben says

      As I understand it, you could follow either strategy. If you were to withdraw 4% based on the current balance, you’re going to have some lean years as well as some fat years.

      Alternately, you can hit your target balance of $1M, and withdraw $40K per year, no matter what the market is doing. Some years you’ll be withdrawing more than you’re making, but as the market is always up, you’ll end up with more years where you make more than you withdraw. Your balance of $1M should remain relatively stable, or even go up slightly over time.

      You of course have to take sequence of returns risk into account. If a crash hits at the beginning of your FIRE, and your $1M suddenly becomes $700K, withdrawing $40K is a bad idea, as your portfolio might not recover after that.

    • DrFIRE says

      There are plenty of folks that have looked at it. A so-called “fixed percentage approach” can never run out of money as long as the fixed percentage is <100%. However, that does not mean that the fixed percentage will yield acceptable income throughout retirement.

      In a nutshell, you are replacing a risk of portfolio depletion with the volatility (risk) of yearly income with a fixed percentage approach.

      On the other hand, a safe withdrawal rate approach reduces or eliminates (depending on which set of rules you follow) the volatility of yearly income by exposing the portfolio to the potential for depletion.

      Here's a starting point so that you can dig deeper on your own:

  36. The Frugal Humanist says

    Ha, I knew it!! When I dumped all my house sale proceeds into VTSAX all AT ONCE two years ago, I told you I’d be waiting for you to announce the “sell, sell, sell” on your blog 😉
    I knew it was going to happen eventually 😉 Knew it!! I’ll go ahead and log into Vanguard right away!
    What wait?
    Never mind….

    On a more serious note, when I FIRED last year, I did move my allocation from 92/8 stocks/bonds to 75/25 stocks/bonds and that definitely helps me sleep better, now that I have no more earned income to put into the market. Yes, in hindsight my 92/8 portfolio would have probably performed better over the last few months, but I probably would have checked on it ALL THE TIME, instead of ignoring it like one of those dead people 😉
    No I can pretend I am dead while living the life!

    Whenever I get nervous, and nervous I have gotten a couple of times, since quitting my job, I just start reading through “The Simple Path to Wealth” again and again…’s like therapy. A LOT OF hours of THERAPY for not a lot of money. What a great investment that book is!

    • jlcollinsnh says


      Thanks FH, and congrats on being FIREd.

      Appreciate the very kind words on my book:

      “Whenever I get nervous, and nervous I have gotten a couple of times, since quitting my job, I just start reading through “The Simple Path to Wealth” again and again…’s like therapy. A LOT OF hours of THERAPY for not a lot of money. What a great investment that book is!”

      …which, BTW, would make for a wonderful 5-star review on Amazon. 😉

      • The Frugal Humanist says

        Done 😉
        Been meaning to do this for a long time. Amazon says it’s still under review though.

        Still owe you one on the blog too. Not that it would make any difference as the Who-Is-Who of FIRE bloggers already have raved about your book, right when it came out! I am just too slow for you. But I have been telling lots of folks about it in person!!

  37. Newbie17 says

    I’m extremely new to investing and I’ve been reading your blog for a while now and I’m ready to go in on VTSAX. I didn’t grow up in the States and I’ve been learning about the tax advantaged buckets and the pros and cons of each. I have an extremely elementary question to ask at this point. Once I’ve rolled over my 401k from my previous employer to a traditional IRA at Vanguard and contributed the $ limit for the year, how do I keep adding to VTSAX as i see you mention around the blog? Does the rest of my investment go into a taxable account that I’ll keep paying taxes on the capital gains?

    • jlcollinsnh says

      Welcome N-17…

      Once you’ve maxed out your tax-advantaged account, addition money will go into your taxable account.

      Each year you will have to pay tax on dividends, currently about 2% for VTSAX and any capital gains distributions. The latter come from management trading within the fund. Since index funds like VTSAX rarely trade they rarely pay out these.

      Capital gains on your shares are due only when you sell them.

      Hope this helps!

    • jlcollinsnh says

      Hi Tim…

      Asia for January, February and the beginning of March happened followed by a ton of stuff to catch up on and tomorrow we head out again. It was a victim of my schedule and of being a time-consuming bear to pull together.

      Too bad as this would have been an exceptionally interesting year for it.

      Hopefully, next year…

  38. Compound Your Freedom says

    Thanks JL. I agree, it is best to have a very high allocation in stocks when accumulating wealth. Staying the course and buying stocks (preferably Vanguard funds) regularly is the best strategy. I like it when the market drops because more stocks can be purchased!


  39. Tammy says

    Hi Jim,

    Thanks for the sage reminder about market panic!

    I recently had the privilege to hear Jack Bogle speak at a local university hospital and he gave pretty much the exact same advice you give here to the assembled nurses, doctors, and administrators. He also made a point of saying something to the effect of – “Don’t be so worried about all the bumps in the road of life – the bumps ARE life!”

    Nice to see you back on the blog.

    • jlcollinsnh says

      My pleasure, Tammy…

      and thanks for your kind words.

      Great you got to see Mr. Bogle speaking and amazing how active he remains.

    • Greg says

      “Before index funds, traders who thought they knew something others didn’t could turn a profit in transactions with less informed buyers of individual stocks. That disadvantaged cohort now buys ETFs, locking up securities that traders once could pick off when price discrepancies arose.”

      In other words, it’s harder to find suckers to fleece these days. Weep for the poor active managers.

  40. Lucas says

    Thanks Jim. For clarification though, wouldn’t you say that your statement below constitutes attempting to time the market?
    As for me, I’ve been thinking about following Jeremy’s idea. A nice, sharp market plunge would be just the thing to move me off the dime. Maybe if the market drops 10%, I’ll move a third of my bonds into stocks. If it goes on down 20%, I’ll move another third. If it drops 30%, I’ll move the rest.
    I must confess I was surprised to see you say this. After all, I thought your entire investment philosophy was based on set it and forget it principle. It seems like you’re trying to quantify in mathematical terms what would cause you to act or invest in a certain way.

    You had mentioned that the market is inherently unpredictable, but as we know, will trend upward over time due to inflation and the fact that market is the go-to investment vehicle for trillions of dollars of savings and pensions. However, it seems that your statement implies that timing is possible, as long as you just pick a percentage that your brain believes indicates better value (in this case, 10% – 30%). If the market drops sharply though, you’ll be tempted to wait longer before getting in, and if it corrects at say 9%, perhaps you’ll jump in thinking 9% is close enough to 10%, only for the market to then drop to 15%. Classic market timing attempt.

    For the record, I am 100% equities, but would never try and time my way into or out of a 100% position.

    Anyway, my 10 cents. Keep well.

    • Jill says

      Right, that’s why I think deep inside everyone thinks the market is overvalued…but wait…even JLC affirms that sooner or later the market will correct so…let’s wait a little bit more…we’re not out of the market anyway

    • jlcollinsnh says


      You caught me out, Lucas. One of my bad habits leaking thru. 🙂

      Elsewhere on the blog I’ve even admitted to trading the occasional individual stock. (I don’t have any just now and hope to resist the temptation going forward)

      Just proves I have the addiction, doesn’t mean it is a good thing. 😉

  41. TinaP says

    I have to disagree with you this time and take the sell sell sell route! and let me tell you, I have been holding off for several years waiting for the market to be at this point for the stars to align for me to sell sell sell even though I REALLY wanted to before but one thing or another held me off. And looking back, those irritating obstacles are now much appreciated for a variety of reasons. But, alas, the market is where I want it, the stars are in line, and I am in to sell sell sell! Wahooooooooooo!

    Oh wait…you are talking about the stock market, aren’t you? Here I am on the housing market in my area. 🙂 The time has finally come to sell my house and I am ELATED to return to the world of renting! (and I guess that nullifies my beginning comment of disagreeing with you). Here’s to selling high!

  42. Simon Kenton says

    Confirmation: I got out a month or so before Oct 1987. Smart, that. It was years before I got back in again. Dumb, that. I knew when to fold ’em, but not when to hold ’em. I think that there’s a temperamental problem here – the mental perspective that makes you a good seller (intuitional queasiness) is not what makes you a good buyer. Possibly even the reverse. So it’s a lot better to get in, stay in, and let your buy and sell predilections be disciplined to operate only in rebalancing once a year.

    • ex-Sgt Pepper says

      Great anecdote! Reminds me, my dad went all in with a big lump sum, ONE WEEK BEFORE the 87 crash, to begin saving for retirement. He lost half his initial investment. He freaked out, but didn’t panic — and stayed in forever. Now living comfortably off his IRA and social security. But, he’d be MUCH more wealthy if he’d put it in index funds like VTSAX and VBTLX and left it alone.

    • jlcollinsnh says

      Agreed: Great story with a very astute insight:

      “the mental perspective that makes you a good seller (intuitional queasiness) is not what makes you a good buyer”

  43. Jacq says

    I have a recurring withdrawal to my Roth and figure my 401k per paycheck is my dollar cost averaging and don’t worry about it.
    I let it ride through 07-09. 🙂
    A pessimistic ‘friend’ got scared and took money out. He’s a glum Gus, and it’s not worth my time to tell him there’s a better way more than I have.
    JL Collins for the win!

    • jlcollinsnh says

      Trying to persuade people of anything is a losing battle. Either Gus will want to hear the message, or not.

      As I say on this blog, it is what I tell my daughter about what has worked for me and what has kicked me in the ass. If that proves useful to others, that’s awesome. If not, that’s OK by me too.

  44. Wilkop says

    Like Pennies from Heaven…..
    My 401k plan is held by Fidelity and administered by a smallish local pension admin company. Plan has been OK with good company match and mostly mediocre fund choices. Then, today, the quarterly Asset Allocation Bulletin arrives with comments as follows: “…we have decided to add a number of low cost Vanguard Index options to the program. …..All of these funds are part of the “Admiral Share class…” The funds added are VIGAX, VMGMX, VSGAX VVIAX, drum roll….VTSAX and VBTLX. Time to jump in and, now that I have been reading the JL Collins blog for a while, start moving money.

  45. FinancePatriot says

    We are 100% equities, with the exception of our emergency fund. Even though I plan to retire soon, I will still be 100% equities due to my request for severance, which should be granted soon.

    I figure if you’re going to ER, you might as well go out with a bang and ask to get paid for it. I do, however, plan on keeping two years of living expenses in a high grade corporate bond fund, in case the market tanks. I don’t wish to have to sell, although working or reducing expenses seem like much better options to me.

  46. Dinash Kumar says

    Hi. I just moved to the US to work for a Tech giant. I got a moving allowance and I would like to start investing in the stock market. I’ve never done that before.
    I’ve read your blog and I get that the market always goes up but also other blogs say the entrance point matters a lot specially for someone getting close to retirement which means the time you enter is also very important.
    I still ask myself if buying VTSAX now is wise for someone who hasn’t ride the bull market so far. Could you provide me with your thoughts. Much obliged.

    • jlcollinsnh says

      Hi Dinash…

      If you’ve read my blog, you already know my opinion and the reasons for it.

      If you’ve read the writings of those who disagree with me, you know theirs.

      It is entirely up to you to decide what resonates with you.

  47. Andy says

    Great article! My wife and I invest in VTSAX at Vanguard and a BlackRock S&P500 index fund in her 401(k) which only costs .02%. We weathered the 2008-2009 crash but at the time we were not educated as we are now with investing. I can say that we did not touch our investments. We are 38 and 42 and hoping for an opportunity at another bear market before we retire as crazy it this sounds. I read your book this past winter and enjoyed it. Thanks for all you do and helping make finance and investing simple. FYI, we do not own a bond fund yet but I think we will when we get close to retirement.

  48. Syam says

    I do not agree with this article. It presents very rosy picture on market. Let us take a simple look at charts again. A general person carries most balances around 20-30 years in stock market as he generally have enough money in 401k in only early 30s.

    Now, if a person kept his hard earned income of 100k in stocks by year 2000 (he worked all his 20 and 30’s to save 100k by age 35), it would still be 100k by Jan 2011. Almost 10 years, no change in price and no gains. That is because, we have seen two drops in those 10 years from 2000 peak and two gains to reach same position. All the gain in stocks happened in last 5-6 years only out of total 17 years.

    Let us look total history of stocks. Our stocks are gradual gain until year 1996 (barring that 1929) almost depicting local GDP / country growth rates and other normal factors. From that time on wards, we have seen two sudden spikes and two even more drastic drops and one bull run for last 7 years. At same time, our GDP growth becoming sluggish to 1-2%. While all this happened, rich people networth increased a lot and normal people salary barely changed. Debt levels for both country and people are historically high.

    How did this happen? This is because government near zero interest rates for so long. There is no incentive for people to keep money in safe place like bonds / savings accounts etc. Government policy is pushing people to put their money into stocks so that rich people can play with it and become more richer. But, i always believe in newton law -every action will have equal and opposite reaction. It means this induced exponential stock market growth for last 7 years has to come down in very near future to normal level. Look 2000 and 2007. This is exactly what happened. If stock market is not following the country growth pattern, it means it is not realistic.

    However, i agree with one point. We can not and never will time the market. But, we can drop from the rat race when we feel it is too unrealistic to have this price. Take small gains before that drop happens and rest until we feel it reached bottom. It may never be perfect entry and exit point. Still it helps us to get more net worth than others.

    I think market will correct at least 30% in very rear future (may be in 6-9 months).

    • Paul says


      1. You are ignoring dividends during the 2000-2011 time period.

      2. The 2008-2009 financial crisis was, arguably, a very rare event in terms of stock price declines.

      3. What was the more profitable, on a risk adjusted basis, alternative to stocks during 2000-2010 when measured on a total return basis (dividends included) ?

      4. Your last two paragraphs are non-sequitur. First you say no one can time the market and then you do exactly that in the last paragraph.

      5. Your opinions on market value and interest rates do not make sense. On a price/earnings basis the market looks a bit expensive. However, at current interest rate levels it appears a lot less expensive. Warren Buffett agrees with this and I consider him a pretty good authority.

    • Mr. 1500 says

      “Now, if a person kept his hard earned income of 100k in stocks by year 2000 (he worked all his 20 and 30’s to save 100k by age 35), it would still be 100k by Jan 2011.”

      True, but you picked one very short time in history. As Warren Buffett likes to state, your holding period should be forever. That’s not really feasible because after all, we die! But, for an early starter, you’re going to hold your investments for many decades.

      Now, it’s easy to choose short periods of time to prove something, but when you expand that time period, your trajectory is up. Go back to 1990 or 1980 and see what returns look like.

      But I agree with you that low rates have juiced the market and there probably will be a correction. If your timeframe is decades as it should be, it will a blip on the radar.

      • FM says

        Holding period should be forever…man..this is so untrue. I’m now 45 and I’ll put my first bucks in the Market…and will begin to use it in 5 years…in what world this is forever? this is the problem with generalization…nobody lives the same life therefore there’s not one size fits all…I’m not even sure I’ll invest in the market at all..just lived without it so far and have a pretty good chunk under my mattress that will support me for 40 yrs at least so why take any chances…

        • Mr. 1500 says

          Hmmmm, dunno. Warren Buffett is pretty smart. And he’s worth $74,000,000,000. I wish I had $74,000,000,000. Like you said, forever isn’t true or feasible.We all must die, But I already said that too.

          *please go back and reread my comment where I stated this*.

          Yes, put it in the mattress! That is an excellent idea. No risk there. None at all.

      • syam says

        Two points —

        Point 1: Main problem is each blip takes at least 3-5 years to settle and reach to former level. I think if we continue investing in those blip periods , we are bound to lose money. This is particularly true to older people who are nearing 50s.

        Point 2: A person history in stock market will be around 30 years. So, we should consider only last 30 years history to predict what happens next. Now, Stock market in USA changed drastically since 1995. What we saw until that period is slow and steady growth that matched GDP, consumer spending etc. What we saw after that is all just two peaks and two bottoms and one strong bull which was induced due to near zero interest rates. Current bull trend is because of PE ratio of market is more than any thing else available in market (bonds, gold, savings etc). Rich people really calling these shots through government policies. They are squeezing all money available from common people. Last 15 years, we did not see real wage growth while debt on common person increased three fold, while stock market doubling / tripling. I believe in wage growth or GDP growth causing market hike. But, we are not seeing it now — more so in last 6 months. It is not real and going to crash real soon to normalcy.

        Point 3: There is never a perfect entry and exit point. We can never time it. However, we can be little more safe when we think so. This article advises to put 100% into stocks or 75/25. I think, it should be much more conservative considering what happened in last 6 months (15% unrealistic gain with out facts). I am now 50/50.

  49. nervouswreck says

    * First: Dead people
    *Second: People who forgot they had the account

    Both these happened to me, at the same time. Let me explain.

    I inherited some stocks from my late father in India in 1993. I wanted to sell them right away, but managed to add them to my brokerage account there only after almost two decades of them sitting in some legal gray zone. Their value had gone up from x to 10x.

    In 2013, the Indian stock market was in the dumps. I tried to sell them and my brokerage order just refused to go through. The company managing my brokerage account informed me that I would have to sign some extra documents to facilitate that process.

    So I forgot about them. I went back to India in 2014 and they were up 50% to 15x. I sold them. 🙂

    Thanks for your excellent blog.

  50. Jay says


    I have been reading your blog for a while and wanted to see what you or your fellow bloggers thought about my particular situation.

    I consider my self fairly financial savvy with good personal finance knowledge. I believe in index funds and love vanguard. I did not have a lot of cash outside of retirement accounts during the financial crisis of 2008 which was a perfect time to get into stocks. Over the last 8 years, I have been successful to amass 500K in cash outside the retirement accounts. While i am heavily invested in stocks in my retirement accounts, I didn’t do any investing in the non retirement accounts first to amass certain amount of emergency funds and then to have some cash cushion as well. At that time i had put about 250K in various banks at 3% .

    But now with 500K in cash siting around and interest rates being where they are today, i am debating how to get back into stocks. Investing all at once in vangard sp500 while we are at new high seems strange to me. I have though about couple of ideas:

    1. Invest $1000 a day in vanguard fund. it will take me about couple of years to dollar cost average into the stocks again.
    2. Invest $5000 (for example) every time the sp500 drops 1% or more on a day.

    Short of hoping for a crash which would be ideal if i a being selfish, i would love to see what you and your fellow bloggers would do in my situation.

    You can also apply my situation to someone who just got some inheritance or won a small lottery or won big on the SNAP IPO 😉


  51. Cemo says

    What happened to the annual stock prediction contest? I was looking forward to getting mocked for getting it so incredibly wrong.

  52. Volwat says


    I’m reading your blog for a while now. First of all thanks for contributing with this helpfull information.

    I was wondering if the US National Debt will have any consequences for the stock market in the future? Or can be of any influences?


    rg. P

    • jlcollinsnh says

      Hi P…

      Surprisingly, I have never been asked this before and it is indeed my single biggest concern.

      Overall, I am a major optimist about the American future, and that of the world in general.

      But, at $20,000,000,000,000 and growing with no end in sight, it is hard to see how this ends well. And, of course, it is not just an US issue. Most of the world’s countries are adding debt seemingly as fast as they are able and many are in an even deeper relative hole.

      Some economists argue that such debt just doesn’t matter and, as it is clearly not going away, we can only hope they are right.

      Or perhaps, and this is my best guess, we will inflate our way out of it when push finally comes to shove.

      If not, as with a nuclear war, it likely won’t matter where we are invested.

      • James says

        Could you give a little more detail on your thoughts on this? This bothers me too, and I’d be glad if you could allay my fears.

        I have two questions: Why would economists say massive debt doesn’t matter? And what will be the consequences to the economy or the stock market if the United States prints massive amounts of money to pay the debt off?

          • Tim Cullum says

            Has anyone actually watched this thing. It starts out to make some sense but then she advocates the federal government giving away a bunch of money but not raising taxes. In other words we can spend our way with borrowed money into prosperity. Run the national debt a lot higher because we never have to pay it back since it’s fiat money. We just print more. And this woman calls herself an economist? I can’t believe people actually sit through this. Crazy!!!!

        • jlcollinsnh says

          Well, James, I’m not sure I can allay your fears when I can’t my own. 🙂

          I haven’t watched the video IdahoPotato (Thanks!) provided, but you could start there.

          As to your second question, the consequences would be high inflation. Venezuela is going thru that right now and gives us a real life, real time view.

          There is a email newsletter I subscribe to that gives a good picture of that which I’ve copied and pasted below.

          I’m not linking to or identifying it as I can’t recommend the site. It is mostly fear-mongering to sell his paid services.

          But I read it because, as in this case, he sometimes has interesting insights and observations. Also I helps me keep my finger on the pessimistic side of things. 🙂

          Here you go, and I agree with him on this:

          Pop quiz: What country has the world’s best performing stock market?

          It’s not the United States. Or Canada. Or China.

          The answer is Venezuela, whose primary stock market index over the last year is up nearly SEVEN FOLD, from 11,700 last summer to a record 72,700 today.

          It’s amazing that a country where people are literally starving because there’s very little food available is seeing record stock market performance.

          At face value it would seem that anyone who had invested in Venezuela stocks is an absolute genius and swimming in money right now.

          But remember that Venezuelan stocks are denominated in local currency.

          Officially the Bolivar’s exchange rate with the US dollar is around 10:1. But due to the country’s hyperinflation, the black market rate is closer to 6,000:1.

          And that black market rate is also up nearly 7-fold over the last year.

          So anyone who had purchased Venezuelan stocks last summer might be up hundreds of percent if you measure performance in bolivares.

          But in US dollars you’d actually be down a bit.

          This is one of the hallmarks of inflation; it’s not just retail prices that increase. Asset prices rise as well.

          But it’s not real wealth.

          • Jeff says

            >>But it’s not real wealth.

            It is if you’re financially independent, right?

            If your assets inflate with inflation (not to be redundant), the cost of living goes up, but your spending allowance goes up with it, right?

            So, from that standpoint, it doesn’t matter what happens, right? If you’re living off 3-4% of your assets, inflation has no affect, right?

            (and if I’m off on this — please explain)

          • jlcollinsnh says

            What I mean by that comment is that inflation makes it look like you have more while at the same time it takes more to buy the same level of stuff. So, no real wealth gain.

            You are right that if the increase in the price of your assets keeps pace with inflation you are protected from the decline in spending power of the currency.

            This is why some assets, like stocks, are considered an inflation hedge.

  53. ZJ Thorne says

    I had not yet started investing for the 2008 crash, but I was grateful in 2016 to start the year with so much volatility that quickly changed to growth. It gave me a taste of what a loss could look and feel like without giving me the caloric intake. I hope that I follow the advice I know to be good whenever the next corrections happen.

  54. Tim Cullum says

    Hey Jim I just wanted to add to the list of thanks. I’ve been reading your blog since spring 2013. I also bought your book and read it cover to cover. I came to the retirement scene late in life but between lsitening to Dave Ramsey about debt and listening to you and The Bogleheads about investing I’ve managed to make tremendous strides and I’m retiring. The main thing I’ve learned from you is you can’t time the market and the market always goes up. I just had to toughen up cupcake and cure my bad behavior!! Oh and also to quit moving stuff around. I used to be bad about that! Thanks again.

    • jlcollinsnh says

      Thanks Tim…

      …I appreciate the kind words and you taking the time to share them. Glad to hear my efforts have made a difference!

      • Tim Cullum says

        BTW I’m 75/25 too. But my 25% is in a guaranteed 3% interest account at my 401k. I’m using your theory of if the market drops I can live off the 25% until it recovers. Ive got about 4 years there. I don’t understand or like bonds and I don’t believe bonds can beat 3% by much if any. The 75% is in VTSAX so let the big dog eat and forget its there. This is so much fun!

  55. Ten Factorial Rocks says

    Jim, Great post as always and good comments and replies. I wonder if one has sufficient assets where you can live on just three percent or less of invested assets, why not have the entire portfolio be fully stocks? This way, even in worse case, this low withdrawal rate has supported a retiree sustainably without fail in all historical worst cases. Sure you have to put up with high volatility, but as you say it so clearly, it not true risk. This way, you have also positioned yourself for maximum growth in all other market scenarios and no rebalancing required.

    • jlcollinsnh says

      Hey TFR…

      Nice to see you back.

      That’s kinda like what Go Curry Cracker talks about in the post I linked to.

      If you get the withdrawl down to ~2% you can live on just the VTSAX dividends and really not worry about it. 🙂

  56. George J. says

    JLC, in your book you say that debt is the vicious pernicious destroyer of wealth and much more wich I totally agree however the US debt is going up faster and faster and you advocate we should invest in the market more and more…isn’t it a little bit dangerous because the US debt as you point out cannot be considered normal. It’s debt and it will eventually hurt the investments and capacity of grown of the US economy….and what will happen when people realize the US is not the safe heaven anymore? What the market will do ?

    • jlcollinsnh says

      Hi George…

      Volwat asked this basic question earlier and you can check out that conversation above.

      “…when people realize the US is not the safe heaven anymore?” The problem is that excessive debt loads are now common across most of the world.

  57. Duncan's Dividends says

    I don’t try to time the market, simply deploy cash when I feel stocks are a bargain. Honestly I’m hoping to see the market tank. I have mostly DGI companies in my portfolio and I would love to be able to pick up some bargains like we had during the financial crisis. 1000 shares of BAC for $5.50 right when Buffet decided he liked the stock. Don’t mind if I do…

  58. Steve D Poling says

    I have a question about VTSAX dividends when a Black Swan flies over Wall Street.

    Suppose I have a portfolio consisting of VTSAX and cash. And I order my affairs so that VTSAX dividends and rental income cover all my expenses. Further suppose a market crash devastates share prices like 1929.

    Will this cause the dividends posted by VTSAX to go down? I presume dividends would remain unchanged, allowing me to ride out the storm without selling any VTSAX at a loss. I might even use some of that cash to buy more VTSAX.

    Your wealth-preserving portfolio allocates 20% to bonds. I wonder if this is necessary. Sure, bonds are a hedge against deflation, but so is cash. If I don’t care what my portfolio’s value is on paper, but just what it produces in income, any variance in share price should be meaningless.

    Am I missing something obvious?

    • jlcollinsnh says

      If we have a major market crash, especially on the scale of 1929, the revenues and profits of companies will take a hit. Some will be forced to cut dividends.

      At the same time, counterintuitively, the percentage tends to soar. For instance, right now the dividend for VTSAX is ~2%. During the Depression it reached close to 14%. But that 14% was created in large part by far lower stock prices.

      Here’s a bit of history:

      Companies are loath to cut dividends and mostly try to ride out the storm without doing so. But when the storm gets bad enough, they sometimes have to in order to conserve cash and survive.

      As for bonds, in addition to being an deflation hedge they also tend to pay more interest than cash accounts. But you are correct, cash is great to have when prices plunge (deflation)

      • Steve Poling says

        Thank you. This suggests your wealth-accumulating portfolio (95%/0%/5%) could weather an economic hiccup as well as a wealth-preserving portfolio (75%/20%/5%) would, provided you are disciplined enough to only touch dividends. Since VTSAX is the entire market, there’d have to be a very broad long-term collapse to scramble my nest egg. If things get that bad, I can’t imagine safety in any other asset class.

  59. Julie at Nest Egg Chick says

    Thanks for the great post, JL! I’ll be pointing people to this one when they ask me about the “upcoming crash.” Your point that I most love (which as I recall you elaborated on more in the earlier post) is one we all tend to overlook: even if we could predict the top (which we can’t,) we would also need to predict the bottom. No one is pretending they can predict the bottom, so what good would it be to know the top? Sure, it might help a bit, but you need both. I love that point – mostly because I forget it too easily 😉

  60. Unparalleled Treasure says

    It seems for ever crash article there is also a companion article about how this rally will last and last and last. It is hard to drown our all this noise, especially in our modern technology age, but investing success depends on it. Thank you for the great article.

  61. Durga says

    Sell! Sell! Sell! it seems like Hell!. But you have posted the great content for people suggesting the best investing precautions and options. I hope these suggestions followed keeps me away from hell.

    • jlcollinsnh says

      Might not keep you away from Hell when it comes, but hopefully it will help you endure it. 🙂

  62. Jannet says

    Hey JLC. I totally get the idea of buy and hold and I myself do it.
    I just think investors who have a lot of money in the market should at least hedge part of their portfolios the cheapest way possible when the market shows signs of weakness. The cheapest way would be to hedge with put options. Don’t you think it makes sense instead of just sit in your hands seeing your net worth decrease in the bear market times?

  63. Wayne says

    Many years ago My Flagship Vanguard advisor showed me this nifty (proprietary) bar graph that had calculated risk AND YIELD with all the different stock/bond ratios. What amazed was the slight differences in yield while the risk was significantly lessened. As a Boggle head for decades and now 67 years old with about 30 years to live the sweet spot ratio for me is 45/55 and has been for a decade. I slept nicely thru 1987 and 2008.

  64. Diogo Araujo says

    Dear Mr Collins,

    It is a pleasure reading your posts here! Following your technique with religious zeal and I believe it is the right way.

    I have a question though O:-)

    I know you defend that investing in VTSAX is enough as the companies that are represented there have a major influence around the world, thus making a all-world index investing senseless.

    I know you also said that investing in a all-world index could be a good variation from VTSAX.

    I believe that VTSAX is enough but, it is certain that the rest of the world is moving as well, specially China, India, Germany, etc.

    What are your thoughts, as of today, on this matter? Should I buy some All-World ex-US to go along with my VTSAX?

    Thank you so much.

    Best regards,

  65. Scott Freeman says

    I loved your book Mr. Collins (I listened to it twice) but I shifted all of my investments to cash in Sept. 2017 before reading it. The Shiller P/E is now 30 and I am planning on waiting until it is below 25 to get back in the market. I just can’t get myself to buy back in this overpriced market. I will get back to you in a year (or 2, or 4) after the bear market settles in and let you know if I was a fool.

  66. Ryan says

    JL and All,

    It was good for me to re-read this post as the market is near all-time highs as of today (9/1/2020). I missed an opportunity to rebalance at the highs of February (oh well), but did make some informed moves in March that benefited me overall. For my age and target years to retire, I’ve chosen an 85/15 balance of stocks (mostly VTSAX) and bonds (mostly VBTLX). And I built some monitoring tools for myself in the event that I become out of proportion and consider rebalancing.

    But I do have a question. The general rule of thumb appears to be that you rebalance if your out by 5% one way or the other. However, when I put real numbers to this, this seems like an overly-generalized rule and not necessarily good math. Take a hypothetical example of a $1-million portfolio ($850k/$150k). If stock portion took off and the bond portion held mostly the same, stocks would need to grow to $1,350,000 for the new ratio to be 90/10. Conversely, the stock portion could drop all the way to $600,000 before the proportion would be 80/20. The swings are potentially just enormous without a rebalance.

    But let’s say my $850k/$150k portfolio had a decent growth run. If the $850k grew to about $1,000,000 (17% growth), that would only potentially, be about a 2% change to the portfolio balance (87%/13%).

    Now maybe my math is fundamentally wrong, but I feel like the general rule of 5% swings might be overly simplistic. If my $850,000 (which I don’t have!) grew to $1,000,000, I might want to lock some of that down with a rebalance.

    Thoughts and feedback welcome!

    – Ryan

  67. Harvey says

    Great advice, especially when there’s a lot of questions whether this bull rally is a headfake or sustainable. I’ve learned that keeping a long-time perspective of valuations and having dry powder on the sidelines for buying opportunities has helped me become more indifferent to price fluctuations with the market and trying to “predict” where it’s going…which as you point out is a fool’s game.

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