Stocks — Part XXXI: Too hot. Too cold. Not pure enough.

I write this blog for my daughter and, by extension, people like her. People who know getting investing right can make a huge, positive difference in their lives but who don’t want to obsess over it. For them I created the Stock Series and the book, The Simple Path to Wealth.

But, since this is primarily an investing/money/FI blog, it also attracts readers who do want to obsess over this stuff. As such, I get a steady stream of comments asking why not this, that or this other thing instead of The Simple Path as I’ve presented it.

So today let’s walk thru a few of these and I’ll briefly give you my take on each. This way I can just point future commenters to this post and be done with it.

I’ll start by saying, these concerns and ideas are not my concerns and ideas nor do I recommend them. If I did, they would have been in the Stock Series and book rather than the Simple Path to Wealth that is.

At the same time, if these concerns and ideas resonate with you by all means investigate further.

Too Hot

Regular readers know, I recommend investing 100% in stocks — ideally VTSAX — while you are in the Wealth Building Phase. Your high savings rate provides a steady cash flow from your earned income into your investments smoothing the ride and turning the stock market’s volatility to your advantage.

Then, when you leave your job and your portfolio is called upon to support you, you add bonds — ideally in VBTLX — to add ballast to smooth the ride. You set your stock/bond allocation to suit your personal temperament and risk tolerance. Periodically rebalancing this allocation serves to turn the stock market’s volatility to your advantage.

As I have said many times, a 100% stock allocation is extremely aggressive. It is designed for maximum returns over time and is absolutely dependent on you NOT panicking and selling when the market drops. You must understand that market drops, even severe ones, are an absolutely normal part of the process.

Like hurricanes they are intense, violent and scary. And, like hurricanes, they always pass. But if you panic and step out in the middle of the storm, none of the concepts I offer will save you.

This is something you want to think long and hard about. If you haven’t lived thru a major decline, if you haven’t watched your net worth get cut in half over the course of a few weeks with no bottom in sight, it is hard to fully describe how terrifying it can be. If you are going to follow The Simple Path, resolve now that selling in a downturn is simply never an option and don’t even let yourself think about it when it happens.

If you know yourself well enough to know you can’t be sure of staying the course in troubled times, stay tuned. I have a guest post coming up with an alternative strategy for you.

The Market Always Goes Up is the post and phrase that really gets the “you’re too hot” crowd fired up. It’s that word “always” which leads to “You can’t say ‘always!’ What about…

“…when the sun goes out? What happens to your precious stock market then smart guy?”

“…when the US collapses like the Roman Empire? It’s gotta happen someday you know.”

“…when the US economy craters and we’re all living on a barter system. Who’s gonna buy your index shares from you then?”

Or, and more reasonably…

“What if the US goes the way of Japan and suffers a multi-decade economic malaise?”

OK, you got me. Something could happen that will break the stock market’s 150+ year streak of incredible resiliency thru wars, depressions and economic turmoil.

If your analysis leads you to believe we are headed for a multi-decade (or worse) economic disaster, you will certainly want to avoid following my approach.

But understand such things are “Black Swans,” that is, exceedingly rare and unpredictable events. However, there is nothing rare about people claiming to be able to predict them.

The question you must ask yourself is, Do I want to structure my investments for a 1% chance event or for the other 99% of the time? And if so, what exactly do you plan to invest in?

Because if you invest for a Black Swan and it doesn’t come, you run the risk of being very much worse off.

Finally, there are the market timers who claim I am misleading my readers by recommending they stay fully invested and ignore market drops. Wouldn’t it be better, they say, to sell before it drops and buy back in at the bottom?

Well, duh.

Problem is, no one can do this and those that claim they can are trying to sell you something or are delusional. How can I be so sure?

Nothing, and I mean nothing, would be more powerful than being able to time the market in such a fashion. You’d be far richer than Warren Buffett and far more lionized. Speaking of Buffett, he has this to say on the subject:

“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.”

But, humans being humans, some are forever trying. Indeed an entire segment of Wall Street is focused on “Technical Analysis” which purports to be able to predict future market moves.

Currently, the Shiller CAPE P/E Ratio seems to be in fashion. At least I have readers who keep pointing to it of late. As I write this in August 2017, it is around an historic high of 30 and these folks think it obvious that stock market prices must come down dramatically in order for it to return to the norm.

Of course, the “P” in the ratio (price) is only one half. The market, with its lofty valuations, seems to think it is the “E” (earnings) that will change to the higher and that this is what will move the ratio back toward the norm.

Beats me. I haven’t a clue what the market will do or when. Or how the Shiller CAPE P/E will return to “normal” if ever. This excellent article by Larry Swedroe suggests reasons it won’t:

This Metric in Dire Need of Context

I am, however, convinced that its predictive value is zilch. In 1975 the Shiller CAPE P/E was around ten and in the comments in this post one reader suggested that this made valuations back then “extremely attractive.” Maybe so.

But if you had acted on this metric and invested at that “extremely attractive” valuation in ’75 you would have had seven long, lean years ahead of you. Indeed, in 1979, you would have reached:

…before finally being rewarded with the start of a great bull market three years later in 1982.

P/E ratios rise and fall based on many factors in the market and in the economy. But they are not useful in predicting the market’s direction. But then nothing is. You cannot time the market.

If you disagree with me on this, God bless, God speed and good luck. Yer gonna need it.

Too Cold

When people aren’t chastising me for being far too aggressive, wildly optimistic and blind to the obvious disasters hurtling our way, they are wondering why I am so timid and why I am not preaching more aggressive approaches that have out performed sad little VTSAX over the last couple of decades.

Let’s be clear. There is no claim or prediction in this blog or in my book that suggests that VTSAX will be the single best performing asset in 5, 10, 15, 20+ years. There will always be something that does better. But what that something will be is unknowable as we sit here today and, when we reach that future date and know it then, it will have zero predictive value for the next chunk of time. Past performance does not guarantee future results.

What we do know is that it is exceedingly hard to best the broad market over time and the longer the time period the harder it is. The research shows…

–In any given year, somewhere between 20-40% of active managers will outperform the index.

–Go out 15 years and ~15% succeed in doing so.

–30 years out and the number who can drops to less than 1%, statistically zero.

Of course the real issue is that even though some do outperform over some periods of time, knowing which will at the beginning is impossible.

Further, even if you get lucky, as I did in the 1980s with Michael Price and his Mutual Shares fund, things change. When Mr. Price sold out to Franklin Templeton I and all the other shareholders were left with a dilemma:

Should we stay or should we go?

Price (likely as part of his $500,000,000 buyout deal) and Franklin Templeton made the case that we should stay. The argument was that the outstanding performance wasn’t the work of Mr. Price alone, but the result of the work of the team he had put together and, as such, it would continue. This was (and was proven over time to be), of course, nonsense. Besting the market for any length of time is exceedingly rare and is accomplished by exceedingly rare individuals, not by teams.

We saw this when Peter Lynch left the Magellan Fund and it is one reason I would urge caution to those of you who own Berkshire Hathaway.

These changes create the dilemma of then finding a replacement investment and, when held in a taxable account, paying the hefty capital gains tax due on the success.

For these reasons, and more (read the Stock Series), I dismiss the idea of actively managed funds out of hand. Thanks all the same, but I’ll hold VTSAX (or a similar broad-based index fund) and I’ll hold it forever.

More compelling in this “too cold” category is the fact that there are index funds out there that have outperformed VTSAX over the last couple of decades. If the idea is to buy and hold forever, why not chose one of those?

VSMAX (Vanguard Small Cap Index Fund) is one such. If you look at the chart going back to its inception in late 2000 until today you see it has returned just over 200% compared to VTSAX at just over 100%. Very impressive. And very tempting for an aggressive investor like myself. Maybe you, too.

If so, go for it. But keep a few things in mind:

  • Small cap stocks are by their size and nature more volatile than larger stocks. The gains are potentially greater, but so are the plunges.
  • Small caps have had a great run. But these things can go in and out of fashion. It might be that the large caps will rule the next decade or so.
  • It is easy to say, in the midst of a major bull market, that you will stay the course and not panic when the Bear comes growling. But unless you lived thru 2007-09 with major money invested and stayed the course, don’t be too sure. It is more terrifying and unnerving than words can express.

As for me, VTSAX is aggressive enough. Besides, I already have the “Too Hot” folks…

….about to tar and feather me.

Not Pure Enough

As I have pointed out many times, when you own a broad based index fund like VTSAX you by definition own a piece of each company held in the fund. Your piece may be tiny, but it is very real none the less.

There are some (maybe most) folks out there who are very uncomfortable with having ownership in certain companies and types of companies. I know I am.

My solution, and my guess is the solution for most following The Simple Path, is to maximize returns with VTSAX and then use part of those returns to Give Like a Billionaire to organizations that further causes that speak to our values.

That means, holding our collective noses and living with those companies in the index that give us pause. For some that is not enough, and for you the investing world has created…

Socially Responsible Funds

The problem with these, as I see it, is…

When you ask your money to do more than make money for you, you are asking a lot. It is akin to having a swimmer compete while wearing a weight belt.

The vast majority of these funds are, and almost must be, actively managed. As you know from reading the Stock Series, actively managed funds have high fees (to pay those active managers) and as we saw above are almost always doomed to underperform.

Vanguard does offer a socially responsible index fund, VFTSX. Its ER (expense ratio) is .22% which is far lower than the active funds you’ll find in this category. But still, this is 5x higher than the ER of VTSAX which Vanguard recently dropped (again, Yay!) from .05% to .04%.

If we track performance since VFTSX started in mid-2000, we see it has returned ~49% to ~72% for VTSAX….

Chart: VFTSX vs. VTSAX

Only you can decide if you do more good in the world by avoiding the “bad” companies in VTSAX or by taking the extra profits from it and deploying them to achieve your social aims. I do know which my chosen charities would prefer.

But even with VFTSX, your definition of socially responsible investing might not be met.

For instance, it holds Wells Fargo and Bank of America. If you adhere to Islamic principles, which forbid charging interest, this isn’t going to work for you.

Its #1 holding is Apple. Perhaps the manufacturing of iPhones in low wage countries gives you pause.

You might also want to be sure your other holdings match your standards. I recently heard a woman rather sanctimoniously tout her selection of socially responsible funds over broad-based index funds while simultaneously bragging about her US Treasury bond still paying 8%. Either she…

  • …is completely comfortable with the policies of the United States Government, yet unwilling to own certain companies in the index
  • …appallingly ignorant of the investments she owns
  • …or breathtakingly hypocritical

The point is “socially acceptable” means different things to different people. The more precise your personal definition, the harder your search for an acceptable fund will be. And when you find it, you can expect higher fees and the performance trade off will likely be bigger.

For you, none of this might matter and that is a very personal choice only you can make. Just be sure you are making it with your eyes wide open.


Addendum: Please note this policy from my Disclaimers Page

The investment ideas of others:

Occasionally I am asked to read some book, article and/or blog and dispute the ideas in them. I simply don’t have the time or inclination to do this. I’m not the least bit interested in trying to persuade anybody of anything.

If you read my blog you’ll soon have a very clear idea of my views. You can then read other sources, compare and decide for yourself what resonates.


Chautauqua UK: The Greatest Week of Our Lives

I may never write another Chautauqua post again. How could I possibly capture the magic and the essence as well as Firecracker does in the linked post above? Not bloody likely, to continue the British accent of this remarkable event from the week just past.

You’re more of an audio/visual type? Shane brought along a drone and Brandon (Not the Mad Fientist one) used it to create this 78 seconds of brilliance:

Brandon (Not the Mad Fientist one) also wrote this very personal post on his Chautauqua experience:

Chautauqua UK & Self Awareness

From Justin….

How Brandon (the Mad Fientist one) plays croquet

My profound thanks to…

  • Alan and Katie who pulled it all together and made it run seamlessly
  • Firecracker, The Mad Fientist and Alan, who each gave wonderful talks and one-on-one sessions for our guests (and to those same guests for not walking out on mine. Whew!)
  • Bryce who added so much more than called for or expected
  • most of all, those folks who made the time and effort to come join us and to share their own remarkable stories, ideas and insights

I had an absolute blast with you all!!

Stay tuned. We have very cool plans, and a new country coming for 2018!


Wait! How can you afford to go to something like Chautauqua???


A while back I had a blast with Brad & Jon on their podcast Choose FI. So we did another:

 Stock Series, Part II

and their follow-up conversation about it


If you are interested, here’s a link to more of my…

podcasts, videos and interviews


Audio book: The Simple Path to Wealth


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Important Resources

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


  1. Paul says

    As always, great insightful article, Mr. Collins. Your observations about Berkshire Hathaway are very interesting. I own, at least relative to my modest net worth, a sizable block of BRK-B. I’m sitting on a sizable capital gain (nice problem to have!) and have been thinking about selling off the stock and paying off my mortgage. I worry about Berkshire’s future once Buffett and Munger are gone. But, if they start paying a dividend, the stock price could go up substantially.

    Not really seeking your advice, just wonder if you have any more detailed thoughts about the future of Berkshire.

    • jlcollinsnh says

      Thanks Paul!

      No special insights on Berkshire other than my comment in the post.

      However, I would not expect a dividend to move the stock price up. Dividends are only one way to return value to shareholders. In the case of Berkshire, having Mr. Buffett reinvest the money has proven a far better option. So, if anything, I would expect a dividend to decrease the stock price.

  2. ChrisCD says

    The video was fantastic. But the the link to the Firecracker Chautauqua post does not seem to be working.

    I do have a hard time being 100% in stocks, but am about 80% so pretty darn close. About 60% of my stocks are in ETFs. I do hold some stocks personally. Some days I enjoy looking, some days I don’t. :O)

    • jlcollinsnh says

      Thanks for the heads up, Chris…

      …link should be fixed now if you want to try it again. Definitely a post worth reading!

      Nothing wrong with holding some bonds, and I share your feelings on looking. 🙂

  3. Physician on FIRE says

    Once you have a firm enough foundation of knowledge to wonder if you should have a small cap tilt, hold international funds, or invest in a total bond or intermediate duration bond fund (yes, I listened to your most recent Choose FI podcast), you’re in a position where you’ll probably do well either way as long as you have the fortitude to stay the course.

    I didn’t realize the Chautauqua was at Hogwarts. The place looks incredible. I may have to join you at one of these — I’ve heard good things about the Greek Isles.


    • jlcollinsnh says

      The last day we took a tour of Oxford (Hogwarts) and saw some places from the Potter films.

      Be very cool to have you join us!

      • Roberto says

        sooner or later I am going to have to make it to a Chautauqua, the UK really looked magnificent. I am going to make a humble suggestion for the new country. We have happily moved to Cascais, Portugal this month after a two months trial period. This country offers a very good combination of affordability and amazing settings; is a very accessible european hub, has good infrastructure and is rapidly becoming very popular as a relocation destination. Obviously, should that happen, I would be happy to volunteer local organizational assistance.

  4. Mustard Seed Money says

    I’m a huge fan of VTSAX after you introduced it to me. I’ll keeping plowing money into it and if the market drops so be it. I’ll be happy to pick up cheaper shares during this wealth accumulation phase 🙂

      • Amanda says

        I’ve been following your blog and found you through the Mr Money Mustache blog. I am ready to invest in vanguard index funds. I live in Canada, so which Canadian Vanguard index fund would you recommend as the comparable Canadian version to the VTSAX index fund and the VBTLX bond fund? In Canada we cannot buy direct yet with Vanguard, but can purchase the Vanguard index funds through our Banks.

  5. Reverend says

    “If your analysis leads you to believe we are headed for a multi-decade (or worse) economic disaster, you will certainly want to avoid following my approach”

    I’ve always thought that if this was a plausible scenario, I have far more important things to worry about than my portfolio.

  6. Jon says

    Another quality post, Godfather. In this day and age, we can’t just “whack” those that aren’t in full agreement with us ( unfortunately ). Or can we? At any rate, it appears this piece had a hint of Old English ( not the cologne ) to it..perhaps your time in the UK had something to do with it…sure looked like a lot of fun. The Chautauqua is a bit of a sore subject for me as I stalked my way onto the Ecuador waiting list…only to get an email invite from Cheryl…only to find out the spot was instantly taken like a cruel stock market flash crash. 🙂 I guess it speaks to the wild popularity of these events. Next time…

    • jlcollinsnh says


      The Brits do rub off on one, when you’re not looking and enjoying your high tea with scones and clotted cream….

  7. Amy says

    Thank you again for making investing simple and easy. I have shared your blog and your books (I think I have purchased at least 5 copies for family and friends!) any chance I get. It still amazes me how many people I talk to say that they are concerned about investing in the market since it has moved so high. They say they are waiting for the market to go down. My response is always, if we could time the market most of us would already be rich….

    • jlcollinsnh says

      Thanks Amy…

      For passing the book and message around.

      Maybe it is best those folks don’t invest. They are sure to panic and sell when the market does correct. 🙁

  8. Mr. 1500 says

    Love. Love! LOVE!!! This:

    “The question you must ask yourself is, Do I want to structure my investments for a 1% chance event or for the other 99% of the time? “

    • jlcollinsnh says


      Maybe there is a tee-shirt in that? 🙂

      Better still, I like this quote from my Manifesto…

      On the shirt front:

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

      on the back:

      “You weren’t born to be a slave.”

      Maybe with a little after each.

    • steve poling says

      Could the behavioral economics folks have an explanation for this? We naturally weigh loss more heavily than gain. Thus the decision function is weight-of-loss*1% vs weight-of-gain*99%.

      During the 2008 meltdown my losses were $0.00 because I ignored the market value of my mutual funds. Happily, I’ve been able to avoid forced sale of equities in a down market. I intend to subsist on catfood before I do that. (Murphy will do his best to exploit any gaps in my planning.)

  9. Working Optional says

    Love the way you split it into “Too hot”, “Too cold” and “Not pure enough”. Also the fact that you don’t give a rat’s ass about what people think (or don’t) about these and your recommended strategies. 🙂

  10. Drharhar says

    Loved it. I continue to see massive wholes in my thinking. Re-reading and re-reading is so enlightening. Thanks for this massive piece of wisdom.

    I think it’s important to point out that in this approach to investing, you don’t have to worry about Black Swans. The “Black Swan” is an idea created by Nassim Taleb which says slim chance events are unpredictable and are massively influential. His latest book is called Antifragile, and he talks about how to live in a world where black swans dominate. Basically what he says is you have to first become robust, which means strong/ resilient, and then design a system that is not destroyed by a black swan, which he calls anti-fragile.

    So if you’re afraid of the US economy failing you wouldn’t not invest, you would do something like living on 50% of your income, take 25% of your income and invest in index funds, invest, and then use other 25% to build in an under ground bunker, multiple go bags, fresh water and gold. That way you would have covered all of your basis. Even at that rate over the long term you’d still retire wealthy, but if the apocalypse happens you have all the supplies you need, and anything extra (such as extra food) can now be traded for other goods. You’re set up to prosper either way.

      • Drharhar says

        It’s one of my favorite books. He also has a great quote:
        “This kind of sum I’ve called in my vernacular “f*** you money” a sum large enough to get most, if not all, of the advantages of weath… but not its side effects, such as having to attend a black-tie charity event and being forced to listen to a polite exposition on the details of a marble-rich house renovation.”

        Yea, didn’t mean to go all fan boy on you there. Basically, it all comes back the what you’ve said about the monk and the minister. The more you’re comfortable living like a monk the more antifragile to black swans are.

  11. OMSC says


    Loved the analogy comparing the hurricane to a stock market drop. It’s stuff like this that makes your writing so great to read.

    And I need to second Mr. 1500 above…a few months ago had a discussion with a few other people on this idea of a “black swan” event. By definition, they’re impossible to model, and one person was asking why we even have models if these events are possible. This irked me (I’m a statistician, so essentially my entire life is models), and you hit the nail on the head why. If only I were that eloquent, our discussion may have ended much sooner than it did.

    Thanks for another great post!


  12. ex-Sgt Pepper says

    Well done, thanks once again Jim!! I’m always so impressed with the way you are able to reiterate the major points, with enough new points to always keep it interesting, and really build this brick wall of an argument. I did diversify into VSMAX for a while, but it was bugging me how it was underperforming VTSAX so I went back. My wife is much more inclined to pick the socially responsible fund, so we put her “all-in” with VFSTX back when I saved her from the raping / pillaging expense-fee pirates of Edward Jones. It’s been 3 years and she’s still out in front of me (as measured by 3-year avg annual gains) by three-quarters of a percentage point. She gets that there are still companies that she may not be fully onboard with, but her number one concern is global warming, and so not being in a position of owning the major fossil fuel companies is highly desirable, and I think this fund achieves that.

  13. Andy says

    Thanks Jim. I read your book for the second time and shared it on my Facebook timeline. Holding VTSAX for the long haul is excellent advice. I plan to stay the course with Vanguard Total World Stock Index (VTWSX) forever. I am grateful for Mr.Bogle and respect him immensely but the only thing I disagree with him on is home country bias. I sided with Vanguard for the diversification advice. Investors will do just fine going with any one of those funds for the long term.

    • jlcollinsnh says

      Hi Andy…

      At Chautauqua I had a very interesting conversation about this very thing.

      Eduardo is a Brazilian living in the UK and about to move to Malta. Like you, he prefers to hold VTWSX. In his shoes, I’d do the same and over the decades he (and you) will do just fine. My guess is Mr. Buffett and Mr. Bogle would both agree.

      If I were ever to be tempted away from VTSAX, VTWSX would get the call.

      But for now, especially since its ER is 5x that of VTSAX, I still don’t see the need.

      • Eduardo says

        Glad you thought it was as interesting as I did ;)!

        There are several advantages to both funds, and the (much) lower ER is definitely a plus for VTSAX.

        Look forward to that coffee in 20 years to see which fund did best!

        Thanks again for the great week.

        • Andy says


          If will be fun watching the Total World Index fund’s ER drop over the decades. So far the fund’s ER has been dropping a few points every year.

        • David says

          Hi Eduardo,

          I’m Portuguese and living in the UK as well.

          I would also like to purchase VTWSX but I don’t seem to be able to do so through my ISA with Vanguard.

          How did you go about purchasing it?

          Any help will be much appreciated.

          Thank you,

          • Eduardo Santos says

            Hi David,

            Apologies for the ridiculously late reply, but for some reason I’ve only just seen this. For the benefit of any others reading this in the future:

            In the UK, the world-fund equivalent to VTWSX is VWRL. It’s worth noting the ER is currently 0.25%, so not as cheap as VUSA’s (S&P 500) 0.07%, but I’m happy owning Apple AND Samsung, rather than just Apple (and the many other combinations out there).

            Hope this helps.


  14. Mr. Tako says

    I’ve avoided Berkshire in recent years for exactly the reason you mentioned — Warren is definitely getting up there in years. While I have no doubt the company will be stable/profitable in coming years, outperformance seems less likely. It’s size and a potential loss of talent may put some weight around the ankles of the company’s performance.

    When it comes to taking the market’s “temperature” I prefer to be prepared for a number of different possibilities. If they market crashes tomorrow, I’ll be ready to buy. If the market reaches new highs I’ll also enjoy the gains. Who knows what tomorrow will bring?

  15. Kevin says

    Loved this post! I’m sending it along to my dad (who is enjoying your book at the moment). I also enjoyed FIRECRACKERS Chautauqua post. Excellent stuff!

  16. Danny van Kooten says

    Thanks Jim, nice to have you reiterate the importance of simplicity once more. Much needed in my case.

    One question: shouldn’t “go out 15 years and >15% succeed in doing so.” have a “<" character in it instead?

    A quick search yielded percentages ranging from 18% to just 10% of active funds managing to beat passive funds, so I'm not too sure. It being stated like that just seemed off to me (as it doesn't narrow down on the previous line).

  17. Shawn @ NMI says

    I just wanted to express my deepest thanks to you, Mr. Collins. Over the past year I have been reading your fantastic personal finance blog (and your book) and it’s truly changed the course of my life.

    Before last year, I was deeply worried about my financial future. While I had always been a saver and scrimped, I didn’t know anything about investing and was too afraid to do any sort of it. I worked at an average job, earning an average income, and simply assumed there’d be no way I could save for retirement, let alone before the age of 65.

    After a fantastic last year of saving and investing, I’m now on track to reaching financial independence within the next ten to fifteen years, at the ripe old age of ~45 years old. This simply wouldn’t have been possible had I not stumbled upon your site and its wealth of information.

    I can’t express just how grateful I am for this site and your knowledge. Please know that all of your hard work is so appreciated – I’m sure I’m not the only one who’s life has been forever changed.

    All the best,


  18. Techwiz says

    Great post…
    I must admit I was one of the those “What if the US goes the way of Japan and suffers a multi-decade economic malaise?” people.

    Being a nervous nelly is not part of my investment plan which I built with the help of your blog, MMM and a few other sites.

    Now I just follow my plan with it’s asset allocation and stay optimistic. My investment plan does not have a “Black Swans,” clause. Even if it did how would I know when to implement it unless the affects had lasted 10 years or more?

    • jlcollinsnh says

      Nothing wrong with being one of the those “What if the US goes the way of Japan and suffers a multi-decade economic malaise?” people.

      You just need to figure out how to invest with that concern looming. 🙂

  19. FIRECracker says

    “Do I want to structure my investments for a 1% chance event or for the other 99% of the time?”

    99% or 1%. Your choice.

    I think this needs to be on a t-shirt. Hell, pretty much everything you said in this post needs to be “t-shirtdized”.

    And I love that comic you shared about how to afford Chautauqua. So true. Though the magic of Chatauqua really is priceless and feels like something no amount of money can buy.

    Thanks for the shout-out! I meant every word in my post.

    Counting down to Chautauqua Ecuador…

    • jlcollinsnh says

      Want the t-shirt franchise? 😉

      That comic was done by the same guy who wrote my all time favorite take on my book:

      “In the dark, bewildering, trap-infested jungle of misinformation and opaque riddles that is the world of investment, JL Collins is the fatherly wizard on the side of the path, offering a simple map, warm words of encouragement and the tools to forge your way through with confidence. You’ll never find a wiser advisor with a bigger heart.” — Malachi Rempen: Filmmaker, cartoonist, author and self-described ruffian

  20. Howie Frank says

    I am relatively new to your blog. Although I had read several references to it in MMM (which I stumbled upon in 2012), it has taken me a while to migrate over. I became obsessed with MMM’s blog (he once did a case study on me after a rant I posted in a comment one time) and I’ve been hooked ever since. I have, however, branched out and am getting into other interesting, educational, informative, and highly entertaining blogs, such as yours. F-You Money…HAH! Nothing beats that.
    Anyway, can you point me in the right direction regarding finding out more about the Chautauquas, and how to get to go on one? Is it an event that is by invitation only? By application? Any information, links, etc., would be appreciated.
    Thanks for the time and effort you put into this blog, and for all the unbelievably solid advice you so generously provide. I can’t buy VTSAX in Canada, so I buy VUS instead.
    Howie (Dharma Bum)

  21. Dividend Growth Investor says


    I looked at “ethical investing” ( which is socially responsible investing), and came to the conclusion that it is impossible to do. This is the conclusion I reached:

    “Investing for a profit is very difficult as it is today. By applying arbitrary rules in investment selection, that have nothing to do with the underlying profitability of the business, you are essentially limiting yourself to never investing in anything. Your goal as an investor is to earn money, and not to be a moral/ethical arbiter for the world. If you don’t want to invest in certain companies, don’t do it, but you have to realize that what you see as moral or ethical, might be viewed as unethical by someone else and vice versa.”

    As far as valuation, I agree that CAPE is not a good forecasting tool. Based on high CAPE you would have been out of stocks since the 1990s. Based on forward earnings, P/E on S&P 500 is 18.70 for an earnings yield above 5%. When long-term Treasuries are at 2% – 3%, stocks look pretty nice as long-term investments.

    On a side note, I agree with you that a lot of international exposure is overrated. If you had bought international index funds 20 – 25 years ago, you would have done poorlier vs buying S&P 500 or VTSMX.

    Last but not least, when you compare mutual fund performance, I would do it in Morningstar, rather than Yahoo Finance, since the former looks at total returns, while the latter only focuses on prices and ignores the sweet dividends.


  22. ZJ Thorne says

    I mainly hold index funds, but I am considering buying 1 share of the Berkshire B so that I can attend the shareholder meeting. I think it would be an incredible learning experience. I’ve also never been to Omaha 😉

  23. David says

    Love the Book and the Posts. It’s life changing! Quick question Jim. I have 2 jobs, civilian and also a military reservists. For the mil job in TSP, a mixture of 80% C and 20% S is pretty much VTSAX. In your book, you said that you would just stick with the C fund in the TSP, which is the S&P 500 index. For my IRAs, what’s your opinion on considering that same strategy by going Vanguard VFIAX (S&P 500) instead of VTSAX? I’m in for the long haul!

  24. JessieG says

    I have read most of the stock series and I get the feeling I’m missing something. When you decide to withdraw money to make a purchase while still working a career job , how do you avoid capital gains taxes? Or is the whole point of stock investing in taxable accounts that you have to suck it up and pay the taxes when you withdraw funds?

    • jlcollinsnh says


      Anytime you sell shares in a taxable account you are liable for paying tax on the capital gain, if any. If you have a capital loss you can deduct it against any capital gains you have and then up to $3000 in earned income. Any loss over that you can carry forward to use in future years.

      The good news is that capital gains taxes are lower than ordinary income taxes and for those in the 15% bracket or less they are zero.

      But investing in stocks is for the long term and so, ideally, you don’t sell until you are living off your portfolio and then only a small bit each year.

      Ideally your holding period for something like VTSAX is forever. Then, when your heirs receive it, the basis is stepped up to the current value and the capital gains taxes are avoided completely.

      • JessieG says

        A belated thanks for your response. I’m now reading “The Simple Path to Wealth”. Thanks for writing this book.

        Merry Christmas,

        • jlcollinsnh says

          Hi William…

          From a mechanical point of view, whoever you designate as your beneficiary will receive your shares upon your death.

          With the new Federal tax, law the amount that can be passed on before inheritances kick in was raised dramatically. It is now $11,180,000 for you and the same amount for your spouse. 

          So as long as your estate is under that threshold, it passes tax free. Unless….

          …you live in a state with an inheritance tax.

          Those that do have their own thresholds and percentage amounts taxed. This is a good reason to be very careful as to where you settle in for your declining years.

          Last I checked, these states (and the specifics vary widely from state to state) have inheritance taxes:

          District of Columbia
          New York
          Rhode Island

  25. SuperGeek says

    Just dropping a note to say thanks! And a question at the end of this post.

    My parents, Baby Boomers, always told me: “save your money”. However, they never told me what to do with it other than save it. I always thought investing in the stock market was equivalent to putting my money on”13″ and spinning the roulette wheel at the global casino.

    I’m 43 and I’ve always held mediocre jobs making mediocre money. I got a decent job a few years ago and I’m now making “OK” money in my mind (about $63K/yr). I never got a degree and I have no debt. A coworker told me about your book and I bought myself a copy as a birthday present a couple of months ago.

    I wish I had this information years ago!

    I immediately opened a Vanguard account and put money from my savings account into a Roth IRA ($5500 in VTSMX) and a regular brokerage account ($14K in VTSAX). I have a separate bank account for emergencies. I’m also putting $675 every two weeks into my 403b (Vanguard Institutional Target Retirement 2040 Fund (VIRSX)).

    I feel amazing! Again, I wish I knew about this decades ago so I could have had my money doing SOMETHING all this time!

    I have another $15K that I can invest. I’ve held off a little because this is all relatively new to me. Should I put it all into my regular brokerage account (VTSAX) or should I look at some amount of bonds?

    Thanks again!

    • jlcollinsnh says

      Hi SG…

      Glad you enjoyed the book and have found it helpful.

      Sounds like you are off to a great start.

      As for your question, if you’ve read my book and/or this Stock Series, you already know my answer and equally important the reasons why.

      If you are still scratching your head, give them another read. Better you fully understand for when the market takes one of its inevitable plunges.

      Good luck!

      • SuperGeek says

        I’ve been going back over the book and making notes in the margins. I’m treating it like a text book!

        I knew you were going to say put the money into VTSAX, to be honest. For some reason, I’ve just been thinking that I need to do something else. But, I need to get it through my skull that it truly IS just “a simple path” and I need to follow the K.I.S.S. methodology.

        As I mentioned in my previous post, this is all so new to me and I want to check out all these nifty options. Your words from the book keep ringing in my head “don’t mess with it” and “I’ve never been able to pick stocks, neither can you”. Then I close the browser windows full of stock/ETF/IPO info and open a new window back to your blog and re-read.

        • SuperGeek says

          For someone who started late (early 40s), is it suggested to stick with VTSAX to build retirement wealth, or would a Target Retiremend Fund be a better choice?

          If I have a small amount in a Target Retirement Fund (in a 403b), should I move it into VTSAX, or keep it where it is since that will eventually be where the bulk of my investments will end up over time?

          In your book, and blog, you stand behind both for retirement planning. In the case of late starters, is one a better play than the other? Or is it basically a wash over 24-25 years, which is about how much time I have left before I hit age 67?

          Thanks again!

          • jlcollinsnh says

            I don’t think one or the other is a better play based on age.

            As I say in my post on them, TRFs are a fine choice but I prefer the VTSAX/VBTLX approach.

  26. Pete says

    Hi Jim,

    I am huge fan and have been following your advice!

    I shared your book and your video on f! you money with my kids and it had made a tremendous impact with my son who’s a sophmore in high school.

    He’s become interested in investing and the concept of how a large sum of money could produce income that could lead to an early retirement.

    Your book is a must read for all seniors graduating from high school! It’s loaded with easy to understand information and it is a simple guide to becoming wealthy.

    However, there is one topic I was hoping you could cover and that is healthcare.

    I’m struggling with how do we retire early with affordable healthcare. I have read so many FIRE blogs, but not to many delve into the specifics of purchasing healthcare and the costs.

    We live in Illinois, have amassed crtitical mass, but hesitant to FIRE due to healthcare.

    Hoping you could write on how to shop for healthcare and perhaps share who you use and the various premiums.

    Thank you for all that you do!

    • jlcollinsnh says

      Hi Pete…

      Thanks for the very kind words. Glad to hear my writings have helped and especially that they are resonating with your son in HS. What a great, fast start for him!

      One of the keys to my success is that I only write about stuff that I actually know something about. 😉

      Health insurance is not one of those things and, in fact, the subject makes my eyes glaze over and my brain freeze up.

      I haven’t read the Mr.MM post suggested above, but he always writes insightful stuff and so my guess is it will be very useful.

      Good luck!

      • Larry says

        I retired at 51 because I got lifetime health coverage due to a government job that let me be fully vested after 5 years of service and able to collect benefits after age 50.

        Some of your reader should look into the benefits government employment offer.

  27. Raman K says

    Great post Jim! I understand why people look for holes in the “simple” way to invest. It is probably because the method appears too simple to be effective! I am following the 100% VTSAX philosophy during wealth accumulation process. I also just got your book – A Simple Path to Wealth and will probably devour it pretty quick! Thanks for the great post again!

    • jlcollinsnh says

      Every now and again I get asked, What if everybody invests in index funds?

      Beats me. But it is never gonna happen. The lure to try to outperform with more complexity is more than most can resist. All the research be damned!

  28. Chadnudj says

    Great post.

    At the risk of lumping myself in with the “too hot” crowd, I’m going to stick with my plan to hold an 80/20 split of stocks/bonds, even now as I accumulate. Not because I disagree with your analysis in anyway (over long term, VTSAX should outperform the bond portion), but because (a) it allows opportunities to rebalance (essentially a mechanism to make sure you buy high and sell low), and (b) the ballast in my portfolio from crazy market drops will help me sleep at night and stay in the market when it drops (I’ve never sold, period, even in 2007-2009, but then again I had far less invested back then than I do now…)

  29. DM says

    Hi Jim,

    First of all, thank you very much for taking the time to write this very thorough and (financial) life changing blog.

    For a while I’ve felt like something was missing. I live in London (UK) and for a while I’ve been feeling like my savings should be working for me. I just didn’t know how to do it until I found your Stock Series.

    Since then I’ve been avidly reading it and I’m happy (can I be proud as well?) to announce that I’ve now invested all my savings into 2 Vanguard Index Funds! I know I’ll be able to ride the lows of the market, so I’m confident that stash is going to keep growing ad infinitum.

    So, again, thank you. Your blog is the reason I now feel like the money I earn will allow me to achieve Financial Independence one day.

    I do, however, have one question. Since I’m based in the UK your beloved VTSAX isn’t available to me 🙁

    Of all the funds that Vanguard sells in the UK there’s two that I think more closely mimic your investing philosophy:

    1. Vanguard U.S. Equity Index Fund (Ongoing charges 0.10%)
    The Fund seeks to track the performance of the Standard and Poor’s Total Market Index (the “Index”)

    2. Vanguard FTSE Developed World ex-U.K. Equity Index Fund (the “Fund”) (Ongoing charges 0.15%)
    The Fund seeks to track the performance of the FTSE Developed World ex U.K. Index (the “Index”).

    If you were in my position investing in GBP and living in the UK would you still just get the Total Market US Fund? And would you do so simply because the fees are smaller in the US fund (0.10% vs 0.15%) and the returns likely to be similar to the DEV World fund? Do you think there is any disadvantages to investing in the US fund while living abroad and living on a different currency?

    Any insight into what you might do in my particular situation would be extremely helpful. I feel like I’ll be alright with either fund, but would be interesting to hear your thoughts!

    Thank you,

  30. Mayank says

    Hello Jim.

    A little off topic here – I believe you also used to follow Mike at lackingambition blog. He seems to have disappeared for some time now. Do you have any idea how he’s doing?
    I really liked following his progression towards FI, and hope he’s ok.

    • jlcollinsnh says

      Me too, Julie!

      That’s exactly why I wrote it, so I too can point people to this post rather than answering the endless series of questions along these lines. 🙂

  31. Ron Cameron says

    (Regarding the CAPE): “I am, however, convinced that its predictive value is zilch.” Thanks for talking a little sense there. It’s not a useless metric, but the road to failure is paved with people predicting (with one “reliable” tool or another) market drops.

    I have to say Jim you pull people from zero financial knowledge to “well armed” very well, thank you. While we disagree on some points, you’ve done an excellent job on getting people headed in the right direction. Thanks.

    Now, on to a specific question: Regarding Berkshire Hathaway. Do you get nervous with any genius leaving a company, or specifically Warren Buffett? On one hand, he’s surrounded himself with very capable, hardworking intelligent people. On the other hand, he -is- Warren Buffett. That Munger guy isn’t too bad either. Do you really think the company will suffer greatly when they go? I was shocked when Buffett said at this year’s shareholder meeting he thought the stock would go up if they announced he died. Instead I’d figure a 10-20% drop that day. But again, predicting those drops is a loser’s game.

    • jlcollinsnh says

      Well, Ron, my wife disagrees with me on some, er many, points and she’s kept me around for 35 years. 😉

      My guess, and it is only that, is that BH would do just fine under Munger alone, but he’s older than Buffett. When they both pass, I wouldn’t expect the company to instantly crater — more a slow retrogression to average.

      Buffett saying the stock will go up on his death strikes me as false modesty. Becoming perhaps, but unlikely to be true. Mostly, I’d guess – there I go again – he is just saying what shareholders want and need to hear.

      When the time comes, I’d expect a slight drop offset by reassuring talk from all those “very capable, hardworking intelligent people” followed by a long, slow decline.

      But then, when it comes to predicting what any given stock will do, I am almost always wrong.

      • Dharma Bum says

        Buffet is an idiot savant. He’s a strange man with abnormal analytical skills. He is a weird guy. His wife even left him, and a surrogate wife took over her role.
        Buffet IS Berkshire Hathaway.
        You can’t teach the skills he has.
        He is The Oracle. When he passes, BH will eventually be history.

  32. paul w. says

    Thanks Jim. I have been distressed about passive investing for a long time, though I am doing it, because it means making money from things I don’t believe in. But actively managed SRI funds come with their own serious problems. I have been circling this problem for a long time, too long. Your solution never occurred to me-give money like a billionaire! I will make arrangements for this in my will. Case closed. I can sleep better now. Thanks friend.

    • jlcollinsnh says

      Hi Paul…

      Glad the idea works for you.

      SRI funds also give me serious pause and I see them as mostly preying upon well intentioned, but financially naive people.

  33. Rogee says

    Hi Jim,

    I have ample cash I haven’t invested in VTSAX yet, what is the best approach to invest it?

    Stagger them like 5k-10k a month into VTSAX?


    • jlcollinsnh says

      Hi Rogee…

      Spend a couple of hours and read the Stock Series and you’ll know not only the best approach, but the reasons why and the cautions before you do.

  34. Millionaire Immigrant says

    Hi Jim,

    New reader here. I am a vanguard fan as well, its great that you are making my belief system stronger.

    What do you think about bitcoin and the cryptocurrencies? I know you would not suggest anyone to invest in them but I am more curious to know what is the future for them? How to make sense of the insanity of the bitcoin?

  35. nicole says

    I’ve spent the last 5 months obsessively reading many FIRE/personal finance blogs including your entire stock series and most of your other posts. I’ve learned so much and made lots of changes to our investments based on what I’ve learned. And now I have some questions if you have the time to answer them…
    From what I understand, you can retire at any age once you have saved 25 times your annual expenses, you only withdraw 4% or less per year, and your asset allocation is roughly 75%stocks/25%bonds or even more aggressive. Does this sound right? (I read the original study showed the 4% rule worked for 30 years with a 50/50 allocation). According to you, is this 4% adjusted for inflation annually? If so, how does one actually adjust for inflation? And if the market tanks and your net worth drops by half, then the 4% you withdraw after that crash will be half of your prior year’s annual withdrawal, correct?
    Now say hubby and I want to live on 50,000$ per year and so we need to save 1,250,000 for our net worth. Following the 4% rule most of our net worth will still be around when we die, in most cases, if I understand correctly. But what if we don’t want to leave 1 million++ dollars behind when we die? Is there some other rule we can use so we can slowly use up the bulk of our money, leaving a decent cushion (several hundred thousand dollars) behind near the end of our lives, in case we live much longer than expected? I’m 40 and he’s 50 but we’re not retired yet. I read the WARM strategy but we likely will still keep a good chunk in stocks even when retired so that won’t work for us. In all the blogs I’ve read, I can’t find anyone who talks about this – using up most of the money that one has saved over their life. All the giving we do, we’d like to do while alive.
    Thanks again for your clear advice and all the time and energy you’ve put into this blog. I hope your daughter appreciates it all one day :). My dad tried to talk to me about finance for years and it always bored me to death and I never listened. I have no idea why, but all of a sudden, I really got into it and find learning about money to be very empowering as a woman. I think all of these blogs make it very accessible and easy to understand, especially yours!

  36. Mike says

    Hello Jim! Nice to see you still continue to take time and respond to your comments section, highly appreciated! I really enjoyed your book and I’m trying to put it into action as quick as possible. Tonight I was looking over my 401k options as my company uses Fidelity. Unfortunately I do not have Vanguard options available, wanted to see what you would choose out of this group to get me as close to your VTSAX portfolio as possible so I can set it and forget it. Currently I am contributing up to the 6% employer match but in 2018 I plan on maxing out my 401k. Thank you for any suggestions and advice! PS: Can’t wait to hear you continue to work with the ChooseFI podcast as well, I have really enjoyed your guest appearances!

    Asset Class Investment Options
    Money Market Portfolio 13.4 basis points (0.134%) $1.34
    Intermediate U.S. Bond Fund 18.2 basis points (0.182%) $1.82
    Inflation Protected Bond Fund 30.0 basis points (0.300%) $3.00
    Core U.S. Bond Fund 28.9 basis points (0.289%) $2.89
    U.S. Bond Index Fund 3.9 basis points (0.391%) $0.391
    REIT Fund 45.0 basis points (0.450%) $4.50
    U.S. Large Company Fund 42.7 basis points (0.427%) $4.27
    U.S. Large Company Index Fund 2.4 basis points(0.024%)$0.24
    Small Cap Equity Index Fund 2.9 basis points (0.029%) $0.29
    International Company Fund 61.0 basis points (0.610%) $6.10
    International Company Index Fund 8.9 basis points (0.089%) $0.89

    Would you just put everything in the US Large Company Index Fund? Definitely the best on fees.

    This is what that fund description says: What it is: A passive portfolio managed by Mellon Capital Management Corporation (a member of the same controlled group of corporations as The Bank of New York Mellon) which seeks to mirror the returns of the S&P 500® equity market benchmark. The fund may maintain a
    portion of its assets in short-term debt instruments, money market instruments and derivatives (for example futures and options) for cash management purposes and to assist in tracking the S&P 500 Index.

    Thanks again!

  37. Frankie says

    Hi Jim,
    Your book changed my life! I may have missed this in your blog posts, but have you ever talked about high dividend funds? And what are your thoughts? For example VYM. I would like your take on these stocks and why you don’t particularly recommend them as part of a portfolio.
    I would just like to add that since I’ve read your book, I’ve rolled over an IRA from Fidelity to Vanguard and currently own 100% VTSAX.

  38. Michael Hartman says

    The 8 % bond woman sounds like Vicki Robbins. I won’t hold my breath for an answer if it’s her or not ;-). I ran into her on accident in Portland, Oregon at a Tea shop (she was shocked I recognized her), and went to a speaking event of hers from her invite. I loved it, but she did lean into the social and ethical dilemmas of investing. Love the woman, but what I equally love about the Financial Independence movement is it’s more based in the facts and evidence than the Guru’s. As the song goes:

    You take the good, you take the bad, you take them both and there you have… the facts of life.

    Love you as always… thanks for all you’ve contributed!

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