Bonus episode for Intro The Simple Path
===
. Hey, what's going on? It's Doug here. I wanted to give a little intro before I send it to this bonus episode, which is a little bit different. It's shorter, Well, you'll see what it's all about. It is related to The Simple Path to Wealth by J.L. Collins. I will talk for a few minutes, then Mr. Money Mustache and I will talk for a few minutes, and then I will put some clips at the end from the first interview that Carl and I did when we started the show.
And w- it was actually after we recorded several episodes, we finally interviewed J.L. Collins, and then we published that as our second episode. So he was the first guest that we had on. And I didn't find out and learn about The Simple Path to Wealth until, you know, after Carl and I got to know each other and basically probably around the time we started the show.
So I wish I would've found it sooner. I wish J.L. would've written it sooner. But I'll give you a couple things that I really like about the book, and I think there is probably overlap with things that you like about the book as well or things that J.L., you know, may share later in the clips from, you know, when we recorded this five plus years ago.
So number one, I really appreciate the simplicity. I mean, it's right in the title, Simple Path to Wealth. I like the simplicity of a approach that doesn't rely on over-optimization, and it kind of ignores over-optimization or even just optimizing to a point where you could, you know, make mistakes. And for me, that works perfectly.
I have a light interest in, you know, the markets and economics, but I also realize that if I start thinking too much, there's a much greater chance of me making a mistake than making a good, good decision. Even if you make a good decision, at one point, it kind of sets you up for making a poor decision or poor timing sometime in the future.
So that's one. I think that's the big thing. The simplicity of it all really does help. The other thing unrelated to, I guess, the concepts in the book, it was self-published, and JL, I think he published a lot of the content on his blog before he put it into book form. And the other interesting thing is it's not like JL was one of the original personal finance bloggers.
He came into this probably after a lot of people, a lot of bloggers would've said, "This is saturated," like, "I shouldn't even start trying to blog." Or, I mean, personal finance books have been out for so many years in, in this, uh, sort of topic area. There's t- there were tons of them out by the time JL published the book, and he still, as a self-published author, was able to sell so many of them.
On this copy that I have here, um, this says, "Over one million copies sold," and this was the most recent, um, edition whenever they, you know, re-published it. JL sent it out when he was hopping back on the show to say hello. So anyway, those are a couple of the, you know, main things. Let me look at some of my other notes here.
Simplicity wins, and, oh, the other, the other big thing is just money buys freedom, and I think that's something I had adopted, you know, years ago. And for me, the f- the freedom piece is really related to having autonomy with my time, the things that I wanna work on, the people that I wanna work on them with.
That is one of the most important things for me. I need to have, um, I need to own my decision-making. It really bothered me when I worked f- at a company, and if I thought something wasn't, um, being worked on with the right priority or the process was different, it really bothered me a lot, and I think it made me unhappy.
And now if I, you know, if I wanna work on something or if I think, "Hey, this is actually not the way I would want to approach it," I could change it. it makes me feel much better than not making my own decisions
I could keep rambling on here, but I don't wanna make this like a book report on The Simple Path to Wealth. If you haven't picked it up, then I recommend you check it out. It's actually a really good book to recommend to other people that are not as well informed as you are. Like, if you're watching this, if you're listening to this podcast, you probably have a pretty good understanding of what's in The Simple Path to Wealth.
So with that said, I'll send it to the rest of the show. Thanks for checking it out. If you have any, uh, questions, comments, anything like that, you can shoot me an email,
[email protected].
Thanks.
doug: Hey, what's going on? This is the Mile High Phi podcast, and it is kind of a special episode, and I'm not 100% sure how we're going to release this, hopefully audio, but Pete, Mr. Money Mustache, is hanging out with me. How are you doing today?
Pete: Oh, I'm great.
doug: And we are doing something pretty cool today. What project are we working on?
Pete: Yeah, so we are gonna record the new, a new version of the foreword for The Simple Path to Wealth because our friend JL Collins, after a decade of success with the first edition, is now, has rewritten some of it to be, uh, 10 years updated, updated edition. And so he's re-recording the audio of all that, and as part of that, for the Audible platform, they wanted me to re-record my foreword for it as well.
And, uh, and then they said, "Hey, we'll, we'll try to find you a studio in Denver where you can go to record it," m- which to me sounded really un-fun and like a job. But then I realized I could get Doug, who is a recording pro, to do it. So I hooked them, you know, Audible company up with Doug, and he got, like, a little contract to record this with me.
And you said it's more than... It's enough to buy, like, two or more Starbucks coffees. Right, yeah. So even at today's prices, so nice. Yeah. Nice for retired guys to get thrown a bone every now and then.
doug: Yeah, and it's, um, it's one of those things where it's, it's fun to learn something new. So we actually were recording some vlog style stuff.
I'm not sure where I'll insert it or how, uh, it'll be, like, in buy me a coffee or something like that. But basically, I am a professional podcaster, but I'm not a professional audio engineer, so I had to, uh, f- find a microphone that was suitable, and you may, uh, hear how rich and beautiful Pete's voice is.
Pete: Super fancy.
doug: It is. It, and it's a cool, it's a cool mic. I had a fun time, like, f- finding it and learning about it, and then I also had to learn a new editing technique, which I think should make it go a little more smoothly. So not a pro, although I'm a pro now that I've... I'm gonna be getting paid to do an audiobook.
But, um, yeah, it's pretty exciting. Now, w- when did you write the, um, foreword for this book?
Pete: Uh, thankfully it says right in the foreword. It was in 2016. Okay. June 2016, so it really is getting close to the 10-year anniversary. And, um, yeah, that was just in time. I think the f- the Simple Path to Wealth itself was releated- released before that, and then it, they decided to make an audiobook based on the success of the printed version.
So the book was more than 10 years old, I'm assuming.
doug: Okay. Very cool. Yeah, ex- exciting. And how long have you and JL known each other?
Pete: I would say even lo- quite a bit longer than that, 'cause he was one of the first commenters on my blog. I don't even know where he came from on the internet. It might've been that he was an Early Retirement Extreme reader, and then, um, which is really, uh, to his credit, you know, that's kind of like the ex- the deep lovers of financial independence who used to read that in the early days of blogs.
So when I started as Mr. Money Mustache, there was always, all of a sudden, this, like, guy who wrote really nice, well-written comments that were quite wise. So we became internet friends just through his comments, and I would write back to them, write back to him. And then I started reading his blogs because the comment would have a link back to the blog in his signature or whatever.
And I noticed his writing is really good, so I kind of read his whole blog, and he had this historical thing called The Stock Series, which was, um, a bunch of nicely written articles that address all different sections of all the different aspects of investing. And those became the bones of this book. In fact, a lot of them, you know, when you read this book, if you've read his Stock Series, you're like, "Oh yeah, I can see this is pretty much his old blog post.
It's been re- rewritten to be in the book." But a lot of the same old stories and jokes and phrases are in the book, which is partly what makes it so good
doug: Nice
Pete: So it was like a... I think this book was born out of our collaboration, you know, over the years, and he found success in his blog and decided to go further and make, turned it into a book.
And then that ended up being the biggest thing ever. You know, like most people who don't write books, including me, don't really understand the numbers, but this thing has over a million copies sold, and in the book world, that's a huge number. That's sort of like equivalent to a YouTube video getting 100 million views or maybe even more than that.
That's how rare it is for a book to get one million copies. So it's way up at the top of, uh, a bestseller thing, especially in the financial, financial, you know, genre. So I'm really happy for him, and I'm happy for how much, uh... Everybody who reads this book says, "Yeah, it really did make it simple." Yeah. And it gets them investing, and that's the real purpose of it.
doug: And self-published too, right?
Pete: Uh, yeah, originally it was. Now it's a real... It's like a big name publisher, right? Like, is it Harper Collins or-
doug: Right ...
Pete: something else? I should look at this, make sure we're not insulting the real publisher.
doug: With, with the real, um... Or, or I was gonna say, I know JL was on a couple years ago whenever the re-release came back out, so I...
He told the whole story. But yeah, it w- pretty interesting, but very cool. Well, an- any other thoughts before we get started? Yeah, I did give you some tea and honey to make sure your voice was, uh, s- silky smooth.
Pete: Yeah. Thank you. It's delicious, and I hope it works.
doug: All
Pete: right. And yeah, we're gonna do some practice runs, or maybe we'll just start recording and then erase the mistakes, but-
doug: Yeah
Pete: um, yeah.
doug: We'll get going. All right. And we'll check in, uh, later after we get done. Cool.
So we just finished the, um, the audiobook recording, and you're back on a normal mic so people can probably hear the, um, difference.
So h- how do you think it went?
Pete: Um, it was great. It was, uh, not too hard, and they make the screw-ups easy to correct with this method. And thankfully, it's only like two pages or less of text, so there's only so much you can screw up anyway.
doug: Yeah. Yeah, yeah. And, and it's definitely like a different, um, a different style 'cause, like, as we were doing it, you're like, "Ah, I wish I could just keep going on."
I'm like, "Nope." Yeah. "You gotta go back." Um, but at the, at the end, like we basically-- I need to take out a couple pauses, but, uh, basically that sounded really fucking good, I thought.
Pete: Yeah. I think we produced a good product, and it'll be fun to think about everybody listening to that in the future when they bought the book, the audiobook version.
doug: Yeah. Yeah, very cool. And yeah, thanks again. I really appreciate you recommending me to, like, give this a shot, and yeah, it was a fun, fun little process. So now I can-- I just need to write a book, but then after that, I can record the whole thing.
Pete: Yeah. And then you get to collect a small fee for doing a huge amount of work recording it.
doug: Yeah, yeah. All right. Well, thanks a lot, and I think we're gonna record, um, a podcast episode now. So I need to show you the notes and tell you what we're gonna talk about.
Pete: All right.
JL Collins: So with all that background, what's an index fund? Well, let's start with what's an actively managed fund. So an actively managed fund is run by professionals who look at all the stocks that are available, and they try to avoid the ones that they, uh, think are gonna do poorly and choose the ones that they think are going to do better.
And that seems like a pretty reasonable thing to do. And in some ways it seems like a pretty simple thing to do because, you know, the, they're obvious dogs and they're obviously companies that, that are on the rise The problem is that research now tells us pretty categorically that that's an extraordinarily difficult thing to do.
Uh, it turns out that today's dogs are sometimes tomorrow's exciting turnaround stories, and today's high flyers, for those people around 10 years ago, like Enron, suddenly implode and, and leave everybody in tears and ashes. So an index fund says, "You know, that's so hard to do, and it's so expensive to do that we're not gonna do it at all."
And that was Jack Bogle's brilliance. He said, "I'm just gonna buy all of the stocks. I'm gonna buy the entire basket." His first index fund was based on the S&P 500, which are the 500 largest, uh, companies in the United States. He just said, "I'm not gonna try to predict which one of those are gonna outperform.
I'm gonna buy them all, and that's gonna be cheaper. I'll have lower fees. And over time, the ones that succeed will succeed by multiples. They can go up 100, 200, 300, 10,000%. The ones that fail will drift off and go ultimately maybe to zero. They'll lose 100%, which sounds awful, but when you have a, a, a game that stacks so that your winners can go up two, three, five, 10,000%, and the worst your losers can do is go down 100, and they'll probably fall off the index before they even get there, well, that's a winning formula.
And so I don't have to worry about which stocks are gonna do well or not. If they do well, I will own them. If they don't do well, they'll drift away from my portfolio." So taking Tesla, which I know, Carl, is, is a stock that's done very well for you. Uh, it's done w- very well for anybody, I guess, who's invested in it.
Um, I own Tesla. I own it through, uh, VTSAX, which is the total stock market index fund, a little step beyond the S&P 500. So if Tesla continues to do well, um, I'll continue to benefit from that. Not as much as you will because it's a bigger part of your portfolio, but I'll continue to do well. If, on the other hand, as other automotive companies come online with their electric vehicles, the world gets tougher for Tesla, and they begin to falter, it won't matter because I'll benefit from owning those other companies.
So it's a win-win. So that's basically what an index fund is. It just buys everything. So in owning a total stock market index fund like VTSAX, I own virtually every publicly traded company in the United States. Last time I checked, that's about 3,600 companies, so also extraordinarily diversified, right?
Some people say, "Well, if you only own this one fund, uh, that's too narrow. You need more diversification." Well- 3,600 companies in my book is pretty widely diversified.
Well, letting go of an ego is an incredibly important part. That's probably the reason I was slower to adapt than, than Carl has been, is my ego gets in the way. And I just put up a new post on the blog, which I don't put up new posts very often, and one of the things that I, I tried to address in that post is, uh, the current what I call FOMO investments, fear of missing out investments, like GameStop as an example.
And One of the things with GameStop, I think, is that it's gonna wind up most people who invest in it are gonna wind up in tears. But the fact will remain that some people will have been made millionaires by their investment in GameStop. And so it's not unreasonable for people to say, "Well, yes, even if most people lose money, the potential in something like that is for me to suddenly become a millionaire, and so why not take the chance?"
And part of my answer is, well, twofold. One is the odds are against you that you will be one of those. But even more important, even if you are one of the lucky few, you probably won't recognize that you're one of the lucky few. You will attribute it, because of ego that we all have, to your superior skill in playing this game.
And that means, in all likelihood, you're probably gonna play the game even more aggressively going forward. And so you're probably gonna give all that money back and then some. A post I wrote just before the last one, which was a couple months ago in February, was about one of my big investment mistakes, and I lost 50 grand in it in, in, uh, m- the early 1990...
I think it was the early 19... Early, actually late '80s, early '90s, something like that. And sometimes I think as painful as it was to learn, lose the 50 grand, had that stock worked out in the magnificent way that it had the potential to work out, I probably would've, my ego would've run away with my, my skill and, and I would've lost much bigger amounts of money playing the game further.
This is the reason, and I talk about this in the post, this is the reason that casinos do so well. You know, they actually pay out in winnings most of the money that comes in through bets. So they make huge profit margins with just a small sliver of the take, if you will. And the other thing they know that's a little more insidious is even those people who do win, who walk out, are very likely to come back and very likely to give it back and then some over time.
So there you go. You're right. Ego is one of the biggest, uh, risks that any investor has
Carl: I'd like to talk a little bit about Morgan Housel. Uh, we probably all know who he is. He was a author for The Wall Street Journal. He just wrote The Psychology of Money, which is an excellent, excellent book, and he's a big, huge believer in index funds.
But he alluded to something, it was just kind of in passing, and I don't think he put any stock in this, but he said, eventually something will probably come along to supplant index funds, and index funds won't be a, a thing anymore. I've thought about that. I think I read this a couple years ago. I, I don't have any clue of what could possibly be better than index funds.
Like I said, I think the case for them is actually growing stronger. Have you thought about this, JL? And if so, what do you, what do you think?
JL Collins: Yeah, you know, I, I have thought about it. I, uh, by the way, I've not read Housel's book, but I do have it, uh, on order, and I've heard that it's, it's a great read, so I'm very much looking forward to it.
Um, so I hadn't heard this idea, but I have thought about it. When I was writing my book and I write my blog, and, and now as you were kind enough to mention, you know, my, my book has sold over 300,000 copies. It sells better today than it did when it first came out. And I look at the kinds of books that, on Amazon, that are up in the same kind of rankings, and you see things like Benjamin Graham's, uh, The Intelligent Investor, which has been around 70, 80 years, something like that, and, uh, you know, I wonder, have I, have I written something that will stand the test of time?
And it begins to look like I have, unless there is something that comes along that is better than index funds, because of course my book is all about, uh, index funds. And so I've thought about that a lot, and, uh, I can't conceive of what that would be because index investing is, in my mind, s- so well-conceived.
I mean, Jack Bogle's brilliance in this concept, uh, is just so profound and so well-conceived and, uh, that I can't imagine What could possibly be better? But on the other hand, that doesn't mean just because I can't imagine it, doesn't mean that there isn't something. And so there's always that possibility.
Um, but you know, in my mind it's kinda like, well, maybe the- there- somebody will come up with a better theory for all the diversity of life on the planet than Darwin. But at this point, it's kinda hard to see that happening. There's just so much support for the theory of evolution that, that, you know, it's hard to imagine that there's some- there's a better way to explain it.
Uh, or, you know, somebody'll come up with a, a better concept than gravity for the reason that apples fall out of trees. I mean, yeah, maybe. But, you know, it- it'll, it'll certainly, uh, widen my eyes in amazement if any of those three, three ideas get replaced
Speaker 2: And I have a question. Even though I know what I should do, just like what you're saying, so I have some money that I need to put into the market. So I, I moved it from an international index fund. I wish I would've just kept it simple with VTSAX.
Anyway, I've pulled that money out, and I'm waiting for a little downturn. Now, I think- ... uh, of course I know the answer. I should throw it in now, like, d- don't worry about dollar cost averaging. I'm actually okay with that, to put in the lump sum. Right. But I'm just waiting for a little dip. It... What, what, what could you tell me?
What, what mistake am I making here?
JL Collins: Well, you know, it's, it's very, very, very hard emotionally and, uh, especially because i- in an environment like now where the market has done very well, and I talk about this in this most recent post I put up by the way, the market's done very well. By all metrics it's not cheap.
It's fairly expensive. There is a case to be made that, that, you know, it's on the verge of taking a major plunge, the case being that, you know, interest rates are im- incredibly low, inflation is incredibly low, the government is spending money like there's no tomorrow and that has a very high likelihood of triggering inflation, which will trigger interest rates, which will, you know, cause the market to decline.
Of course, there's an argument on the bullish side. I mean, Jerome Powell was interviewed on 60 Minutes, I think, uh, on Sunday saying that, you know, we're coming out of, out of COVID, uh, incredibly strong. He was calling for a 6% increase in, in GDP this year which if, may not sound like much but in, in GDP numbers that's huge.
I mean, that's, that's, that's the kind of increase you only typically see in a, in a, um, third world country, uh, uh, rapidly developing. Uh, so, you know, maybe now that economic activity catches up to the stock price. The point is there's no possible way to know. What we do know is the stock market goes up 75% of the time and goes down 25% of the time.
So at any given moment your odds are 75/25 that you're better off investing now. But of course, that doesn't mean that it's 100%, so the moment you invest, y- you know, is the big fear, and it's a reasonable fear, is the next day is gonna be the day that the market decides to take one of its periodic plunges.
The only thing I can say to that is that if you are invested, right, once you're invested and, and you are always at that risk. So it's not just the risk of putting your money in today, but once you have your money in you will always and forever be at that risk of the next day will be when it drops 50%.
And as I said, just like hurricanes and blizzards, that's a natural part of the process, so that will happen to you one day just like it happened in '07, '08, just like it happened in '87. So- It's a hard decision to make and, and I hesitate telling you this because, of course, that means tomorrow the market's gonna crash.
But the logical thing to do is to invest the moment you're able to invest. And the flaw of dollar cost averaging, and I have to separate two kinds, dollar cost averaging where you are putting money in from your earned income every month, first of all, you don't have any option other than that because you can't invest money until you get it.
That kind of dollar cost averaging I'm very much in favor of, and that happens to help smooth the ride. So that's what my daughter does, for instance. She's working and she's saving a large percentage of her income, and it goes in come hell or high water every month. So if the market plunges tomorrow, the next time she invests she'll just get more shares.
But the kind of dollar cost investing we're talking about with you is when you have a lump sum. And the problem is, if you dollar cost invest that lump sum over time with the idea of, "I'm gonna avoid this scary possibility of the market dropping the moment I invest my money," well, that only works if in fact the market drops.
And if the market stays flat, then you have been better off investing it all at once. And of course, if the market rises, you'll even be worse off by dollar cost investing. But the worst thing is that let's say you've got $120,000. You say, "I'm gonna put 10,000 a month in until it's fully invested," and you do that.
And the day after you make that last investment, that's the day it plunges 50%. So you really haven't protected yourself from that risk because you can't, because that risk, as I said earlier, is always there once you're invested. And at some point it will bite you. You just have to learn to hold on and live through it.
And the last thing I'll leave you with is if you're investing You should be thinking in terms of decades, right? I'm never going to sell my holding in VTSAX. Never. I mean, I might sell a little bit of it to pull 4% to live on as a retired guy, but other than that, I'm never gonna sell it. I don't have to.
It's self-cleansing, as we talked about, ever. You know, so from that point of view, then it really doesn't matter if you buy when the market is just about to drop or not. Uh, obviously if we had a crystal ball, you'd only buy on, on the low points, but nobody has that.
Speaker: Thanks for listening to the show. This podcast is not financial or legal advice. I do hope it's entertaining, but I can assure you it's not advice of any kind. The show is listener supported, so you can check out the Buy Me A Coffee link, and supporters get extra content at least once a month, and it really does help out the show.
If you wanna go a step further, you can leave a review, like on Apple Podcast or wherever you can, or tell a friend about the show and forward them a specific episode that you know they might like
