019 - Jim Collins Stock Series part 1

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0 - 16 Jonathan Mendonsa All right choose FI we're back. This is Episode 19. This is the one that we have literally been teasing you with for the last two and a half months. Jim is in the studio today. We're going to be unpacking the stock series and I am unbelievably excited about this one. Brad.
stocks
16 - 24 Brad Barrett Yeah. Jim is Jim is the man in this in this entire community Jim is the one that everyone looks to you know every single one of our guests.
24 - 25 Jonathan Mendonsa Is he is he the godfather of FI.
26 - 44 Brad Barrett I would go so far as saying that and you know every single one of our guests have mentioned the stock series. I know it has transformed my life. It's transformed Jonathan's life. This is Jim is is the guy who I mean I can say that sincerely he has literally transformed the trajectory of my investing life.
stocks
44 - 62 Jonathan Mendonsa And giving you a level of peace about it there's this uncertainty with how am I going to invest my money what where what do I do it what stock do I choose how do I be a winner. I want to win. All that went out the window. And the simple path the wealth man. It's just it's mind blowing. It just makes sense you're going to read it and you're going to understand it.
62 - 99 Brad Barrett Yeah and I went so far as to say have a conversation just the other day with with my parents and I was saying that it is really the thing that I am most passionate about in life is now getting people to invest in this manner not have an investment adviser to invest in Vanguard. And that is really all due to Jim Collins very simply and honestly I can say that this is the thing that I'm most passionate about because it is one of the easiest things for people to fix and it is such a high value change in life. So just a sincere thank you to Jim for putting out the stock series.
99 - 211 Jonathan Mendonsa All right guys. So I know you're thinking Well where's the interview. You guys have the intro I'm waiting for and we're going to do it. But just real quick. Brad and I we're so excited about this episode and we've been teasing it for so long we're going to do a give away. What we decided to do we've told you how important iTunes reviews are to us and to encourage that today. This give away a sample for every 10 people that leave us an iTunes review over the next two weeks. We are going to put that person into a drawing to win a copy a free copy of the simple path to wealth and if there's one thing that people in the fi community appreciate it's free. So that's for you if you want to enter yourself and a chance to win the book. The simple path to wealth. Just go to iTunes. Leave us a short written review and then take a picture of the comment that you left and then e-mail it to feedback at Choose FI or you can tweet it to us whatever you want to do but just let us know. You did it and we will enter you in a drawing for every ten people that leave us a review of this episode or of the show. We're going to enter you in a drawing to win a copy of Jim's absolutely life changing book the simple path to wealth and without wasting any more time. Let's go and get this thing rolling. All right. And we're back so we're in the studio today Brad. Jim is with us and we're going to be unpacking the stock series and we had to ask him we weren't sure which way this was going to go whether or not we're going to try and do it all at once which honestly frankly we didn't really wanted to do because we want to go in depth that's what we do. We go through the concepts one at a time and we try to show you how you can implement it in your life. And Jim has agreed that he is down with that so today this is going to be part one we're going to be unpacking the first several articles of the stock series and just going into depth with it making it a conversation trying to figure out how we can implement a few of these things. And if you've never heard this information before how you can take just a few actionable steps and incorporate it in your life today and I'm really excited to do that so. Jim welcome to the studio.
testimonial
211 - 222 JL Collins Well thank you very much. I we just can't do this. I mean there's no way I can live up to that introduction. And I think I'm just going to have to hang up now.
222 - 225 Jonathan Mendonsa He says I'm going home.
225 - 234 JL Collins Because I I am I'm I'm blown away. And deeply honored. But as I say there's no way I could live up to that.
234 - 244 Jonathan Mendonsa Well thank you but I think it's the least I can do considering the value that I've gotten from the concert that you've created over the past five years and I can say that without reservation.
244 - 251 JL Collins Well you are very kind. And let's go forward and see if we can if we can make real.
251 - 253 Jonathan Mendonsa Love and make it work.
253 - 285 Brad Barrett And I just want to say Jim has been a true mentor to me over the last number years. I've been lucky to meet him in person and you know speak with him on Skype and speak with him on the phone and you know aside from from his content. He's just one of the most genuinely nice people I've ever met. And you know just just a wonderful person. So you're going to obviously hear that on this podcast and in the series of podcasts and you know just again want to thank him for taking the time to do this. I think it's it's just going to add a huge amount of value to our audience and the entire FI community. So thank you Jim.
podcaster
285 - 301 Jonathan Mendonsa So Jim we can start this anywhere you want. But we thought maybe just for the sake of simplicity we'd start at the beginning with part one. There's a major market crash coming. And you said Dr. Lowe can't save you. I don't even know who that is but maybe Brad you know who Dr. Lowe is.
301 - 376 JL Collins I have. You know I actually long felt bad about singling out Dr. Lowe. I wrote that. Oh geez. Maybe in 2012 something like that. And as you pointed out it was you know it was the very first segment in the stock series and it was triggered by an article that was in Money magazine and it set my teeth on edge in Money magazine sometimes tends to set my teeth on edge anyway. Doctor I have nothing against Dr. Lowe and in my book I recount the same the same story but without identifying him by name because I never dreamed of that the blog would reach as many people as it did. But yes so. I don't want to smear the good that the good doctor although And in some of the addendums on that post it seems that he launched an actively managed fund based on the principles in the money magazine article that I was objecting to. And that charged exceptionally high fees and disappeared under the waves after after a couple of years of underperforming. So that's yeah I don't know what else to say about that.
376 - 390 Jonathan Mendonsa Well when you know what he initially said in that in that magazine I believe was that buy and hold investing doesn't work anymore. That's the claim that he was making that basically was enough to get you riled up enough to start creating all this content in my Am I right about that.
390 - 457 JL Collins Well that's that's part of it. And you know retesting my my memory a little bit too has been a while since I looked that post in that article but as I recall there were a couple of things. That was one of the key ones that buy a whole no longer work and say I'm remembering correctly it was because with all the various automated computer generated trading techniques that were being employed on Wall Street by very short term traders things were moving in a much much more rapid pace. And that was one of his pieces that you know by and hold just didn't work. And so that was one thing I objected to the other thing that I recall I objected to was is the solution was basically to hold a little bit of everything. I mean sort of this massive diversification and I have very specific objections to that. And so those are kind of things that I thought when I read the article and prompted the post.
stocks
457 - 488 Brad Barrett So Jim let's let's actually take a real quick step back. I think a lot of our audience is very familiar with the stock series but but for people who aren't familiar or who haven't read it yet and hopefully everybody all will head over to JL Collins NH dot com and and check it out. And but you know give us give us the high level overview of your of your theory. You know and you're you know how you go about your investing what you talk about. If you were trying to explain to someone the stock series in in five minutes how would you go about doing that.
488 - 762 JL Collins Well actually this you know a lot what we were talking they just pull this this post out so I could take a quick look at it. And and I kind of touched on that a little bit. It is you know the article is what prompted me to write post. But one of the key things that comes out of it is this idea that there are certain gurus out there who are so knowledgeable about the stock market and so well educated and have a magic formula that ordinary people like you and me and our listeners don't can't possibly have that that we should all just follow in their footsteps and most often pay them enormously large fees. And there are no such people. But the stock market does have some basic characteristics that allow you if you if you take the time to understand how what the stock market is and how it actually functions. That allows people to invest in it and prosper in it. If you're willing to invest for long term. So I'm looking at this post for instance I have a couple of points I make. One is that market crashes are to be accepted. Number two is that the market always recovers from those crashes. Number three is the market always goes up and that's one more controversial things that I say but it always trends up. Number four is that it is the best performing asset class of all time. Now maybe not again people say well you know you make more money in real estate but real estate has two elements to take it beyond just investing typically one is that it's kind of a part time job. So you have sweat equity and the other is leverage and leverage of course is a two edged sword and we can talk about it more if you want to. Number five as I'm looking here is is that the next 10 20 50 years are you going to have just as many problems and collapses and recessions and disasters as the past 50 years did. And that's also to be expected. And then the market will react to those things and it will continue to march up. and number six is that instead of panicking and cutting and running every time the business media goes crazy when the market drops a bit you have to toughen up and you ignore that noise and you understand that this is normal. The market does this thing as a normal part of the process of of its continuing rise. You stay the course and you ride out the storm. Number seven is that in order to do that they have the intestinal fortitude to do that. You just have to know that these bad things are coming and they are coming and they will happen. They've always happened in the past they'll happen in the future. People ask me all the time now you know the market's going up pretty much unrelentingly since 2009. You know when's it going to collapse and what is there going to be a problem. And I don't think we've had anything more than a 10 percent correction since then. I don't know. I do know that at some point we will but I can't predict it. If you listen to somebody predict it,you could turn on the CNN or MSNBC any time and you'll hear all kinds of people predicting what's going to happen. None of them really know because there are so many so many of them predicting things that at any given time just about any possibility is being predicted. So the market does something dramatic either up or down somebody will be right. Just like somebody wins the lottery. But that doesn't mean that the somebody who won the lottery knows how to pick winning lottery numbers it just means that some set of numbers when it was going to come up in every set of numbers was bought and that just happened to be the person and that's the same thing with talking heads who who claim they can predict the market. So that kind of brings us full circle to the title of that post which is there is a major market crash coming and maybe one after that and there'll be another. And none of it will matter if you if you're investing for the long term you're tough enough to ignore it and stay the course and reap the benefits as the market goes. past each of those setbacks in its relentless firetrap. So there's a stock series nobody has to do anything beyond that.
stocks
762 - 789 Jonathan Mendonsa Right right right it's all done and I think that's basically wraps up your first article and essentially what he did there is that's kind of your mind map that that's where that's kind of how you envisualized each one of these these first few points. And I think look as you proceeded with this series you then went into depth on each one of those. And the first thing you tackled I believe was this was in part two he said you know the market always goes up and I think you go into some real depth there.
789 - 992 JL Collins Yeah. You know it's interesting about the stocks series by the way is is when I first conceived of this idea to do this. I only had the first five posts in mind. It's up to about 30 now. Twenty nine 29 or 30. But I had the first five in mind and I thought that's all I was going to do. And it was very well received and it generated a lot of common questions from my readership and I had an incredibly astute bunch of people who read my blog and they started asking questions and they were they were questions by large and I hadn't considered that people would want to know the answer to. Sometimes when you when you're. I've been I've been fooling around with this stuff for 40 years and you tend to forget what you didn't know. And so you forget that other people don't necessarily know it. And so my readers were really the guide post of what became the next 25 25 editions of the stock series as they postulate things that oh what about this what about that. You know how you withdraw the 4 percent. What is that 4 percent how that 4 percent rule stuff by the way the market always goes up yeah. That's one of the key things to understand if you're going to invest in it. I think there are a couple key things. One is that really we just talked about the market is always going to stumble. It's always going to have corrections which is defined as a 10 percent drop or bear market which is defined as a 20 percent drop or a crash which was 30. And those things are routine. Nobody can predict when they're going to happen. But it's just part of the process and you have to be willing to accept it. But underneath all of those setbacks when you look at any chart the stock market or really extend the length of time you see something dramatic. And then you see is that if you look at the left end of the chart it starts way down there and if you look at the right hand of the chart which indicates where we are today it's way up up there. That's awesome right. And that's what's so you need to understand you can't predict those drops. You know Warren Buffett makes a great observation and I look at the numbers not quite exactly. He says that you know if you look at the last century in nineteen hundred nineteen hundred a market that was about 600. And it closed to the century in nineteen ninety nine. At the end of that year it's something like eleven thousand five hundred so it went from 600 to eleven thousand five hundred. But this says How do you possibly lose money in a scenario like that. And the answer is it says you lose money by trying to dance in and out of the markets by trying to predict when those drops. I was just talking about were going to happen. Nobody can do it. Warren Buffett can't do it. I can't do it. All the people on on TV claiming that they're doing it can't do it. So the best thing to do is just buy hold for the long term and ignore the noise in between. And the market will reward you for doing that.
indexfunds, stocks
992 - 1150 Jonathan Mendonsa Yeah. Jim one of the things that that I always get caught up with with investing and I try to after reading your stock series and really having this epiphany is is the psychology of investing and people get so caught up in in the details the the timing the market the thinking they can outperform just the overall the overall market thinking there's some genius that they have or you know just getting worried about these details and just stressing out so much about it. And for me like I find that the biggest impediment to me investing properly is my own brain and I try to take my brain out of it as much as humanly possible. And a lot of that has to do with with your stock series and you know it really comes down to. It feels like like I've had that epiphany like I've seen the light which is you know low cost investing specifically at Vanguard you know buying a piece of you know I know you love the VTSaX which is the total U.S. stock market index fund and it's you're owning a little piece of every essentially every publicly traded company in the U.S. and you're buying that on a regular basis. You're just you know every single month or you know honestly with Vanguard you can buy every single week. I'm just purchasing new shares of the VTSAX at this ultra ultra low expense ratio. And I know that I don't need to think about it it's because I've I've read your stuff and I know that again I'm going to screw it up because either A I'm not going to invest. I'm going to be overinvested in cash because there's that bubble coming or you know there's a bubble and there's a market collapse coming and you know just all these other ridiculous things that I that I make up in my own brain. And you know just not worrying about that anymore. Just saying this is the path and that honestly that certainty has has just helped me sleep so much better at night. I don't worry about my money. I don't I just continually invest in the VTSAX. I don't look at the market. It's like like John Bogle has said you know I'll get the quote wrong but it's something to the effect of If you keep putting money into into mutual funds and you don't look at your statements and 40 years from now when you're getting ready to retire and hopefully for people listening to this it's before 40 years. But but in his scenario 40 years. When you open that statement you better have a cardiologist next to you because you're going to have a heart attack when you see how many millions of dollars it's going to be and you know and I believe that right now and you know obviously we want to thank you. Thank you for that.
indexfunds, stocks
1150 - 1508 JL Collins There is a lot of psychology involved and human beings are typically equipped with a psychology that is not very good at dealing with the ups and downs of investing in the stock market. And the solution for that is to be aware of the fact that we're, our basic psychology is inclined to panic when things go against us. Our basic psychology is more concerned about losing than gaining. And so once you understand that in a sense we are hardwired to do the wrong thing at the wrong time when it comes to investing. You're making the first step of understanding how to avoid that. Now the typical investment advice and how that is to going back to your friend Dr. Lowe in the first post is this broad diversification and the idea there is that if stocks plunged tomorrow for instance or even later today who knows if it's stocks plunged tomorrow you will own all this other stuff that will make that plunge less less painful and hopefully some of those things will be going up at the same time that the stocks are going to the stocks are going down. But the problem with that broad diversification is somebody once some some wit once coined it as diworsification because the more broadly you diversify thing your holdings the less chance you have for gains because everything goes if you set things up so that any time something drops somethings rising Well by definition when that rising thing drops and then you don't really have any chance to gain. You're always going to be offsetting. So I'm not a huge. There is a role for for some diversification which which goes to the point that you made Jonathan and you may have to remind me to get there. So that's that's one point that I wanted to make the other point that I was going to make is that this blog and by extension the stock series and by extension the book all came out of a series of letters that I started to write to my daughter back in 2010 2011 about financial things that I wanted her to know. And she is somebody who has absolutely no interest in the subject. And she said to me one time and I have tried to beat an interest into her and that is not working. And one day she was home. She's a young adult now but one day she was when she was still in college she was home visiting and as I had was prone to do. And one of my bad many bad habits I began to lecture her on investing because I think it's so important, I think if you just get a few things if you just understand some of the basic things like what we're talking about today. You just get a couple things right. It can have a profound effect on your life and the resources you will have, on the choices you can make. anyway, She stopped me and she said that she said I understand this is important. He said I get that. I just don't want to have to think about it all the time. And that was an epiphany for me because that's the way most people are. You know I am the aberration. I mean people like me who like this stuff we're the aberration. We're the ones where we're the ones that have our wires mixed in. Most sane people have better things to do with their time than to think about investing in the stock market. But as I said if you get it you get investing right. It can give you the resources to have a much better life. And so that's the approach that I've taken in writing the blog is trying to recruit people who really don't care about this. Now here's a wonderful irony when it comes to investing and I think it was was you Brad who alluded to too what Bogle had to say about not paying attention and checking it in 40 years and being amazed when it comes to investing less you once you get a couple of basic things like index funds and ignoring the noise and the ups and downs. Once you get that right, less attention you pay the better off you'll be. And the more you tinker with that and the more you play with it and fall into the trap of trying to predict Well you know Donald Trump is president. So does that mean the market's going to continue to rise like he did when he was elected or. Or is it about a collapse where he doesn't get the health care thing done. I mean you know the more you get drawn into that the more you're going to do make a mistake. Warren Buffett was alluding to in the last century of trying to dance in and out and more you're going to hurt yourself. Fidelity did an interesting study not too long ago the different classes of investors they have and which class of investor. How are those different classes did in terms of performance. Because most people who invest in mutual funds actually make less money than the mutual fund itself and the performance of the mutual fund mutual fund is going up an average of two percent a year for 10 years. Most investors will make less than 10 percent. So how does that happen. What happens because they try to time and they dance and they get set up the class of investors at Fidelity found that did the very best were dead people.
healthcare, stocks
1508 - 1511 Jonathan Mendonsa That's awesome. And that sounds about right. Yeah.
1511 - 1567 JL Collins That's and the second best. We're the people who are forgot they own the account. Obviously the people who are not trying to dance in and out in and make those mistakes. So I write this blog for people who don't care about this stuff. And ironically because they don't care. People like my daughter if she just buys VTX the VTSAX which I tell her to do puts as much money into it as she can whenever she can and ignores it otherwise she will outperform over the next couple of decades. Every professional on Wall Street and I'm not saying that lightly. That's what the research indicates if you hold the VTSAX total stock market low cost index fund for a couple of decades you'll outperform every professional on Wall Street over that same period.
indexfunds, stocks
1567 - 1600 Jonathan Mendonsa So you know that that sounds fine. And you know I'm saying this a little bit tongue in cheek but people like Brad and myself we just believe this stuff we believe it to be true. So we feel confident but I think the number one thing you see with people that are jumping in and out of market is fear and we all know that at some point the market is going to crash and it's not the little crash that went down a few points but it's the apocalypse right. It's the world is over. The stock market's down 500 points. It's time magazine 1987. Tell us about that.
stocks
1600 - 1924 JL Collins Great great question. And frankly it's one of things that I worry about when it when it comes to my blog because I started the blog in 2011 and I anybody who reads to talk seriously other post in the blog will hopefully come away come away from that with an understanding that the market does drop on a regular basis and that is just part of the process. It should never be. It should be no it should be no more surprising than than that if you live in New Hampshire as I do every winter you're going to get snowstorms. I mean that's it's just should be that that regular way if you panic when that happens. And you sell when the market is plunging you would have been better off not taking my advice at all. So the first thing you have going back out of Brad's point about psychology in any of the old philosophers used to say no thyself. So the first thing that anybody listening to this or anybody reading my blog or my book needs ask themselves. They need to know themselves and they need to be very very sure that they won't panic cut run and sell when the market drops because I promise everybody listening. The market will drop. I'm not predicting that's going to do that tomorrow or next week or sometime. I have no idea when but I know it will happen and I know that the only way what I talk about it works is if you ignore that if you don't panic now it is very easy when the market has done nothing but go up since 2009. Say Well of course I won't pack of course. You know when it went down 10 percent I got a little nervous. I stuck it out. That is entirely different than surviving something like what happened 2008. Let me let me put some numbers on that so people can appreciate that in 2008 the market as we all know took a major plunge and there were a lot of genuinely bad things happening in the economy in the financial markets were right that it was it wasn't as if this was just people being silly. There were some really scary stuff going on. And by the time you got to the beginning and the market by the way that it's bottom it's actual lowest point in March of 2009. By that time you got to march 2009. It had been rough. The market had been roughly cut in half. OK. Now it's easy to say well now I can deal with losing half losing quarter for half my money and I quit losing in quotes because as long as you stay the course you're not going to lose long term if you sell you're going to lose. Well you know you can take 10 percent maybe you can even sit there and say well I kind of like those or 50 percent loss. But consider this when the market hit bottom. Nobody knew that it was hitting its bottom. And every smart person I know who is paying attention to this stuff in March of 2009 was predicting that it was going to go much much lower. And predictions and I was hearing this it was going to go from that going down another two thirds. So let's think about what that looks like. Let's suppose that you went into the beginning of 2008. Now if you get exactly when it started to drop maybe 2007. But at the very beginning of that you had a million to invest which is a nice chunk of money enough to retire on for an awful lot of people. So you had a million or two and come march in 2009. You now have $600000 you have lost $600000. Now that's pretty we're fine. But now imagine you're sitting on your $600000 and every smart person that you know is telling you that it's going to go to 200000 Wow lose another two thirds that's what you have to be prepared to absorb. Now the good news is that the kinds of things that happened 2008 2009 are very very rare. But I've also told my daughter that she can expect at least one of those and have one more of those in her lifetime because they are not unheard of. They do. They do happen. And you can routinely expect a much more frequent corrections which as I said earlier it's about a 10 percent pullback of their markets which are like a 20 20 percent decline or more. You know that these crashes are when you get into the 30 40 50 plus percent range of things. So that's a question you gotta ask yourself can you not just sit there and lose 50 percent of your money. But can you lose 50 percent of your money and still listen to all the news saying you're going to lose much more and still stay the course.
1924 - 1990 Brad Barrett So Jim you mention Warren Buffett and I actually have a couple of quotes from him which you know I actually just pulled up while you're talking which is you know he talks about you know most people are worried about selling when everything is going down. But he looks at that as as buying everything on sale you know and he's saying it's it's wise to be quite fearful when others are greedy and greedy when others are fearful and he followed it up. That's one of his famous quotes he followed up on that in his shareholders letter that just came out a couple of weeks ago by saying every decade or so dark clouds will fill the economic skies and he will briefly rain gold when downpours of that sort occur. It's imperative that we rush outdoors carrying washtubs not teaspoons and that we will do and that is just such a great outlook on investing you know not only is he not selling when everybody else is is worried he's buying because he knows it's on sale and that just struck me as something that you know you know not to put myself in your mind but that you would think and I was very impressed by them.
1990 - 2253 JL Collins That's a quote I have not heard but I absolutely agree with it. So let me I you know I just said some pretty scary stuff. And let me follow that up by saying you know I got a question comment on my blog recently I forget which post it was but basically it was a fellow who had written and he said you know I have $20000 I want to invest. And you know my wife and I were restructuring our expenses. And you know we're we're getting on this path of financial independence. Talk about them a lot in the blog and book. And we restructuring our expenses we're now going to be able to put aside $5000 a month. So we have this lump sum with 20000 and 5000 a month. And his concern was because the market has been up for a number of years and what have you that you know is is this peak. And I really want to invest my $20000 and what have you. And of course as I've said already in this conversation we're having nobody could predict the market. So in my view the best time to invest is this is as soon as you can. Somebody once said time in the market is much more powerful than trying to time the market. Hopefully that makes makes sense. But I also said for somebody like you who is beginning on this path Here's the very best thing that can happen. Well the very best thing that can happen to you is for the market to collapse before you put your twenty thousand. Let's suppose you could you invest to 20000. The second best thing that can happen is for the market to plunge 50 percent. That probably sounds really counterintuitive to people listening but he's going to be putting in $5000 a month in New money and if the market is 50 percent that means he's essentially buying stocks at a fire sale price. The same thing that Warren Buffett was talking about Brad in the quote that you just mentioned. So. I don't just tell people to do they have to absorb all these horrible things. There are ways in my world that you deal with it. One of it is is always that this particular reader is he is working he's accumulating his wealth now he's in what I call a wealth accumulation phase where he has an income and he is taking a significant portion of that income and diverting it to investments which are ultimatley going to buy his freedom. The lower the market is while he's doing that the better he's getting he's getting more shares for that $5000 each month when he when he puts it in. So if the market drops if I'm this guy I'm celebrating I'll get to buy stuff on sale. Now the other the other phase and you're in your investment life that's going to come as what I call the wealth preservation stage or the stage where you are now living off your portfolio and you no longer have earned income. So you no longer have that cash flow that is smoothing the ride for you. All right so when you're earning income and you're investing a portion of it in the market is very volatile as we've discussed and going up and down that continual monthly or weekly or whatever period of time investment has that smoothing tendency. And you you tend to benefit from those drops. But when your earned income stops and you retire whether you do that at age 30 some of the people in this in this financial independence movement do or you do it more traditionally at age 60 or 65, at some point you're going to be living off that portfolio. So how do you smooth the ride then? the way you do that and this goes back to a bit of diversification that I do value is with bonds. So that's the stage that I'm personally. And so if the market were to plunge tomorrow I'm OK with that because I will take some of the bond money which is now a bigger percentage of my portfolio and shift it over to the stock side. I'll be buying stocks at bargain prices so I can live with the market no matter what it does.
stocks
2253 - 2258 Brad Barrett Jim if you don't mind me asking what percentage of your portfolio do you currently have in bonds.
2258 - 2260 JL Collins I carry 25 percent.
2260 - 2261 Brad Barrett 25.
2261 - 2274 JL Collins Which by the way is considered very very aggressive for somebody in my age. And what have you and we can talk about asset allocation and why choose at some point if you like.
2274 - 2275 Jonathan Mendonsa Oh yeah we definitely will.
2275 - 2406 Brad Barrett If you guys can indulge me for a minute I want to read a couple other quotes from Warren Buffett that actually really tie in to what Jim has been talking about. So you know it's funny in my mind. You know Jim you talked I think before the podcast about you know people considering you as as this authority. You know in my head when Warren Buffett said something and when Jim Collins saying that says the same thing. That's that's golden. So I mean like you know I actually consider you on this on the same par as him in this regard so yeah let me just read this real quick from his 2013 shareholder letter and it's in the 20th century the Dow Jones Industrial Index advanced from 66 to eleven thousand four hundred ninety seven. Paying a rising stream of dividends to boot. The 21st century will witness further gains. Almost certain to be substantial. The goal of the nonprofessionals should not be to pick winners. Neither he nor his helpers quote which are really Investment Advisors and the like can do that but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low cost S&P 500 index fund will achieve this goal. And he goes on to say following these rules the known the quote Know-Nothing investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long term results than the knowledgeable professional who is blind to even a single weakness. And then he goes. He finally goes on to say my money I should add is where my mouth is as what I advise here is essentially identical to the instructions I've laid out in my will and he says My advice to the trustee could not be more simple put 10 percent of the cash in short term government bonds and 90 percent in a very low cost S&P 500 index fund. I suggest vanguards. I believe the trust long term results from this policy will be superior to those attained by most investors who employ high fee managers. And now you know that when I read that I'm reading something that you would say almost almost verbatim. I mean that's remarkable how similar it lines up.
indexfunds
2406 - 2434 JL Collins I say certainly I certainly agree with everything in that quote. I'm sure I could have said it quite as eloquently is Mr. Buffett. Interestingly By the way that the very beginning of that quote where he is talking about the the last century beginning at 66 I referenced earlier in the conversation. As I said that I've got the numbers right and like I said started at six hundred and eleven thousand five hundred. But I'll defer to him.
2434 - 2438 Jonathan Mendonsa Close enough though certainly it's it's the point.
2438 - 2685 JL Collins The point is very well taken. One of the things we're talking about Warren Buffett out again. You know I get it I get readers who on my blog were really into investing in. And you know they like the process it's kind of a hobby. And of course I'm not writing for them really. I'm writing for my daughter I'm writing for people who don't care about investing. And there is a tendency of these these more knowledgeable people to always want to be tinkering with it and always you know saying well no you can do better. And one of the. And sometimes I hear this even from actually most often I hear it from people who are complimenting me but they'll say things like well you know the advice Collins gives is really good for you know the average investor who doesn't want to put in the work you know. like. No no no no. It's good for everybody. If I thought you could put in a little bit of work or even a lot of work and get better results than index investing. I would be writing a blog about what that extra work was so you would get better results. I would certainly be doing it. I I wasted decades trying to do exactly exactly that. Every now and again I'll get one of these people saying well you know you say meaning me that you know it's a sucker's game to try to pick individual stocks and individual companies and I do say that. That's how Warren Buffett made his money. So I'm going to go do what Warren Buffett did, as if. as if. Warren you know there is a reason that Warren Buffett is fabulously wealthy. Lionized and one of the most famous people on the planet and that reason is that he has done something that almost nobody else is able to do and that is to build a fortune picking individual stocks. That is an extraordinarily rare accomplishment. And to say that you're going to do what Warren Buffett did is it seems to me to be the height of arrogance and foolishness. Quite honestly and I don't care how many books on investing really I could or you or you Jonathan or were just about anybody on the planet who would say you know what I am going to go and I'm going engage Mike Tyson's trainer and I'm going to go through Mike Tyson's training ritual and and you know I'm going at all of the same people who taught Mike Tyson boxing and and I'm going to get in the ring with Mike Tyson because I can beat Mike Tyson is his prime and I will get in the ring with Mr. Tyson today and to think that something good would happen if you did that. I mean you know that right there might be a a half a dozen people on the planet when Mike Tyson was was in his prime who who had any chance of getting in the ring with him. And it's the same thing with your trying to compare yourself to Warren Buffet about but there might be half a dozen people on the planet who could play the game of Warren Buffet's level. And I don't care how many of your shareholder of his shareholder letters you read or how many books written about how he invests you aint WARREN BUFFETT Yeah and it's true that Warren Buffett recognizes that when he is recommending to his trust that they the easy that saying hey just continue doing what I've been doing. That's not what he's advising them is because he knows what he's doing is what he's accomplished is extraordinary what he is saying is going to index funds.
indexfunds, stocks
2685 - 2701 Brad Barrett Yeah it's just such a low percentage play to think that you're the one genius out of seven billion that's going to figure this out. Right. I mean you know essentially what we're saying is this is the smartest path for the vast majority of people for 99 percent of people. Ninety nine point nine Right.
2701 - 2702 JL Collins Right. Nine point nine.
2702 - 2704 Jonathan Mendonsa I know you're going to do it.
2704 - 2733 Brad Barrett Now and it's just keeping if you take it as a given that you can outperform the market which you can't. You really cannot. You can't time the market. You're not going to be the genius that can come up with individual stocks selection. If you take that as a given then your best percentage play is to go for low cost index investing. That's the only play. And you know we love Vanguard and you know honestly we love Vanguard because you taught us about it so you know that's that's a huge thing for us.
indexfunds, stocks
2733 - 2758 Jonathan Mendonsa So when you take a look at the market and the ups and downs and swings I mean how do you account for the business so when you buy the index fund you buy and you buy and everybody is following the index. How do you account for the businesses that are going out of business you know they're falling out of it you have this you have this money invested in businesses that aren't going to be viable at some point and they fade away. How do we account for that with this index investing model that we're using.
indexfunds
2758 - 3085 JL Collins That's a wonderful question. So while that index investing is is counterintuitive in a sense and it took me from the time I became aware of index investing and I want to say that was probably in the mid 80s until the time I accepted it. You know it took me a good 15 years. And part of the reason if you say well it was take a moment to define for our listeners is what the index investing is. Well first of all there is that index investing has exploded and there is an index for almost any specific sliver of the market that's not what we're talking about. We're talking about a broad based index funds and basically there are two there's the total stock market index fund that I kind of prefer. That's the Vanguard version of that is VTX. And then there's the S&P 500 index fund which Warren Buffett has mentioned. And by the way VTES excess of 80 percent index 500. So they are they are very very close. And I don't care which one you prefer I can talk a little bit about why I have a slight preference for the total stock market but that's incidental. You buy either one of those and hold it for decades and you're going to do great. They essentially buy every publicly traded company within their index. In the case of the index 500 that's basically the 500 largest companies in the United States as Brad mentioned earlier in this conversation the stock market index fund has virtually every publicly traded company in the United States. That means you get some smaller companies and some big companies and that's that in a nutshell is the reason for my slight preference. The challenge was trying to buy individual stocks in individual companies. You never know what's going to happen with any given individual company. Any research you do in any annual report hurt or around what they call it tell you. So long so what they want the 10-K I think it is you know any of the reports on a company by definition you're looking at history and you're trying to predict the future from history. The problem is that the company that's doing poorly today could very likely be tomorrow's great turnaround story and the company that seems to be hitting on all cylinders today could be tomorrow's Enron and the horror story that it collapsed without without expectation. That's one of the things that makes investing in individual companies so incredibly challenging. The beauty of the index is now we don't have to care. So when I own VTSAX I own every poupublicly traded company in the U.S. All of these companies and the people within them and working for them are striving to prosper. Not all of them will. Some of them as I as I say make the turnaround story that's about to happen. But some of those might really be about to go out of business. Some of those that are really hitting on all cylinders might collapse some of those that will get hurt hitting on Also cylinders are just beginning their upward trajectory. The interesting thing is that when you own them all some of them are going to this is a process that I refer to as being self cleansing. So self cleansing processes some of them are going to go out of business they are going to drift out. Eventually they will fall off the index and they will be replaced by the new companies that are coming up that are people are creating. If you look at some of the largest companies that are in the index now are companies that didn't exist 20 years ago. So there's is all this new blood that is coming in when you own the index. You're going to have some that go to zero and you're going to have this new blood that continues to go up. And one of the things that relentlessly drives the index up is that if you have a company in the index that's going to go to zero you can only lose 100 percent. That sounds like a lot. And It is. the corollary to that is if you have a company that's going up it can go up a hundred percent or 200 or 300 or 10000 percent. So the downside is limited. The upside is not, and the only way that dynamic is ever going to stop working is if the U.S. economy collapses completely. So we talked earlier about how the market drops in sometimes dramatically in a very scary fashion. But unless it goes to zero it is always going to recover because those underlying companies are always striving to build themselves and then to build the economy. And of course if in fact the time comes when when the economy really does go under and the dynamic I'm talking about does cease to work there will be so many other problems that where our money is invested won't make any difference and there is no place you will be able to hold your money at that point. Where you will be safe.
indexfunds, stocks
3085 - 3116 Jonathan Mendonsa Those are great final points on that. I mean first of all just that concept of the worst that can happen is the company loses 100 percent but then just the there is no upside. Limit 200 300 thousand percent. I mean that's pretty easy you can visualize that very quickly. One company goes down a 100 percent fine. We lose that one but another company triples quadruples in value as the new blood is filling in. I understand that that makes sense to me and I think I would find comfort in that if there were the a market crash with a 40 percent 30 percent drop.
3116 - 3139 JL Collins And it is the reason that as we said at the beginning of this conversation the market always goes up. That's the dynamic that's underlying that statement. So I sometimes I think when I say the market always goes up people say well you know your it has gone up in the past. We don't know that. Well that's because you don't understand what the dynamic is underlying it.
3139 - 3144 Jonathan Mendonsa And I know and you say the same point. This only works when you have index funds.
indexfunds
3144 - 3303 JL Collins the moment you stray away from low cost index funds. You know you search using individual stocks then all bets are off because individual stocks, And of course when you buy stock you're buying a piece of the company. Individual companies can and do go out of business all the time. And I suppose you know in the old days before index funds the way you built a portfolio was you do research on a bunch of companies in a bunch of different industries and you try to pick one or two good solid companies based on looking at their numbers and their annual reports and what have you. You could take out a couple of companies in each industry and give you the diversification and you knew that some of them weren't going to work but hopefully enough with it will carry forward. But that's not you can't do that. And then just set it and forget it. There was in the early 70s for a short time. There was something that became very fashionable called the nifty 50 and the nifty 50 were 50 stocks they were blue chip stocks blue chip stocks they might be big solid established companies that have been around for a long time. Their blue chip stocks and people said well you know you can buy these 50 companies and you never have to worry about it again you just own these 50 companies. Well I mean they were all pretty great companies in the early 1970s. There were companies like Kodak Polaroid and Xerox which were wonderful companies but the future was not kind to them. And there was no Microsoft and there was no apple and there was no Facebook and no one. So it's not saying that if you look at the Dow Jones Industrials which are the 30. You know people hear about the Dow. Just real average and that tends to be how the TV reporters are part what the market is doing and is prepared to wait report out because it's only 30 very large companies. But you can hazard a guess of that 30 and a guy named Dow Jones actually was the one who came up with the index in the late 80s was 85 or something. And originally it had 12 or 18 companies that he picked in from American industry care to guess how many of those original 12-18 are on the index today.
indexfunds, stocks
3303 - 3305 Jonathan Mendonsa Brad wants to take a guess.
3305 - 3307 Brad Barrett Four.
3307 - 3341 JL Collins Wow it it's General Electric. If anybody is curious of course General Electric was even called General Electric back then all the other companies have either gone out of business or they've been merged or bought by other companies or they have been replaced. So the Dow Jones Industrials those 30 stocks, now there are 30 of they are continually taking stocks off and adding new stocks because the economy changes. and when you own an index fund you don't have to worry about that because your index fund has changed with it.
indexfunds, stock
3341 - 3411 Brad Barrett And Jim I just want to take like uh a kind of a pivot slash separate larger point about about stocks in general and you allude to this in the stock series which is you know when you're buying a stock. Most people look at it almost as like gambling. Right. You're just buying this piece of paper and that piece of paper may go up it may go down. And I mean that's that's a fundamentally incorrect way of looking at it. You're buying an ownership percentage of being a very very small. But you're buying an ownership percentage in that company. And when you're buying a you know as a share let's say a VTSAX you're buying a tiny tiny little ownership percentage of those 3000 plus companies. And as you say it's you know you're owning Stocks owning a part of a living breathing dynamic companies each striving to succeed. I mean you think about those 33000 plus companies. I mean how many workers must there be tens of millions of American workers working to succeed. And as you're saying it's it's self cleansing and you know it's a you look out and you just say wow how could this how could this not succeed. The ingenuity of of tens of millions of American workers over over this time period of decades. It's just such a powerful concept. To me.
indexfunds, stocks
3411 - 3419 JL Collins Where. You are. Yeah I mean you you have all those people working to make you richer.
3419 - 3422 Jonathan Mendonsa I'd rather be on that side of it for sure. Right right.
3422 - 3668 JL Collins And by the way the only way that it can it can not succeed is if the if America fails. You know I mean there are ways that it can not succeed. If For instance there were a major war fought on our soil and we lose like Germany or Japan in World War Two and everything we're talking about aint gonna work. So those are the kinds of but short of that as long as there is an American economy. And as long as it is as there are American companies that are are being created and operating and that are being driven by this entrepreneurial spirit and in going through this self cleansing that we go through my owning the index. You know it's it's it's a winning it's a winning combination. I will I do want to go back to what you said about it because I think it's an important point that I'm going to disagree with you very slightly. I think there are two ways to look at stocks and to buy and own stocks. And you alluded to what I think is the proper and profitable way to do it which is to understand that you are actually owning a piece of the business or in the case of your index you're owning a piece of a lot of businesses and you will prosper. as that business as that business prospers. But the reason people think that investing in stocks is gambling is because there is a way to invest in stocks that is gambling. So there is there is a segment called traders or a group of people called traders who are just buying and selling pieces of paper or in this day and age, bits on a computer for very short periods of time. These are the kinds of stocks that are being touted on the nightly news in the various stock programs. The idea is you try to buy the winning stock and then you sell it before it becomes the losing stock and by the next winning stock. And that's very much like gambling that's very much like like Vegas. That is very much as. As I say and in part three of the stock series that is the foam on top of the glass the glass of beer. So if you think of a glass of beer and you have the beer itself which are the companies that you own that are actually out there doing productive things and making products and providing services that's what we're investing in we're in it for the beer. But on top of that there's this foam and the foam is all this activity that makes up everything we hear on the business TV news and you tend to read the business section or you tend to read in Money magazine. It's all of that froth where people are buying and trading and trying to make money that way. And that is definitely gambling and that is entirely different from what I recommend. To put that in a little bit of perspective. One of the one of the major shortcomings in my opinion in our educational system is that none of this is taught in high school or even in college. and on the rare occasion when it is taught, it's taught along the lines of oh let's have the stock picking contest. and it is usually taught by stockbrokers or financial advisers who will come into the school and they're not teaching the kind of principles wee're talking here, they're teaching you know let's try to find stocks that will do good in the next couple of months while we're doing this course and that's, it seems to me is even worse than teaching kids anything because you are teaching kids a way to invest in the stock market that is almost sure to bring them grief and loss.
indexfunds, stocks
3668 - 3725 Jonathan Mendonsa That's such valid input. Well this was this is gonna bring us the end of this first part. Frankly we don't know how long it's going to take to get through this series. There are close to 30 articles that Jim has put together in this in this series. And it's it does seem to grow although I think he's kind of slow down or come to the end of it along with the end of his book. But Jim is going to come back up on the show and we're going to just do this the right way. We're not going to tell you how many parts it's going to be. But this is the distinct first part and we're going to. And Jim's agreed we're going to come back on. And we're going to just keep going through this and it's going to be a conversation we're just going to talk to the philosophy. We're going to talk through the actionable steps. We're going to talk to the decision tree and we're going to take our time and we're going to do it right and just whatever it takes. That's what we're going to do so we're not going to do it. Week after week after week we're going to drop it sporadically but by the end of 2017 you are going to have the full stock series presented to you and I am unbelievably excited by how this first part came off and I know you are as well Brad.
3725 - 3732 Brad Barrett Yeah this is incredible to hear Jim talk through it and talk through the real high level theory. It was just really a treat. Thanks again Jim.
3732 - 3786 Jonathan Mendonsa And we had a we had up we have a challenge out to our listeners forever. You know if you love this if this open up your eyes to why we get so excited about VTSAX index fund investing we want to give you a free copy of Jim's book. We're doing it just for our listeners. Go on to iTunes and leave us just a short review about how you like this episode or how you like this podcast. And then just take a picture of it and send it to us at feedback at ChooseFI or tweet it to us or share it on our Facebook page. However you want to do it. We'll take that information and we'll enter you in a drawing to win a copy of the free book we're going to do one book for every 10 reviews we get. So there's you know that's a lot better than your lottery and you're helping us out and we're helping you out and we're really excited to get a copy of this book into your hands. And so Jim is still on the show so hang on Jim. We are going to get to introduce you to our hot seat. I hope you're ready for it.
indexfunds, testimonial
3786 - 3788 JL Collins I don't know that anybody can be ready for it.
3788 - 3797 Jonathan Mendonsa You really can't. There's no way to prepare for this.
3797 - 3823 Speaker In a world drowning in debt and rampant consumption. Trapped by the chains of lifestyle inflation. These questions highlight the secrets of those who are broken free. Welcome to the choose F-I hot seat.
3823 - 3825 Jonathan Mendonsa Yeah you did not know that was coming.
3825 - 3828 JL Collins I'm still not sure.
3828 - 3833 Brad Barrett We can up every single time that's played that it's so great not to it's too good not to play.
3833 - 3840 Jonathan Mendonsa Yeah but you guys you guys are like our superheroes man so we had to have an epic Christopher Nolan music score for this in order to do it right.
3840 - 3844 JL Collins So kudos to whoever put that together.
3844 - 3849 Jonathan Mendonsa Yeah. Well thank you. All right. Question number one your favorite blog that's not your own.
hotseat-blog
3849 - 3954 JL Collins Oh wow. That is. That is a hotseat question. There are you know there I don't know if they can narrow it down to one. There's there's some of that I'm just very impressed with the mad Fientist Go Curry Cracker. They both routinely open my eyes to things that I hadn't thought about her and thought about it in that way. I think the blog that I'm most excited about it the moment that is new on the scene and it's not even quite a year old is millennial revolution obviously written by a couple millennials. Christy and Brace by name I first had I don't know how I came across it. But Christie has a little video where she really takes baby boomers to task and in a fairly harsh way of course I am a baby boomer. And that was that had me me rolling and laughing because it was so true. Well they're one of the one of her lines that I like best is whenever they come across a problem or question from their readers their readers she says let's math this shit up and there is nothing there is nothing like math in the world of investing in finance to make your point. So I just I love her voice and you know I love their irreverence and I think they love them so much that that is my invitation that Christie is going to be a speaker both in our UK Chataqua this summer in England and in our traditional Chatauqua in Ecuador and in October.
3954 - 3955 Jonathan Mendonsa That's so cool.
3955 - 4002 JL Collins That's the other one I'll throw out that I've just come across in the last week or so is the wealthy accountant. Yes so obviously I'm I'm slow to the party on this one but Keith is his name and Keith as it turns out he is Mr. Money mustaches tax accountant and of course money mustache is one of the great blogs out there. But Keith himself has a really interesting and well-written blog. And it first came to my attention when I noticed I was getting some traffic from it and when I went over to look at the post where I was getting the traffic he was calling me a pompous ass.
4002 - 4006 Jonathan Mendonsa Yeah but that's a new post that just got released I think within the last couple of weeks right.
4006 - 4011 JL Collins Yeah. So maybe if you show notes that was just yeah as I said just came across his blog.
4011 - 4032 Jonathan Mendonsa He's going to be coming on the show in a few weeks after you and. and. He's great. I don't think he's so prolific. I don't think I've met anybody that's quite as prolific. He just can't stop writing. He's fantastic and he has a mind that just constantly races and applies life hacks constantly to tax optimization. So you.
4032 - 4070 JL Collins And other subjects too and I you know I'm I'm also equally impressed if you have show notes you should link to that to that post and your listeners would go on and decide. Or maybe they've already decided that listening to this today whether I'm a pompus ass or not I have to say also millennial revolution is impressive in how prolific they are. I mean in you know the amounts of information they turn they turn out as well. Those are the two new ones that have come on on my horizon in the last fall. Wealthy acountant in the last just last week or so but Millenial revolution in the last year.
4070 - 4074 Jonathan Mendonsa Yeah I know we will list. We will link to all of those in the show notes. Absolutely.
4074 - 4089 JL Collins And that is so out there that I'm you know I I probably actually actually there not a lot of wonderful blogs in my opinion but I could easily list probably a dozen and maybe maybe more than a worth time.
4089 - 4106 Brad Barrett Cool. Yeah that's great. And yeah the show notes will be a choose FI dot com forward slash 0 1 9. So yeah definitely check that out. Everyone listening. And Jim number two your favorite article of all time either on your site or someone else's.
hotseat-post
4106 - 4215 JL Collins Oh my. I suppose that depends on I'm sure that I'm going to go to somebody else's site for this. And it depends on what you mean by favorite. So my personal favorite which is one of my less popular posts but I put it up just last fall I want to say in October I was actually in Ecuador and my wife and I had going down before the Chautauquas and we were in a little fishing village of San Clemente and we were packing to take the car to the airport to go to keto for the Chataquas and I was taking one last look at my e-mail and I saw an e-mail popped up from of all people Jekyll and Mr. Bogle somebody had brought my book in his attention and he sent me a personal email offering his support and praise for the book. And I wrote a post about that entitled Mr. Bogle and me I think I probably put it up in November or December or something like that. And that is because jack Bhogle is my financial hero I mean Jack Bhogle is a financial saint somebody somebody once compared me to Jack Bogle they said you know you do you're creating the same kind that value that Jack Bogle brings. And I said you know Jack if I'm a little candle in the darkness Jack Bogle is a white hot sun. I mean there's just Jack Bogle is the reason we're having this conversation
4215 - 4222 Jonathan Mendonsa I think you're just acting as a highlighter. You know you're just going over the content he didn't write it. You just you're just highlighting it in a way.
4222 - 4306 JL Collins Yeah. Jack what Jack Bogle is just for saying on the off chance anybody doesn't know who he is. He is the founder of Vanguard. He is the creator of index investing. He is a financial saint. He has given us all the tools to reach independent financial independence effectively and dare I say it easily. So that's that's my favorite now the most popular post on my blog and I'm not sure it it is the most popular but boy it's it's got to be in the top two or three is why your house is a terrible investment. And what's interesting to me about that post is I I sort of dashed that off a little bit tongue in cheek and it is the place is I say this it's the most popular post. It's within the top two or three and it has gotten me the most hate and the most love of any post it's it's amazing. So whether whether you're you love your house or your house is a scourge or you don't have a house and you never want one or you don't have a house and you're planning to own one. You either love or hate this post and by extension you're probably goin to love or hate me and you can read through the comments and see what people have to say.
4306 - 4311 Brad Barrett All right Jim question number three what is your favorite life hack.
hotseat-lifehack
4311 - 4490 JL Collins Favorite life hack. Well I have one on a small local level. I'm a huge fan of public libraries and you know I I love reading and I'm a big advocate of reading. I think if you are a reader there is nothing you can't learn. There is nothing you can't know. There's no place you can go. And that includes into the past and into the future. I mean reading just vastly expand your your range of life experiences and I don't see any reason to own books and you know I've got a book out there and it really goes out ignores this advice and buys it. Again people say to me you know I just went to my library and asked them to get your book and that's great. I think libraries are are wonderful I like to say you know I have such an extensive collection of books that it has its own building its own staff and they maintain it. And here you know again if there's a book I want and they don't have it right. I ask them and they order it for me and it doesn't cost me a dime. So that's my favorite I guess small hack on a larger scale. My favorite larger hack I guess would be what's called a geographic arbitration. There are there are places in the world that are less expensive to live than other places. There are states in this country that are less expensive to live than other places and there are a lot of beautiful spots to live. So for instance New Hampshire where I live is a very low tax state. We don't have an income tax we don't have a we don't have sales tax it it's a beautiful place to live right next door is an equally beautiful state with wonderful actually next door in either direction of us to the west to the east to Canada versus to the north to the south. You know we have Maine Massachusetts Vermont they're all beautiful States with beautiful places to live. And they all have very high taxes. So you know if you want to live in New England there's a geographic arbitration to be had by choosing New Hampshire. Sometimes people say you know gee I retire early and what if you know what it really goes bad and the market plunges. You know I'm going to be. Well you know if you're flexible go to thailand or Ecuador or or some less expensive place in the U.S.. So I would say that's probably the big life hack that I would that I would choose.
library
4490 - 4537 Jonathan Mendonsa Yeah that's great. And you know both of those themes have popped up before we really see that with the high level thinkers in the fi community the library a very common theme. 1500 days. Passionate about libraries frugal woods passionate about libraries and also Geo arbitrage. Obviously you know go Curry cracker very passionate about Geo arbitrage millionaire educator very passionate about Geo arbitrage and I love that there's Geo arbitraged that's international. But then also there's the arbitrage that may just involve moving two miles across the border of your state to another state where it's a completely different tax situation. And I think there's a just and I hate to slow us down on this but there's actually six states that have significant tax advantages from an income tax perspective am I right about that Brad.
geoarbitrage, library
4537 - 4543 JL Collins There's six or seven that you know Florida is one South Dakota is one Alaska is one.
4543 - 4545 Brad Barrett Washington State.
4545 - 4661 JL Collins Yeah WA state's one what I like and I can't name them all. But yeah there are there are a handful of states and you know you mean people get hung up. I have to live in California. California is a beautiful state. I mean I love traveling to California I have friends in California. I understand absolutely the deal with living in California. But Oh my goodness the taxes. And every state has has has beautiful places to live in. And you know you for whatever I mean it's your life. You know if you want to live in California or any other or New York which is a high tax state I mean that's that's wonderful do it. I would suggest that you appreciate that you are paying a premium in the tax structure to choose that place. And there are other states that there are also beautiful and great amenities that don't carry those burdens. You know I talked about Millennial revolution a little bit earlier. Kristi and Bryce you were in their early thirties. They started the blog last year when they retired in the early thirties. Being Financially independent and they are now doing what go Curry cracker with Jerry and Winnie are doing which is to say traveling around the world and living in different places. It's interesting because one of the things that they observed in that experience is that because they live part of the year in Southeast Asia which is so inexpensive you know they have enough money to retire when they quit their jobs. Well they didn't fully anticipate I think is that because of this geographic arbitrage that their cost of living would drop so dramatically. And then by extension their investment portfolio would have even more room to grow.
geoarbitrage
4661 - 4688 Brad Barrett Jim actually while you were talking I was just looking up an article for the U.S. states with no income tax. So let me let me. We got the vast majority of them according to this article on the Motley Fool than I'm reading. There are seven. It's Alaska Florida Nevada South Dakota Texas Washington State and Wyoming. So we got nearly all of it. What about New Hampshire. It does not say that on this article here in the U.S. states with no income tax.
4688 - 4699 JL Collins Well the reason it doesn't include New Hampshire I'm going to guess is because we do. New Hampshire does tax dividends and interest over twenty four hundred hours.
4699 - 4713 Brad Barrett You have a actually here it is. Yeah there are two additional states New Hampshire and Tennessee that don't impose income taxes on wages but they do collect taxes on dividends and interest income. So I guess that's that's the answer. So it's fine.
4713 - 4721 JL Collins I didn't know that about Tennessee but living in New Hampshire right. Because I do pay that tax on dividends and interest each year.
4721 - 4732 Jonathan Mendonsa So for this last question we're going to kind of combine them together for you. Question number four your biggest financial mistake or alternatively the advice you would give your younger self.
hotseat-advice, hotseat-mistake
4732 - 4914 JL Collins Well we can kind of package those together because if I were able to go back in time I would tell my younger self not to make this financial mistake and the financial mistake I already alluded to in our conversation and that is it took me way too long to accept the validity and power of index investing. I think I mentioned that I in. So Jack Bogle launched the first index fund I want to say in 70 75 or 76 somewhere in there which incidentally is is the same year that I began investing. I want to say I first became aware of index funds about 10 years later. So in the mid-80s let's call 84 85. But then as I said earlier it's so counterintuitive in a sense you look at indexes you look at the index and you say you know hey I don't even have to pick winners to beat the index all I have to do is avoid the dogs. And it just seems that it should be so easy to beat the index but it's not. Because as we talked about earlier you know what it looks like today's dog is is tomorrow's great success story and the research is now there's 40 years of more than forty years of research. that Just validates that index investing outperforms consistently. It took me 15 years at least 15 years to accept that so I wasted 15 years with buying individual stocks and actively managed funds basically trying to outperform the index. I actually achieved financial independence with individual stocks and actively managed funds. So one of the other things that confuses people is they say well gee I'd make money great. I made money picking stocks right. Making money with this actively managed fund. I did too. It's not a matter of that one doesn't work at all and the other one works. It's a matter which works better. And I could have made more money much more easily much more reliably with the index fund. So if you go back in time I could really go back in time I would have made myself aware of index funds that I would have embraced in 1975 from the very beginning and done nothing else. Short of that I would have made myself smart enough wise enough insightful enough to accept them the moment I did hear about the mid-eighties. And one of the reasons that I'm not terribly patient with people who argue against index funds even today is that I made all those same arguments for 15 years. All due respect I could probably make them better than most make them today. I just hope that those people who are still making that argument aren't as slow and stupid as I was and it doesn't take them 15 years to realize the mistake.
indexfunds, stocks
4914 - 4928 Brad Barrett Yeah that's great stuff Jim and I guess our last little bonus question we like to throw in what was your favorite purchase that you made on Amazon.com or you know anywhere any kind of purchase you made last year your favorite purchase.
hotseat-purchase
4928 - 4986 JL Collins Well this is both. I'm laughing because I don't like to own things. And so I buy almost nothing. And that that makes this a very hard question and a very easy question. So the only thing I can remember buying in the last year or at least in the last several months was probably about three or four months ago I bought a new electric razor on Amazon and had I bought an electric razor because my old electric razor which it had for decades finally died because I I'm one of those weirdo people who actually wears stuff out before I buy something new. Awesome. And I love my new razor because my old razor was you know it had a cord and you plugged it into the wall. Well the new razor is rechargeable. So it has a cord with Chargers. And now when I actually shave with it I don't have a cord.
4986 - 4988 Jonathan Mendonsa I'm genuinely excited to see the exact razor.
4988 - 4994 Brad Barrett You were deafening and ask you to send us a link We'll put that on the show so everybody can see the Jim Collins favorite razor.
4994 - 5009 Jonathan Mendonsa I get so excited to hear the answer to that specific question just because we know in the fi community we don't buy stuff. We just I mean I do but I mean most people in the FI community don't buy stuff. So to find out the one thing they purchased last year to me is hilarious and awesome.
5009 - 5057 JL Collins Like well I will try to find you the link I'll have to actually look at the razor to see which one I bought. You might have guessed already about one of the cheaper ones. Let's put the beauty of it. I never you know I would have replaced my old razor much sooner had I realized how much I was going to enjoy being cordless because now I'm what I do this is probably a lot more than everyone wanted hear. But now what I'll do is is in front of the mirror. I'll shave around my sideburns you know just to get them. But once you've done that you don't need a mirror. So I'll walk around shaving and do other things you know while I'm running the shaver in my face which is a very liberating. Well does that surprise please.
5057 - 5089 Brad Barrett Now that's super cool and hey Jim I'm I'm with you on the not wanting to own anything. I mean geez if it were up to me I would own maybe one suitcase worth of clothes a laptop and that's about it. I'm with you on not owning a house. Nothing. I mean it's just in this day and age. Like you said with the library you know you don't need to own things you know. I mean there's really no need. It just it weighs you down. It's expensive. You have to store everything it's got. Yeah. My perfect world scenario it's own nothing.
housing, library
5089 - 5163 JL Collins Well if all goes according to plan as I think you know Brad and I don't know if you share this with Jonathan but we sold our house three years ago and we've been happy renters ever since. And if all goes according to plan when our lease is up this fall we intend to let the apartment go and get rid of a lot of our stuff with the few things that we that we want to keep which are things that we collected on our travels. For the most part it is storage. We're going to load up the jalopy with the dog and a couple suitcases and we're going to spend the next year. I'm calling it our experimental hotel living and I don't know it's if we're going to wander around the US in the car with the dog and partially is a scouting mission deciding where we want to live next partially to do it and see what living in hotels is like. Maybe that's what we do on a semi permanent basis. But yeah the idea of having nothing more than what's in the suitcase has a lot of appeal to us too.
5163 - 5179 Jonathan Mendonsa Very cool. Well Jim let's see our audience they I I'm sure they're going to want to connect with you and some of them are not going to want to wait for our next episode to drop on this and they're going to want to go read more about the stock series so how would you recommend that someone connect with you if they want to get integrated into your community.
5179 - 5303 JL Collins Well it's the blog is the way and it's JL Collins N H dot com JL are my first two initials Collins C O L L I N S N H for New Hampshire which I had a tag on because all the variations of my name were taken when I was looking around. so JL collins nh dot com takes you to the blog. Across the top of the blog you'll see a series of buttons one of those buttons is labeled stock series if they want to start reading through that. If they're interested in the simple path to wealth which is my book there is a link to that will take them to Amazon to buy the book or they can go down to the library and ask for it or ask the library order it. I'm good either way. The book by the way is it with me real quick. It was kind of interesting to me when I was doing the book. The advice that I got from multiple corners was Be sure you put in information that's not on your blog so people have to buy the book. Yes. And I ignored it. So there is nothing in the book that is not on the blog what the book is and I think there's value in this.The book is more concise. It's better organized because as I alluded to earlier the stock series other than the first five posts sort of came together as people suggested things. So the book takes all that information and some posts that are not in stock series and then puts it in a little better organization and you're writing a little more polished than you get in blog posts. So the book is a more concise better polished better organized version of what's on the blog but there is nothing in the book that you can find on the blog so you don't have to buy the book. And even if you want the information in book form you still don't have to buy it you can goand tell your library to buy it or just get it from a library they've already got it.
5303 - 5360 Jonathan Mendonsa All right. Well this was just absolutely absolutely awesome. I loved every single part about this. I don't know what part I liked most. This was bringing to life stuff that I've read and just was soaked up the first time I read it on his blog and the article series. I've literally had a vision of having this conversation with him for two years. I've been wanting to do this forever. Just walk through it piece at a time not being constrained by time. Yes you're in it an hour and 30 minutes. And yes you better like every second of it and appreciate it because this this information being able to just soak it up slowly. This is going to be worth millions of dollars. Yes. I mean it millions of dollars start now. I don't care if you're hearing this in your 20s. I don't care if you're hearing this in your 30s or 40s your 50s. You know the math works for you. And this is why this is why Brad and I get so excited about it. The simple path to wealth and just unbelievably excited about how this went. Brad do you have any final thoughts on this.
5360 - 5377 Brad Barrett Now just a big thank you to Jim. I mean this is wonderful. I enjoyed every second of it and I'm sure our audience did as well. It's just just a real pleasure and a treat to have Jim on and I'm so thankful that he took the time and that he'll be back for more episodes. I mean it's really really fortunate. So A big thank you to Jim.
5377 - 5393 Jonathan Mendonsa What a treat. Choose FI dot com slash 0 1 9 for the show notes. Go there check it out check out all the really cool links if you want a free copy of the book. Please just send us your review on iTunes take a picture of it send it to feeback choose FI. We want to get you that free copy.
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