Today I’m going to share my thoughts on one of the FIRE community’s favorite books, The Simple Path to Wealth by JL Collins. I was introduced to Mr. Collins’ work through his website, and specifically the excellent Stock Series. If you’ve ever heard him on a podcast, you’re familiar with his baritone voice — he even recorded a guided meditation for stock market volatility — but he is also one of the clearest and most compelling writers in the personal finance space. His book is one of the first that I recommend to all medical trainees, along with the first White Coat Investor book.
The core thesis of The Simple Path to Wealth is that by investing in a broad selection of productive companies — in this case represented by Vanguard’s total US stock market index fund VTSAX — you can essentially guarantee significant growth over a long-term time horizon. Mr. Collins argues that further complicating things with individual stocks and foreign investments is a distraction that is more likely to erode wealth than add to or protect it. He does allow for some diversification with a total bond fund to ‘smooth the ride’, but it is clear that the focus is on US equities.
Much of the book is spent exploring the rationale for this outsized focus on a single specific fund. Many are factors that can found in the index funds of other large discount brokerages: low fees (VSTAX has an expense ratio of just 0.04%), broad, self-cleansing diversification (because VTSAX is cap-weighted, failing companies will drop out and growing companies will dominate), and a track record of beating more active investing over 80% of the time historically. Again, this can now be accomplished just as easily at Fidelity or Schwab. What makes Vanguard special is its philosophy and ownership structure, whereby the company is client-owned. This in theory aligns its incentives with those of its investors, rather than a small separate group of owners. Vanguard also blazed the trail for low-cost funds, so while they way no longer offer the cheapest options (Fidelity now offers zero-cost index funds), this history is important to many people.
Mr. Collins also spends a good bit of time discussing the psychology of money. This includes the burden of debt (even ‘good’ debt like a mortgage) and the freeing-power of what he calls F-U money, a cushion of assets that represents the freedom to walk away from a toxic work or life situation. When you know that you can weather even several years of unemployment, the entire world opens up to you.
The rest of the book covers a variety of introductory financial concepts in an accessible way; retirement accounts, HSAs, target-date funds, safe-withdrawal rates, social security and charitable giving are all covered. While you will not come out the world’s expert on any of these topics, that is exactly the point! You do not have to be a financial genius to to make reasonable investing decisions and avoid 95% of the pitfalls that plague the average investor.
The Simple Path to Wealth is a perfect first read for anyone dipping their toes into investing for themselves. It provides a perfect foundation for more physician-focused resources and is a powerful document in its own right.