At Janice Henderson, we help clients define and achieve superior financial outcomes through differentiated insights, disciplined investments, and world-class service. Janice Henderson, investing in a brighter future, together. Investing involves risk, including the possible loss of principle and fluctuation of value. Please stay tuned for important disclosure information at the conclusion of this episode. Hi and welcome to the Longview.
I'm Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar. And I'm Jeff Patak, Chief Rating Officer for Morningstar Research Services. Our guest on the podcast today is author and blogger, Jail Collins. Jail blogs about financial and other matters at jailcollonsnh.com. His first book, The Simple Path to Wealth, Your Roadmap to Financial Independence and a Rich Free Life, was published in 2016 and has been an international bestseller.
Jail's latest book is How I Lost Money in Real Estate before it was fashionable. That one came out in 2021. Jail, welcome to the Longview. Thank you. It's a pleasure to be here. I appreciate the invitation. Well, we're really happy to have you here today too. We want to talk about your path to finding a simple path to wealth, which is the title of your book. How did you get started as an investor and how did you find your way to the minimalist investing path that you embraced today?
Well, that's kind of a loaded question there. I'll answer the second part first. I found my way to the path as far as now by basically wandering in the wilderness for decades and making every conceivable mistake you can think of. I first started investing in 1975, actually. I had no idea what I was doing. I had accumulated the princely sum of $5,000 and I was working in downtown Chicago at the time.
On my lunch hour one day, I walked down Michigan Avenue to a broker-drafist that I've seen storefront and walked in and I said, I'd like to talk to some of you about buying some stock. They introduced me to the broker and he sat down and asked me what, looking back on it, now we're actually pretty good questions. I had no frame of reference to that point, but he asked about risk tolerance and you know, time horizons and all those good things to ask about.
He put me in the Southern company, which was a utility serving the states in the south and in Texaco, which of course was an oil company that I think has since been absorbed. We split the $5,000 and put it in each of those two stocks.
Of course, because I was an obvious and didn't know what I was doing, the moment those stocks moved and I honestly don't remember if they went up and I got greedy and grabbed the immediate profit or they went down and I got nervous and sold, but I didn't hold on to them very long. So, mistake number one. And what were the mistakes after that? Oh, they're too numerous to name individually, I guess, but probably the biggest one is that it took me so long to embrace indexing.
There's an irony in that in 1975 was if I'm correct about this or close to it, the year the Jack Mogul first brought out the first index fund of Vanguard. And of course, I had no idea that he'd done that so I can't regret not doing something I didn't know about. But I frequently think, wow, if I had known that and embraced it from the get go, how much easier my path would have been and how much further along it would have been. I would have been on it at every stage.
But what I do blame myself for is college buddy of mine in the mid 80s who was an analyst with tough and fulps introduced me to the concept of index funds. And it took me a decade after that, maybe a little longer to finally let it sink in. It just, and so there's an irony when I hear people arguing against index funds today, it's my own voice I hear ringing in my ears because it's all the same arguments I made back in the day. So that's probably my biggest mistake.
And so what was the breakthrough for you where you came to embrace indexing and minimalism? I mean, it sounds like it was a trial by error to a certain extent. You probably became fatigued at making mistakes and saw an alternative. But what was it about indexing and minimalism specifically that appeals you at that time? You know, Jeff, there wasn't a road on Damascus kind of moment. It was more a slow gradual education, I guess, and understanding.
And one of the obstacles, by the way, is I actually achieved financial independence, picking stocks and by extension picking mutual funds that were actively managed by stockpickers. And so one of the problems for me at least within bracing indexing is it's not like what I was doing wasn't working. And in retrospect, it was just much more effort and it wasn't working as well as indexing would have worked for me. But it was still working.
If I'd been doing it and getting a negative result that in some fashion might have even been better because I would have been more willing to look at alternatives and more quick to change. What was your career path prior to you becoming a financial blogger? And what was the impetus for you to get started sharing what you had learned with a broader audience via your blog and your books? What were the things that made you want to communicate what you had learned?
Well, so the first part of that, I was in the magazine publishing business, business to business magazines, which of course have little or nothing to do with investing. So investing was an avocation rather than a vocation for me. What made me finally put this stuff down in the blog was I had tried very hard to introduce my daughter to these financial concepts, but I tried too hard. I pushed too hard too early.
I mean, who knew that a four-year-old wouldn't want to go through the Wall Street Journal with you, but there you go. And I turned her off to all of this stuff. And I know that from experience, not only my own, but watching other people, that if you get money right, your life is far easier and more opportunities and rich and rewarding than if you don't get money right. So it was just critically important to me that somehow I conveyed this information to her.
And finally, I decided I better write it down against the day that she would be ready to receive it if I wasn't around. And associate of mine said, you know, this is pretty interesting stuff. I shared it with him. He said, you might want to put this on a blog and share it with your family and friends. This was in 2011. And I had heard of blogs, but I joke that the first blog post I ever read was the first one I wrote. And, but it sounded to me like a good idea to archive the information.
So as my daughter likes to tease me today, says, you know, dad, if I'd listen to you, there'd be no blog. There'd be no blogging. I wanted to turn to recent times for a moment, if I could, and curious whether there are Ben and E. Aha moment. So to speak for you with respect to financial matters during the pandemic period. That's an interesting question, Jeff. And I suppose it was more of a reinforcement.
I remember in 2020, I want to say around March, when the market took its very short lived into a pretty traumatic plunge. And my Twitter feed began to feed in comments on the blog to begin to fill up with people saying, you know, JL, you're always saying stay the course and, and, you know, don't panic and sell, but this time is different. You know, this time it's, it's a pandemic. And my response was every market crash and market crashes.
And my view or something that are a normal part of the process, you just have to learn to accept them if you're going to, if you're going to be in the market and enjoy the long term gains that it can provide, you can't predict when they're going to come. But anyway, every market crash has something different and unique that triggers it.
And in my view, the fact that it happened to be a pandemic, while especially tragic because of the deaths that caused, it was just one more kind of thing that can trigger a crash. And of course, I was proven right. The market did bounce back and, and stunningly, short period of time, which of course, I had no idea that it was going to do and nobody else did either. But I did know that the pandemic wasn't different than any other cause of any other crash. It was just the reason to do so.
You alluded to indexing earlier and a key piece of advice that you given again and again as that people should start out by putting as much as they can into a total stock market index fund. You usually reference fan guards and just call it a day and then maybe eventually add bond funds for ballast. But what about something that's, are you believe and simpler or is simpler in my mind, which is just by a target date fund and call it a day? Well, first of all, I agree with you.
It is simpler and I have a blog post on target date funds and I think I have a chapter in my book about them too. I'm pretty sure I have to look at that book again when these days. I included a chapter about them and title the blog post in the chapter of something along the lines of the simple path of all or what have you. I'm not a huge fan of them because they are a fund of funds and they own some funds that I wouldn't choose otherwise.
But there's some subject matter topics that are just harder for some people to absorb than others. Insurance is a subject for instance that makes my eyes glaze over. So I'm keenly aware of the fact that investing while I enjoy it is a subject that makes the eyes of a lot of people glaze over.
And I've written my book to be as simple as possible, the simple path to wealth and one of the highest compliments I get from people is that, wow, I've tried to read a lot of finance books and finally reading yours, this stuff makes sense. So that's who I'm writing for. That's my daughter basically who I'm writing for.
So anyway, but I say, if you read my book or you try to read my book and your eyes are still blazing over and this is just not something you want to deal with, then I think a target date fund is probably a pretty good solution. But my book is pretty simple and it does seem to resonate with a lot of people who were otherwise disinterested in this stuff.
So if you can read my book and it makes sense, you know, the principles and approaches make sense, then I think that's the better approach than target date funds. But target date funds are not a bad approach. Just stick with target date funds for a minute, if we could, it sounds like maybe you feel like they overdo it a little bit, not to put words in your mouth, maybe just in terms of the number or type of exposures that are delivered through the fund of funds structure.
Could you elaborate a little bit on that? Things like if you had to draw it up, wouldn't be a part of a target date fund because you don't really think that they're unnecessary or maybe the target date fund overdoze it in some cases? Yeah, well, for instance, probably the biggest one of those kinds of things are the target date funds have international exposure. And I'm not against international exposure, but I just, I don't see the need for it. And again, they're a fund of funds.
So some of those funds have higher expense ratios, higher costs than simply a basic, broad based index fund. So you're adding a little bit of extra cost and you're adding something that I don't, at this point in our history, I don't see a need for. So I guess it would be the international stuff that's the, I don't know, the most obvious. So just to follow up on that, does that give you pause given that it seems like by most measures, non-US stocks are inexpensive relative to US today?
You know, I think when people say that what they overlook is the idea that it's not just the thing you are buying, but it's where you're buying it. So the fact that US stocks are more highly valued than stocks in other part of the world says something about the neighborhood those stocks live in. So for instance, there are articles you can type into the internet and I've seen these articles on a regular basis of how much house does a million dollars buy in various parts of the United States.
And you know, they'll pick different locations in the United States and they'll show a picture of how she can buy in Tennessee for a million dollars versus Florida versus California versus New York. And of course, the house you get for that set price of money is dramatically different depending on where it's located. So I think when people say international stocks are cheap compared to US stocks, well, that's true.
Just like houses in Tennessee are probably cheaper than they are in California, but that's taking a little bit out of context because houses in California are in a different location than houses in Tennessee and stocks in the US are in a different neighborhood than stocks in the rest of the world. As much as you're a true believer in total stock market, you've indicated that sometimes you feel a need to scratch an itch to buy an individual stock.
What kind of stocks are you attracted to and how have you done with them? Well, Jeff, I refer to that as having the disease. I am, as I think I alluded to earlier, I used to be a stock picker and I in fact achieved financial independence doing that and there are a few things in life that are more in taxing than choosing a company buying the stock and being proven right and watching it go up. That's a pretty addictive feeling and I still have that addiction.
I have it owned an individual stock, oh, probably since 2013, 2014, something like that. So I have sort of broken myself of the addiction. One of the reasons is that I look at it and I say, well, if I were going to buy an individual stock that I'm not going to put more than 5% of my net worth in it, and I'm not going to build a portfolio of these things because that's counter to my investment approach.
So I'd be just selecting one or two and because if I'm wrong, I don't want it to move the needle too much. Of course, the correlate of that, if I'm right, unless it's some huge gainer, it's not going to move the needle very much otherwise. To answer your question, if I were to do it, and again, I haven't researched these, but I am a big fan and very impressed with Elon Musk. He just seems to be an incredible, incredible guy in what he's accomplished.
And depending on the price point and Tesla, I think, has come down pretty dramatically recently. I might be looking at something like Tesla. I'm also a very impressed with Zuckerberg. I know a lot of people don't like him, but when I listen to him being interviewed, he strikes me as an incredibly bright and incredibly thoughtful guy. And I think that's another stock that's been beaten down recently. I imagine probably has some potential.
And of course, both those stocks are not value stocks, shall we say. So they're kind of high flyers. And I suppose if I were going to add some spice to my index funds, I would want to look at that kind of thing, but again, I don't do it. And the other thing is that I own Facebook and Tesla by virtue of my BTSAX.
If I can quick follow up on that, I suppose given the success that you had in achieving financial independence through stockpicking, you could have made the choice to evangelize for the brand of stockpicking that made you successful, but you made a different choice. Can you just talk about how it is you concluded that the right path to try to lead people towards is sort of this more minimalist indexing-centric approach that you ultimately embraced?
Well, I think when you look at the research and ever since index funds came, index funds were not warmly received by the investment community primarily because the fees are so low and if you're an investment professional, there's less opportunity to get a bigger part of the clients' money out of them.
So there was a lot of pushback against index funds from the very beginning, but then the longer they were around, the more research about them came out and it just became more and more evident that it's very, very difficult for a stockpicker or a actively managed mutual fund to outperform the index over time.
There's a certain percentage and I think it's like 20 or 25 percent that will outperform it on any given year, but as you go out three years, that percentage drops and by the time you go out 30 years, there's less than 1 percent, which is statistically zero. So as Jack Bogal once said, performance comes and goes, but fees are forever. And of course, fees are one of the reasons that active management is at a disadvantaged index funds as well.
So I've now forgotten your question, Jeff, but maybe that answered it. It did. Thank you. What were your thoughts as you watched this whole meme stock phenomenon unfold over the past couple of years? We saw all these younger investors jumping into the market, but they were doing so by basically speculating in my opinion, what were your thoughts when you were watching that unfold? Well, Christine, you and I share that opinion. There's no question it was speculating. And of course, I'm human.
My first thought was, wow, I wish I'd bought GameStop six months before it took off on its meteoric rise, but of course, I wouldn't have, because I'm not a stockpicker anymore and I'm not sure that's a stock that I would have been attracted to candidly at the time. So my main thought was watching this is there going to be a lot of tears for a lot of people. There are going to be a few people who are going to make a lot of money, which is always the case with speculation.
And of course, the media is going to focus on those and it's going to sound like, wow, if only I'd gotten into that meme stock, I would have made a lot of money. That's the same reason I mentioned earlier that I'm in Las Vegas at the moment. It's the same reason. Casinos have all the alarms go off when somebody hits in the jackpot. They see no wants everybody in the casino to see people winning. But I think for most people, it's going to end in tears. It probably already has ended in tears.
That's the case with most speculations. They'll make a handful of people rich and the rest suffer. So yeah, I'm not a fan. What's your view on how necessary mistakes are to ultimate success? Obviously, it proved pivotal to the success that you've had. Here we have a category of investors that are clearly making mistakes and speculating in these junky stocks. Do you think this overlining for them will be that it'll prove pivotal to their future successes? It was to you.
Or if not, what sort of intervention do you think is needed to set them on the right path? Right. So I imagine, you know, my father, for instance, when I remember when I was a child hearing that he had invested in some stock based on a tip that you got. And not surprisingly, he lost money. And he said, man, I'm never going to do that again. The stock market is, you know, it's just a way for you to lose money. And I imagine that's going to be the reaction.
A lot of these people who go into these meme stocks or who just go into the stock market in general without taking the time to educate themselves. And, you know, it's the market will leave you bloody if you do that. And most people are going to say, wow, that's a terrible thing. That's just gambling. I'm just, I'm not going to go near that again. So I think that's probably the reaction.
The good news is in this day and age, there is so much great information out there about how to approach the market correctly and successfully. And the right attitudes that you need to have to do that. Now as to whether people can learn, you know, I, one of the things that I wrestle with in my own advice, I've put it out there. I started my blog in 2011. And since 2011, the markets had done almost nothing but go up.
I mean, there was the pretty sharp drop during COVID, but that was over in a month or six weeks or something. So there's a whole generation of people who have never experienced a crash. And there are a lot of people who read my stuff. And of course, I talk about the wealth building power of stocks. I hope they're also reading the part where I'm talking about you have to expect crashes. Crashes are a normal part of the process.
And you know, it's very possible that one day you're going to wake up and your stock portfolio is cut by 40 or 50 percent. And if you can't tolerate that and if you're going to panic and sell, then you don't want to follow my advice because it will leave you bleeding by the side of the road. Now, that's all easy to say. And it's easy for people to understand in their head, but it's a lot tougher to actually weather a bear market or a crash when you're watching your holdings to a low value.
And I do sometimes wonder, you know, are the people who read my stuff going to be able to weather that crash just based on having read about it or as I had to do, are they going to have to panic and sell themselves and then sit on the sidelines looking their wounds having locked in their losses? Well, the market is always does, turns around and goes back up. I don't know the answer to that question. I hope they can learn just by reading.
You do counsel people to de-risk their portfolios as they get closer to retirement or whatever kind of goal that they're working toward. So at what point do you suggest that people should add bonds to their portfolio? What types of bonds? How should they embark on that de-risking process to protect themselves against the kind of down draft that you were just discussing?
So I write primarily for what's come to be known as the fire movement, an acronym that stands for Financial Independence Retire Early. I don't really like the retire early part of that because the people I know in this might quit their day job, but they go on to do other productive things. So basically in my world, it's not a matter of age, it's a matter of cash flow.
So when you're working and you have cash flowing in and if you're smart and you're falling my advice, you're taking a significant portion of that and you're channeling it towards your investments, that's what allows you to benefit from the volatility of the market. Because if you're putting money in on a regular basis as my daughter is as an example, then when the market plunges, well, that's good for her because she's getting more shares for those same dollars, she's buying them on sale.
So not only does she not have to worry about those market drops, they can work in her favor. In fact, I say for young people who are just starting out investing the best possible thing that could happen would be a major crash because now you're just buying things at a lower level. But when you stop earning that cash flow and you decide to retire whether you're taking a sabbatical or you've come to the age where you're not going to work anymore, then you need something else.
It seems to me to balance out the volatility of stocks and maybe to provide some dry powder to take advantage of the plunges. And that's when I suggest that you add bonds to your portfolio, but that could come when you're 30. If you've achieved financial independence, as many people do and you say, okay, I'm going to not work anymore for a while and well, then you probably want to add some bonds to take the place of the cash flow that you used to have to smooth the ride.
And maybe five years later you wind up taking another job and then you cycle back out. So it kind of depends on the phase of your life you're in at any given moment. At Janice Henderson, we help clients define and achieve superior financial outcomes through differentiated insights, disciplined investments, and world class service. Janice Henderson investing in a brighter future together, investing in false risk, including the possible loss of principle and fluctuation of value.
What did I shift and ask you about retirement income? I think you said that the 4% guideline can be a good starting point for people who wanted aside if they've saved enough to be financially independent. Are you concerned that 4% could be too high in an era in which equity valuations are quite high and bind yields are so low?
No, I think there's been a lot of hand-ranging about the 4% rule of late in the last few years and it kind of reminds me of a few hundred years ago, a theologians evidently were debating about how many angels could dance on the head of a pen. I think the problem comes when people say 4% rule. I think if you change that and said 4% guideline, then you're good. Because 4% is not a hard and fast rule.
If you look at the Trinity study, a 4% withdrawal rate adjusters for inflation over 30 years, is just one of the many scenarios that the study looked at. It happened to be one that had a 96% success ratio. It became very popular, but the truth is when you look at that research, 4% is very, very conservative. 5, 6, even 7% withdrawal rates were successful on many of those occasions. I look at the 4% rule and I say it's inherently conservative.
By the way, I don't mean to suggest anybody should start drawing 7% from their portfolio, at least not without looking at the Trinity study. I think 4% is a pretty reasonable and fairly conservative number. Having said that, when I last hung up my last corporate job, I think my withdrawal rate was about 5% because my daughter was in college at the time. I was comfortable with 5% because looking at the Trinity study, 5% has an extraordinarily high success ratio.
But I was very careful to keep an eye on what the stock market was doing. Fortunately for me, during those years, the wind was at my back because I mentioned earlier the markets had nothing but rise for the most part over the last decade. I benefited from that. Had the market turned around and punished again, then I would have adjusted that withdrawal rate in the heartbeat. I don't think anybody would and certainly nobody should say I'm going to withdraw 4% or 3% for that matter.
I'm going to just do that automatically and I'm never going to think about this again because there is a risk inherent in it. The 4% rule, even before the current environment you're describing, did fail 4% of the time, no connection to the two numbers. So you're never going to want to do any percentage withdrawal and just set it and forget about it. Not only because you might run out of money, but even more importantly and more likely, your money is going to grow far beyond that withdrawal rate.
If you don't pay any attention, you can wind up 30 years later with a huge pile of money that you could have enjoyed along the way. So you not only want to monitor it so you don't run out, you want to monitor it so you get the maximum benefit from your holdings. So one area where you run counter to the conventional wisdom is that you're not a big fan of dollar cost averaging.
You note that the market usually goes up so you're just better off getting that money to work in the market as soon as possible. That makes sense for people with long time horizons. But what about for people who are closer to draw down or financial independence, whatever you want to call it, who do come into a large sum of money?
Are they better off kind of dribbling it in over time to protect themselves against the risk of plowing a bunch of money to work into the market at precisely the wrong time? So Kristian, first of all, let's, and you've alluded to this already, but let's be clear that when I was talking about my daughter and she's putting money in on a regular basis and that smooths the ride, that's a form of dollar cost averaging and I'm very much in favor of that.
But the kind of dollar cost averaging you're asking about and you did make this clear is what if you wind up with a lump sum of money for whatever reason? And in that case, as you correctly say, I am not a fan. And my thinking about it is this, if you dollar cost average, it's only going to work for you if for whatever period you choose to deploy that money, the market goes down.
Because if the market goes up, that means that every additional amount of money you put in, you're going to get fewer shares for that. So let's say, make the math easy, you have a $120,000 that your rich uncle has left you. And you say, I don't want to take the risk of putting this $120,000 in all at once because tomorrow might be the day the market crashes 40%. So I'm going to break it up into $10,000 chunks and I'm going to invest it over over the next year.
Well, if the market goes up the second month, you invest your getting fewer shares for your $10,000 and the third fewer and fewer. So you will wind up with a less good result at the end of the day. By the same token, if the market just stays flat, your result will be less because it took you longer to put that money to work. The only time that you benefit is if, in fact, the market drops, whether it drops suddenly or just drift slower over that year, then it will work in your advantage.
So now we have to sit back and say, OK, we have to make a choice. Which of those things is more likely? Is the market more likely to go up over this year? I'm going to do it. Where is it more likely to go down? Well, the market goes up three out of four years. Now, to be clear, it doesn't go up three years and then go down a year and then go up three years and down a year. It's not that reliable, but on average.
So you have a 75% chance of doing less well with your dollar cost averaging against a 25 chance of maybe it working out for you. So that's one of the core reasons I'm not a fan of dollar cost averaging. But here's the kicker. Let's suppose that you dollar cost average and maybe the market drifts up a little bit, maybe it drifts down a little bit, but at the end of the day, you know, you've got your 120,000 deployed. And then the day after that is the day the market drops 40%.
My point being you haven't protected yourself from that drop you fear at all because the moment you're invested, whether you dollar cost average in or you lump some, you are always at risk of the market dropping. And as we talked about a little bit earlier, nobody knows when these drops are coming. If you're going to panic and sell, you don't want to follow my advice. You don't want to be in the market at all.
You have to be willing to accept the fact that at any given moment, the money you have invested in stocks has the potential of dropping dramatically. And so dollar cost averaging doesn't protect you from that. At least not in the long term, and you should be investing for the long term. I wanted to shift over to real estate if we could. I believe you said that one of your most popular and controversial posts is about why homes are almost always a bad investment.
Can you sum up your thesis on that? Yeah, that is Jeff. That is the post that has been the most popular in terms of views. It's the one that's garnered me the most hate. It's the one that's also garnered me the most love. And of course, it depends on the person who's reading it. Home ownership is the American religion, as James Altature has said a number of years ago. And that's not an accident. That's by design.
During the 1930s and the Depression, the government made a concerted effort to help people get into homes because they were concerned about political unrest. And the feeling was that if people own to their own home, they'd be more settled. They'd be less likely to be restive. So there has long been a push in this country to own your own home. It is the American tradition. And there are a lot of stories, kind of like the meme stocks of people who buy houses and the house goes up dramatically.
And they do very well. And the media loves those stories. They tend not to talk about the Detroits of the world. So there are lots of times when people buy houses. And if you bought a house 20 years ago in San Francisco, you have a great story about how you made a ton of money. If you bought a house 20 years ago in Detroit, you probably have a very different story. Now 20 years from now, it may be that if you bought a house in Detroit, that's maybe this is the new Renaissance city.
And you'll be the one who's done very well. And maybe a few bought a house today in San Francisco 20 years from now, for some reason, San Francisco declines and becomes the next to Detroit. I'm not predicting either of those things to be clear, just as an example. So anyway, there are always times when the houses can be made to look like the best thing that you've ever done. But the truth is that houses more commonly don't rise in value much over inflation.
Sometimes they struggle to do that. They are always a drain on your financial resources, not just with the mortgage, but with the taxes and with the maintenance. People rarely buy a house without wanting to upgrade it. So that's a new expense and tends to be a big one. You know, you're going to furnish it and you're probably most people in the buy house are buying bigger space than what they were renting.
And all of those companies that supply those things like furniture and realtors and mortgage companies and appliance companies, all of these, all these people have a motivation to maintain the idea that owning a house is the best possible thing you could do. I'm not against home ownership. I've phoned houses most of my adult life, but I view them as a lifestyle choice, not an investment choice. I view them as an expensive indulgence, if you will. And there's nothing wrong with indulgences.
That's one of the reasons we work hard and save and invest money. But I think that if you are young and your goal is to achieve financial independence, one of the key things you want to do is keep your housing expenses as low as possible.
And with very rare exception, renting is far more powerful than home ownership and your lower monthly costs in that apartment over owning that house with all the expenses that come with it invested in index funds over time will probably make you much wealth here. So a counterpoint is that the fact is that homes are really a liquid so that keeps people from rating them, which is something that you can't say of liquid investment accounts. Can you talk about that?
I know you've talked about this in your blog about how home ownership might actually make sense for people who would otherwise have trouble saving. You know, Christine, to be honest, I don't remember talking about that on my blog, but you may have looked at the blog more recently. I did. I saw it there. But I do agree with that. And my own parents were a good example of that.
I think I mentioned a little bit earlier in our conversation that my dad, that dabble with stocks based on some tips and he got burned and that was the end of that. And when he died, and he died at a fairly young age of infancy, but he was a cigarette smoker. The only asset he left behind was the paid-off house. And of course, that was salvation for my mother. So a great example of just what you're talking about.
And from that point of view, for somebody who lacks discipline or doesn't even think about it, like my parents owning a house long term can wind up being a valuable asset. Now of course, in today's world, it's a lot easier to take the equity out of your house. There's a lot of promotion designed to encourage people to do that. So it's less of a slam dunk from that point of view. But my bigger objection to it is that it's not a very effective financial way to build wealth.
My father would have done better had he learned about the stock market than just the house. And I always cringe a little bit with strategies that involve compensating for people's psychological shortcomings rather than the dealing with those shortcomings so they can do better. And so the shortcoming in this case is someone who lacks the discipline, maybe the knowledge to save and invest. And so, okay, we'll put them in this underperforming asset just because they can't get out of it easily.
But on the other hand, I realize that there are a lot of people who are in that situation and maybe don't have access to the information to get out of it and home ownership for them like it was for my parents. It may turn out to be a great blessing. As you point out, sometimes people can get lucky in the property market. But do you think that with today's rapidly accelerating home prices that new buyers are apt to be especially unlucky with their timing?
You know, that Jeff is a question that pertains to us personally. You know, our life is nomadic and we have a little cottage on like Michigan. But that at this point in our life, we, with our daughter off on our own, we, we don't own a house and we spend our time wandering around, which is a great lifestyle. But as I'm getting older, I'm thinking, you know, I really do need to figure out where I'm going to settle down for the final chapter.
So we have begun in our travels thinking, well, what about this place? What about this place? And should we buy here? Should we buy there? And of course, as you alluded to, you know, housing prices have just exploded on the upside over the last couple of years. And so, you know, I'm faced with that very dilemma thinking, you know, am I about to buy in the very peak? And particularly seeing as we're probably most likely to build a house and that's a 12-month process.
So am I, you know, I about to commit to a very expensive indulgence and not even have access to it for the next 12 months only to find what's time to move in. Its value has been cut in half like in 0708. So yeah, I don't know the answer, if anybody does, I'd love them to share it with me. So sticking with real estate for a second longer, you mentioned that you're active in the fire community, which is the financial independence retire early group.
Many of these folks, and Jeff and I have interviewed several of them on this podcast, they focus on passive income, generating passive income, especially from property ownership to help fund their living expenses. What's your thought on that strategy? You know, I used to own investment real estate when I was a younger man and in fact, my latest book, which came out last fall, entitled How I Lost Money in Real Estate Before It Was Fashionable, Lost Being the Operative Word.
It's the sad tale of the very first piece of real estate ever bought, which was a condo in Chicago, and you know, somebody sat down and made up a list of all the potential mistakes you could make buying real estate. It's like I went through that list and checked them all off before I signed the papers. But from that, it was also, while it was a brutal experience and a financially tough, it was great education and I went on to own property, investment property and did fairly well with it.
I stepped away from it because it just was too much like work and it was not the kind of work that I personally enjoyed. And so I don't see real estate as being passive and I know that people make the case, well, you know, I can get a property manager and what have you. But for anybody who's ever had a job where you're managing people, you know that managing people is not passive and if you have a property manager, you're going to have to manage the manager.
But I don't see real estate as being a passive investment. I think it can be a great investment. It can be very lucrative investment. But in my world, you know, you need to think of it also as a part-time job and whether you try to find a property manager, you manage it yourself. And so that's really the comparison you're making is, is this a good investment, not only a good way to deploy not only my money, but a big chunk of my time and or at least some chunk of my time.
Whereas, where I based index fund is only deploying your money, it takes virtually none of your time. But for those people who enjoy real estate and it's the kind of work they like, it's great. A lot of your readers look to you to share a wisdom on how they should approach their financial lives. Where do you look for wisdom on an ongoing basis of their knee columnists, authors, thinkers who you especially appreciate? I know you mentioned Jack Bogel earlier so we can cross him off the list.
Who besides Jack Bogel? Well, you know, Jack Bogel is certainly before we cross him off the list. Let me just say he's a fiscal saint. The investing world for the average investor is far far far far better because of Jack Bogel and what he did. And I'm old enough to have lived in that investing world before Jack Bogel.
And fortunately after Jack Bogel actually, as we talked about earlier, Mr. Bogel brought out his first index fund the same year I started investing, but that didn't benefit me for the reasons we discussed soon enough. Anyway, so I've experienced both and for investors, point of view, the world is a far better place for virtual what Jack Bogel has done.
So far and away number one, the other thing is, you know, there is so much great information out there these days that wasn't available when I was first starting. I, in the very beginning, we were a conversation. And I mentioned that I found my way wandering in the wilderness basically, but there's no reason for people to do that.
And I've started working on a, I were thinking about a new post where I'm going to list some of the, the key books that I like, but some that come to mind as we're chatting here today, the psychology of money by Morgan Housel, which came out about a year ago with a great book. I think it's a great companion to my book in terms of very different than my book, but they make great sort of bookends.
Another one that also I see is a great bookend to my own is, is a fairly new one by a brand for oldie called Y Stocks go up. And for somebody who's brand new to the stock market and just trying to understand what this is and what are stocks and what are bonds and what's the Federal Reserve. And he just has been an incredible job of walking through and explaining this stuff.
And again, I think a great companion to my own book, if I can say it, and it's a book by the way that'll sit on my desk going forward just as a reference, because there are a lot of things that people say, you know, what's the Federal Reserve, J.L. and I think, well,
you know, I kind of blunder around trying to explain that because I've never really thought about it, well, you know, Brian gives a very succinct explanation of what the Federal Reserve is certainly more so than I could do off the top of my head. And then there is a quit like a millionaire with a Christie Shenz book, a great inspirational book.
A lot of for the fire movement, there's a lot of pushback and people say, oh, you know, that's only for people making a big salary and we're born to privilege. And when you read Christie's story of, you know, growing up in China under the communists, you know, and she's now a millionaire, it's not just for people born of privilege. Another book along those lines is I'm thinking about it is one that's not out yet, but I had the opportunity to read because they asked me to write a blog for it.
There's a blog called Rich and Regular who, the written by Julian and Kirsten and African American couple and they're bringing out a book called Caching Out. And it's targeted specifically to African Americans. And I think with the idea that, you know, there is a sense in some quarters that this whole pursuing financial independence somehow isn't available to African Americans. And their book talks about why it is and how it is and does a great job.
And I think it's certainly a great book for African Americans to read, but a great book I would say for anybody who was thinking about following a path like this and is wondering gee, is somebody with my background that, you know, doesn't feel like it's typical, is could I really do this? So that's another one, as I say, that's not out yet. And there's some thinking about books that I'm reading that aren't out yet.
I just finished a book called Taking Stock by Doc G who does the Earn in Invest Podcast.
And he was a hospice doctor and it's talking about not just investing, but how to live your life well and it sort of lessons from the dying and, you know, how to have perspective on not only saving and investing, which is important as I said earlier, can make your life infinitely better, but also not letting it take over your life and recognizing the other kinds of wealth that are available to us that are not financial.
So those are just some that I'm sure I'm missing some other great ones and my apologies to those authors, but there's so much great information out there that I wish it had been there in 1975 when I started. Now, this is a great list. I'm taking notes as you're talking and I'm happy to say that we have a couple of these folks already booked on the podcast for the coming months. Just to close, I wanted to get back to your simple path to wealth.
I think if people have been listening, they've concluded by total stock market index ad bonds, as you go along, avoid home ownership. What are a couple of the other key precepts that run through that simple path to wealth? Why would you just clarify? I don't say avoid home ownership as I say. I've owned them for most of my adult life, but don't buy them as an investment by them when you can easily afford them and they provide a lifestyle that you're looking for.
For instance, when you have children and that sort of thing. Then in some of the talks I've given, I'm famous for saying that my investment approach is pretty simple. It's buy VTSAX, which is Vanguard's total stock market index fund. So buy VTSAX, buy as much as you can whenever you can and hold it forever. Spend less than you earn, avoid debt. And invest the difference. And those are the three keys. You can't become wealthy if you're carrying debt.
And debt is, I have a chapter in the book called The Unacceptable Bird. You can't become wealthy if you spend every dime that comes into your possession. Or more accurately, when people say, you know, JL, that sounds like deprivation, having to set aside money that I can't spend in order to invest. And in my view, I've never seen it as deprivation. I've seen it as buying something that's more important.
In fact, I've come to say in these days that I've spent every dime that has ever come into my possession and I spend it almost immediately. It's just that I've spent at least half of those times over the years buying the thing that was most important to me. And that's my freedom. That's my time. And you buy your freedom in your time by virtue of having investments. So that's why I diverted 50% of my income over the years to my investments. I was buying what was most important to me.
I was spending that money. It's just that my freedom was more important to me than a fancy house or a fancy car or anything else, actually. So. Well, JL, this has been a terrific thought-provoking conversation. Thank you so much for taking time out of your schedule to be with us. Well, again, thank you for the invitation. I've had a lot of fun hanging out with you guys. And the time flew by. We enjoyed it too. Thank you so much. Thank you for joining us on the Long View.
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