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Book Review: The Simple Path to Wealth

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Table of Contents

book info

  • Book Title: The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life
  • Author: JL Collins
  • Goodreads Rating: 4.4/5
  • ISBN: 9781533667922
  • Release Date: June 18, 2016
  • Page Count: 286 pages

summary

Life is too short to be chained to money worries. The Simple Path to Wealth by JL Collins offers a clear, no-frills guide to financial independence (FI), not as a ticket to a lazy retirement but as a way to gain freedom to live on your terms. Collins, who achieved FI through disciplined saving and investing, boils it down to a simple mantra: spend less than you earn, invest the surplus, avoid debt. This isn’t about chasing hot stocks or complex schemes—it’s about using the stock market’s long-term growth to build what he calls “F-You Money,” enough wealth to say “no” to anything that doesn’t serve you.

The book centers on low-cost index funds, particularly Vanguard’s Total Stock Market Index Fund (VTSAX), and the 4% withdrawal rule, which marks FI when your investments can sustain 4% annual withdrawals indefinitely. Through personal stories—like his daughter’s question, “Daddy, are we poor?”—and hard data, Collins shows how anyone with a middle-class income can build wealth by saving aggressively, shunning debt, and sticking to a simple plan.

Spend less than you earn—invest the surplus—avoid debt. The greater the percent of your income you save and invest, the sooner you’ll have F-You Money. When you can live on 4% of your investments per year, you are financially independent.

This isn’t your typical finance book. It’s a mindset shift, urging you to ignore Wall Street’s noise, high-fee funds, and consumer traps like car loans or student debt. Collins’ approach is rooted in the belief that the stock market, despite its wild swings, is the best tool for building wealth over time.

you can’t control the market

The Simple Path to Wealth confronts the anxiety of money by acknowledging a tough reality: you can’t control the market, but you can control your actions. Collins draws on the teachings of Vanguard founder Jack Bogle, historical market trends, and his own mistakes—like selling at the bottom after 1987’s Black Monday—to champion index funds. VTSAX, which holds about 3,700 U.S. companies, offers broad exposure at a low 0.05% expense ratio, far below the 1.25% average of actively managed funds.

Our biggest obstacles are behavioral. We’re lured by debt-fueled lifestyles—$32,000 cars or $100,000 degrees—encouraged by “E-Z financing.” We try to time the market, only to buy high and sell low. Actively managed funds, despite their allure, underperform index funds 82% of the time over 15 years, yet charge hefty fees. Collins’ solution is to simplify: save at least 50% of your income, invest in VTSAX, and hold through crashes like 1929 (90% loss) or 2008, trusting the market’s long-term upward trend.

The market always goes up. Always. Bet no one’s told you that before. But it’s true. Understand this is not to say it is a smooth ride. It’s not. It is most often a wild and rocky road. But it always, and I mean always, goes up.

This requires grit. The market’s volatility—evidenced by the Dow Jones climbing from 68 in 1900 to 11,497 in 2000 through wars and depressions—tests even the toughest investors. Collins admits his own failure to stay the course in 1987, underscoring the need for emotional resilience.

Another limit is access. The book’s U.S.-centric focus—tied to Vanguard and accounts like 401(k)s or Roth IRAs—frustrates non-U.S. readers. The notes question how this applies in places like Indonesia, where Vanguard may be unavailable and markets less stable. Living on $12,500/year (needing $317,175 at 4%) or $7,000/year, as some extreme frugalists do, feels unrealistic for many, especially in high-cost or volatile economies. The notes call this “coping” or “edging,” highlighting its disconnect for those seeking faster wealth-building paths.

It is this thinking that makes it so hard for most people to see that it is possible to reach a million dollar net worth on an income of $25,000.

Collins’ frugality can feel like a straitjacket, trading autonomy for security. His claim that every middle-class earner can retire a millionaire ignores economic unpredictability and structural barriers, as the notes point out.

the solution

The answer lies in simplicity, discipline, and patience. Collins’ plan is to save aggressively, invest in low-cost index funds, avoid debt, and let compounding work its magic. Here’s how he lays it out:

The stock market is a powerful wealth-building tool and you should be investing in it. When you can live on 4% of your investments per year, you are financially independent.

key principles

  1. Save Aggressively: Target a 50% savings rate. For example, $130/month invested from 1975 to 2015 grew to $985,102 at 11.9% annual returns.
  2. Shun Debt: Debt is a “vicious, pernicious destroyer of wealth-building potential.” Even “good debt” like mortgages or student loans (non-dischargeable in the U.S.) traps you in long-term costs.
  3. Invest Simply: Focus on VTSAX for growth and VBTLX for stability. Collins suggests 100% stocks in the wealth accumulation phase, shifting to bonds (e.g., 75% VTSAX, 20% VBTLX, 5% cash) as you near FI.
  4. Ignore Market Noise: Market timing is futile—nobody consistently predicts highs and lows. Hold through crashes, as the market “always recovers.”
  5. Follow the 4% Rule: You’re FI when your portfolio is 25 times your annual expenses (e.g., $500,000 for $20,000/year). Withdraw 4% annually, adjusting during major downturns.

practical steps

Collins offers concrete tools to execute this plan:

  1. Prioritize Low-Cost Index Funds: VTSAX is the go-to for stocks, VBTLX for bonds. Their low fees (0.05% and 0.05%) maximize returns compared to high-fee funds (1.25% average).
  2. Use Tax-Advantaged Accounts: Max out 401(k)s, Roth IRAs (when earnings are low), or Traditional IRAs (when taxes rise) to boost compounding and cut taxes.
  3. Build Emotional Toughness: Treat market drops as opportunities to buy more shares cheaply during accumulation. Stay invested, as Collins learned after selling in 1987.
  4. Rebalance Annually: Adjust your stock-bond mix (e.g., on a birthday or after a 20% market move) to stay aligned with your goals. Track expenses to ensure 4% withdrawals.
  5. Plan Without Social Security: Assume it won’t be there. If it is, treat it as a bonus to maintain independence.

for international readers

Vanguard’s limited global reach poses challenges. Collins advises:

  • Seek low-cost index funds or ETFs tracking broad markets, ensuring U.S. exposure (a major economic driver).
  • Research local tax-advantaged accounts and adjust the 4% rule for local inflation, currency risks, and market volatility.
  • If Vanguard is unavailable, choose funds from reputable firms with low fees (e.g., below 0.2%).

for fastlane seekers

The notes critique the “slowlane” approach as lacking ambition. If you prefer a faster path, use Collins’ strategy as a foundation: save and invest in index funds to secure a base, then channel surplus into entrepreneurial ventures or higher-risk investments. Avoid debt and high-fee funds to preserve capital for your “fastlane” pursuits.

To apply this to your life, ask:

  1. Where are you spending on status (e.g., cars, gadgets) when you could invest instead?
  2. Are you paying high fees for managed funds when VTSAX or equivalents could save you thousands?
  3. What’s one expense you could cut to boost your savings rate toward 50%?
  4. Why haven’t you started investing, even $50/month, to begin compounding?
  5. If you had F-You Money, what would you say “no” to in your life right now?

final thoughts

The Simple Path to Wealth is a breath of fresh air in a world of financial complexity and consumer traps. Collins’ blunt humor, personal anecdotes, and focus on low-cost index funds make it an accessible guide for anyone tired of money stress. Its strengths—simplicity, debt rejection, and a time-tested strategy—resonate strongly for U.S. readers with access to Vanguard and tax-advantaged accounts. However, its U.S.-centric focus, reliance on historical U.S. market performance, and extreme frugality limit its appeal for international readers or those in unstable economies, as the notes highlight. The “slowlane” approach may also feel too cautious for those chasing entrepreneurial wealth.

For beginners, it’s a roadmap to FI that cuts through the clutter. For the ambitious, it’s a sturdy base to pair with riskier ventures. Either way, Collins’ core lesson is universal: master your money, or it will master you. By facing our limits—debt, market swings, and societal pressures—we can build a life of freedom, not obligation.