Book Review: The Simple Path To Wealth by JL Collins
The Simple Path to Wealth by JL Collins is a personal finance book presenting how to simplify building wealth by utilizing index funds. Reading through The Simple Path to Wealth was a very refreshing read even if I knew the majority of the topics he was discussing. Most of the information can be found by doing a little bit of research online, but he presents each topic in a clear in concise manner.
The Simple Path to Wealth goes over many topics on personal finance, such as:
– Investing in the stock market with cheap tools such as index funds.
– What investments to buy.
– Should you invest in bonds?
– Tax strategies involving 401(k)’s, 403(b)’s, TSP’s, IRA’s, HSA’s.
– Why passive investing works better for the majority of people versus active investing.
– What to do once you reach financial freedom
– And giving back
This book is a great starting point for investors looking to simplify their investment strategy. Most of the topics he goes over follow much of what Jack Bogle’s genius strategy has proven over the years. Buy the stock market as cheap as you can and just aim to earn the average. But, there’s one point he makes that I don’t fully agree with.
He advocates against international funds. This book is all about keeping it simple, and I agree only investing the S&P 500 would keep it simple. But is this the best advice? In his book, he makes a couple points on why he believes adding international funds isn’t needed. I’ll explain why I don’t believe this is a good excuse to not add international funds to your portfolio.
1) Added risk
He mentions that trading in international funds adds some currency risk. In our globally-connected economy today, this really seems to be a non-factor. In fact, having some additional currency risk might be a good thing. This further helps diversify your portfolio. If a certain currency rises against the dollar, then you’ve gained because of this. Who knows what the future for the dollar holds and diversification is usually a good thing.
2) Added expenses
He discusses that there are more expensive costs in adding international funds. We currently have SCHF for our international exposure, and the costs are already rock bottom. The expenses ratio on SCHF is .06%. That’s only $60 a year for a $100,000 investment. That’s not very expensive. So, the additional expenses are minimal.
3) International funds are already covered in the S&P 500
“…many of which generate 50% or more of their sales and profits overseas. Companies like Apple, GE, Microsoft, Exxon/Mobil, Berkshire Hathaway, Caterpillar, Coca-Cola and Ford to name a few.”
Although true that plenty of US-based companies have a strong international exposure, this still doesn’t add enough diversification away from the US market. Who knows what the future holds for America and adding companies overseas could help alleviate any potential drops in the US market.
My final thoughts:
This book is a great starting point for anyone looking to pursue financial freedom. The Simple Path to Wealth will go over several of the strategies that are echoed within financial independence communities. Anyone that is new to investing or is wanting to simplify their journey to financial freedom will find this book as a wealth of solid knowledge. If you’ve been activity following the financial independence community, then this book will only provide a refresher of what you already know.
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