{"id":99141,"date":"2018-05-14T00:02:49","date_gmt":"2018-05-14T06:02:49","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=99141"},"modified":"2023-04-26T05:13:02","modified_gmt":"2023-04-26T11:13:02","slug":"biggerpockets-money-podcast-20-the-simple-path-to-wealth-index-funds-explained-with-jl-collins","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/biggerpockets-money-podcast-20-the-simple-path-to-wealth-index-funds-explained-with-jl-collins","title":{"rendered":"The Simple Path to Wealth\u2014Index Funds Explained with JL Collins"},"content":{"rendered":"<p><span style=\"font-weight: 400;\"><strong>Jim Collins<\/strong> has literally done it all. From busboy, produce, clerk, and gas station attendant, to ad agency founder, sales trainer, radio co-host, and publisher. He is a prolific world traveler, having visited more than 30 countries on five continents via motorcycle, car, train, plane, boat\u2014and even elephant.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Jim has lived a very good life. And along the way, Jim has learned that money is a tool that can offer the freedom to live the life <em>you<\/em> want to live.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">He\u2019s also figured out that there is a very simple path to wealth. While you <em>can<\/em> make money picking individual stocks, the index fund is a very easy way to grow your wealth in the stock market <i>without<\/i>\u00a0spending time researching companies. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">This episode truly is the show for anyone who has money or wants to have more.<\/span><\/p>\n<p><a href=\"https:\/\/itunes.apple.com\/us\/podcast\/biggerpockets-money-podcast\/id1330225136\" target=\"_blank\" rel=\"noopener\">Click here<\/a>\u00a0to listen on iTunes.<\/p>\n<h2>Listen to the Podcast Here<\/h2>\n<p><iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC4971307513&#038;light=false\" width=\"100%\"><\/iframe><\/p>\n<h2>Read the Transcript Here<\/h2>\n<div style=\"overflow-y: scroll; max-height: 400px; background: #eee; padding: 20px; border: 1px solid #ddd;\">\n<p>\u00a0<b>Scott: <\/b>Welcome to BiggerPockets Money Show, Show Number 20.<\/p>\n<p class=\"p1\"><span class=\"s1\"><i>\u201cThe beauty of investing is that if you keep it simple, it doesn\u2019t have to take up much or really any of your time, very little of your time, and unlike many things in life, the less effort you put into it, once you understand and implement a few basic concepts, the better your results will be\u201d.<\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><i>It\u2019s time for a new American dream, one that doesn\u2019t involve working in a cubicle for 40 years, barely scraping by. Whether you\u2019re looking to get your financial house in order, invest the money you already have, or discover new paths for wealth\u2019s creation, you\u2019re in the right place. This show is for anyone who has money or wants more, this is the BiggerPockets Money podcast.<\/i><\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>How\u2019s it going, everybody? I\u2019m Scott Trench and I\u2019m here with my co-host, Miss Mindy Jensen. How are you doing today, Mindy?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Scott, I am doing super fantastic. It\u2019s a beautiful day out and I am so excited for today\u2019s guest. We have Jim Collins today from JLCollinsNH. He has literally done it all, from busboy, produce clerk, and gas station attendant in his younger days to ad agency founder, sales trainer, radio co-host and publisher. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">He\u2019s a prolific world traveler. He\u2019s visited more than 30 countries on five continents via motorcycle, car, train, plane, boat and even elephant. Jim has lived a very good life and along the way, he learned that money is the tool that you can use to give you the freedom to live the life that you want to live. And he\u2019s also figured out the simple path to wealth.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Yeah, I was going to say, that sounds like a very complex approach to money in order to sustain that incredible lifestyle. But no. Jim has got a very simple path to wealth. The reason we\u2019re saying the simple path to wealth is because Jim is also the author of a bestselling book called <i>A Simple Path to Wealth, <\/i>which I think Mindy and I both love and would recommend. If you\u2014I would even recommend after you listen to this podcast, if you like his voice, you get the Audible version because it\u2019s him reading it the whole time and he\u2019s got this incredible radio ready voice.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Yeah, James Earl Jones-esque. So I want to give a little bit of Jim\u2019s background. Or I wanted to give a little bit of Jim\u2019s background to say he\u2019s done a lot. He has the wisdom to speak from experience and say I\u2019ve done a lot of different things. This is the way to go. And today, we\u2019re going to talk about index funds and how this powerful and super easy, set it and forget it investment strategy is what he recommends. Warren Buffet has recommended it so two of the top investors in the world is recommending this path. You should take it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Yes, and quick disclaimer\u2014we talk about some specific funds on this show. We usually do not talk about specific investments on the BiggerPockets Money Show. We don\u2019t talk about buy this stock or buy this property. We talk more in kind of generalities of buy index funds, low-cost, that kind of stuff. This show does include some references to specific funds. You\u2019ve got to invest according to your own strategy and with your own thoughts. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">We cannot endorse those funds or recommend them as actions that you take. So you understand that that is at your own risk if you take any of these specific funds going on in this show. And as with anything, make your own decisions. Accumulate the information and make the decision that works best for you for your long-term strategy. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Okay. So we bring in Jim after that kind of dire warning. But\u2014<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Yes. Well, hey, it\u2019s a CYA thing but before we bring in Jim, I want to do two quick things. First, I want to kind of give a shout-out here. We have talked a lot about, to a lot of people that don\u2019t have families, that don\u2019t have children. We\u2019re looking\u2014we know that that\u2019s a big hole in our plan. We know that there\u2019s some disadvantages come financially once you begin having children involved in the picture and that kind of limits your ability, flexible with moving locations, maybe jobs. It kind of increases expenses, those kinds of things. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">We would love to hear from more potential guests that are moving towards FIRE and have achieved FIRE that started that journey, really started getting serious about it while having a family with children involved. We think that would make for a great guest so if you know anybody like that, or if you are like that, please reach out to us. <a href=\"mailto:Scott@BiggerPockets.com\" target=\"_blank\"><span class=\"s2\">Scott@BiggerPockets.com<\/span><\/a> and\/or <a href=\"mailto:Mindy@BiggerPockets.com\" target=\"_blank\"><span class=\"s2\">Mindy@BiggerPockets.com<\/span><\/a>. And we would love to hear from you. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Yes. Please send us notes. Also, if you have a delightfully terrible joke, <a href=\"mailto:Scott@BiggerPockets.com\" target=\"_blank\"><span class=\"s2\">Scott@BiggerPockets.com<\/span><\/a>.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Fair enough. And before we bring in Jim, a quick word from today\u2019s sponsor. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">On the path to planning wealth, you have to eventually come across retirement planning. Whether you\u2019re contributing to a 401K or an IRA, everyone has their doubts when it comes to where their hard-earned dollars go. That\u2019s why some investors turn to self-directed IRAs. The term \u2018self-directed\u2019 simply means that you have complete control in directing your own investments. Unlike other IRAs, you\u2019re not limited to stocks, bonds, or mutual funds. This means you can take advantage of investing in alternative assets such as real estate, LLCs, precious metals, and more. Join thousands of investors who trust in VN Trust Group\u2019 36-year track record. Learn how to take control of your financial future today by getting your self-directed IRA basics guide at VNTrustGroup.com\/BiggerPockets.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">All right, thanks very much to today\u2019s sponsor. We are looking forward to bringing Jim on so let\u2019s bring him in.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Jim, it\u2019s great to have you here. Welcome to the BiggerPockets Money Show. How\u2019s it going?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Scott, it\u2019s an honor to be here and I\u2019ve been looking forward to this for the last few weeks. Thank you for having me. Going well.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Yeah, me too, as well. I thought we could get started here by kind of quickly asking you about your background as you kind of moved towards FIRE. Could you give us an introduction or highlight of how you came to discover the concept of FI and how you began moving towards FIRE?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>For someone like me, that\u2019s actually a really interesting question. So I started, the better or the best way to look at that, I suppose, is I started investing in 1975. And I always knew I wanted to have enough money to put me in a position of power to make decisions in my life. And at some point, I read that James Clavell novel, <i>Noble House<\/i>, and I came across the concept of what he called FU Money. He actually spells it out a little more explicitly than that and I\u2019ll leave it to the audience to figure out what the FU stands for. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But anyways, I had never heard that term before but it immediately crystallized what I wanted. So my goal was not FI, which is a concept I didn\u2019t hear until after I started blogging back in 2011. So for decades, I wasn\u2019t striving for FI. I didn\u2019t understand it as a concept. Had I heard of it, it would have been a goal but I just hadn\u2019t heard of it. But having a few money, which is simply enough money that you can be bolder in your choices, is not necessarily in my mind enough money that you never have to work again. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But it is enough money that you can step away for a period of time, which is what I did for my career. And then when I sort of left my last formal job in 2011, I started the blog as an archive of information I wanted my daughter to learn. And the other thing I throw into that is a common question that I get is when were you FI? And again, understanding I didn\u2019t have the concept of FI. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I had left a job in 1989 to do something else for a while, which sort of part and parcel of the way I conducted my career over those years. And about three or four years in, at the end of the year, I was totaling up our net worth and investments and what have you and I noticed something very interesting and that was that for that year, and the two years prior, we\u2019d lived the same life that we had always lived. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">We had the same house, did the same things, paid the same bills. I didn\u2019t have a job. I didn\u2019t have income. And yet, each of those years, our income or our net worth was higher than it had been the year before. And I knew something remarkable had happened. It\u2019s what we would now called FI but I didn\u2019t have a frame of reference for that. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So I knew it was remarkable. I kind of embarrassingly\u2014I don\u2019t think I really appreciated\u2014the significance of what it was. So I just sort of said, oh, that\u2019s interesting, and rolled on living my life the way I had always lived my life. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>That\u2019s amazing. A couple of phrases that I want to point out that you just kind of decided here is position of power in your life, being bolder in your choices\u2014that, I think, is really what all of this is about. It\u2019s the fact that you can leave and do something different for a couple of years and have those options coming into your life. And say FU to those situations that are not in your best interests that are not making you happy here.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I guess moving maybe a little earlier in the journey, what was your career? What were you doing where you were able to save up and how were you investing your money so you could get towards this goal that you didn\u2019t even know existed, I guess.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Again, pretty early on, I had a focus called having FU money. But my career was mostly in the magazine publishing business and business-to-business magazines. I did just before that time, I mentioned in 1989 when the year just prior to that, I had stepped away from publishing and went into the financial business for a year and then sort of kind of a midcareer change that I weren\u2019t pursuing or acquiring businesses and then went back into the publishing business. So that\u2019s kind of long and boring. And I think I kind of sort of lost track of what you were asking me. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Well, I\u2019m going to tag onto what you were saying. You said you were in the financial business. What do you mean by that?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>So I ran into a guy on an airplane during a business trip and he was working for an investment research firm and I was very interested in investing in stocks and I was very active in doing it at the time, so once I understood what he was doing, that was the topic of the conversation. And then by the time the plane landed, he said, you know you ought to come and join us. You\u2019ve got to join our firm.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So a few days later, I had lunch with the guy who owned the firm and I wound up making a career change. So I was what you call an investment officer, what they called an investment officer, which was kind of a sales guy. I went out and sold out research to institutional investors. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Awesome. So I guess my question that I was trying to get at was once\u2014how are you able to achieve the high savings rate that allows you to accumulate this FU money. And then how are in investing it on your own? In these years leading up to 1989 when you kind of reaching FI but you didn\u2019t know it.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Right. So you know, you have to understand when I was doing this, there was no internet, there was no infrastructure, and there was nobody else doing what I was doing. So I was kind of wandering along but what I knew was that I wanted to have money available to invest because I wanted to accumulate this FU money. So I just started saving half of my income and my income is those days, because it was early on in my career, was very low. But man, I\u2019ve living on less as a college student so it wasn\u2019t any great sacrifice. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I was still having a great and enjoyable life and I had 50% of my income to invest. And I didn\u2019t think of this as deprivation, by the way. It\u2019s just it was a different way of spending it, if you will. Some people\u2014my peers mostly wanted to spend on unfancier apartments or calls or whatever, and my priority was a little different. I wanted to spend it on investments. So that was what led to the high savings rate. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So that was the very first money I took off the top was for my investments. It was most important money I spent. As to the second of it, I initially was buying individual stocks and then a little later, I was buying actively, I managed mutual funds so I was researching managers, so I was trying to outperform the market, picking stocks myself. And then in addition to that, I was trying to find active managers who could do it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Here\u2019s my dirty little secret and of course, I\u2019m a die-hard index investor now and that\u2019s what my book\u2019s about and my blog is about. I actually achieved FI picking individual stocks and as an extension, picking managers that ran funds picking individual stocks. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So sometimes people get confused and they think well, picking individual stocks or active fund managers is completely ineffective. It\u2019s not. It is not as effective or powerful as investing but it got me there initially. Index investing is the advantage of being cheaper, more powerful, and easier, simpler. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Okay. And we have talked about index fund investing very briefly in past episodes but can you just share with our listeners what index funds means? What are you talking about when you say index fund investing?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well in a sense, that\u2019s two different questions. So an index fund, the idea is simply you find an index that is tracking some group of companies and you buy every company or the fund buys every company in that index. Active managers try to choose the companies that are going to do better or worse and select them that way, and an index fund investor basically says I don\u2019t know who\u2019s going to do better or worse so I\u2019m going to buy them all. And there are now index funds for every sector you can possibly imagine, which is why I make that distinction. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">When I talk about index funds and the kind I recommend are broad-based index funds which were the originals that Jack Bogle created. An index fund that follows the S&amp;P 500, that\u2019s kind of the very first one that Bogle put out. I think that\u2019s a great option, by the way. I slightly prefer the Total Stock Market Index Fund which is VTSAX which is the one I invest in and that\u2019s the one I recommend, but if somebody for instance, in their 401K, has only a S&amp;P 500 fund, that\u2019s great. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I am not a fan of indexing that just looks at a particular sector so there are index funds just for financial assets or financial stocks or index funds just for mining and precious metals. I\u2019m not a fan of those so when I say invest in index funds, I\u2019m talking about only the broad-based index funds. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Okay.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Now all three of us are, I think, on the same page in terms of favoring index funds over actively managed funds or individual stock picking in the market. But perhaps we can dive into the why behind that. I think you are really a thought leader in why this is such a powerful concept and why index funds are superior.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So I guess to start this off, what are the disadvantages as you see them to actively managed funds and individual security analysis as you see them, relative to index funds?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well I think the problem with actively managed funds and by extension trying to pick stocks is it\u2019s one of those things that it seems it should be easy to do. And yet, people who can do it successfully are vanishingly rare. You look at it and you say, if you look at the S&amp;P 500 Index for instance, it\u2019s very tempting to say well\u2014in fact, I just saw an article of the guy making this exact point, saying I can go through that index and I can see companies that are clearly doing poorly\u2014why not just eliminate those? If I just eliminate the dogs, by definition, I\u2019ll do better than the index.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Or correlation, I can go through and just look at those in the Index 500 who are doing really well and just buy those and by definition, I\u2019ll do better than the index. The problem is that things change. Today\u2019s dog is sometimes tomorrow\u2019s terrific turnaround story. You don\u2019t own it, you miss it. Today\u2019s wonderful high-flying stock that\u2019s doing everything well and has made people a fortune is tomorrow\u2019s crash and burn tragedy. You don\u2019t know which they\u2019re going to be and as it turns out, the research is unequivocal. It is vanishingly difficult for people to successfully make those decisions over time. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">What makes it seductive is that every now and again, you get it right. And I can speak from experience that there are few thrills in life better than picking a stock and watching it steadily ratchet up. In fact, it\u2019s so intoxicating that my observation is it leads a lot of people who do it to kind of forget the ones that didn\u2019t work out too well. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And so they have an overstated sense of how successful they\u2019ve been. The truth is that very, very few people statistically can outperform the market over time. In fact, you go out 30 years and the research suggests that the number of people who can outperform is less than 1%. Statistically zero.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>So to play devil\u2019s advocate here, what if playing the market makes me more\u2014this is how I started. I started out by picking stocks and trying to beat the market. Mindy alluded to this earlier but she invested in a couple of Chinese companies because hey, a Chinese company has more cash than market value and no debt. Everyone except me seem to know that Chinese companies don\u2019t have audited financials. But that\u2019s okay.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>There\u2019s always a catch.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>But you know, if my desire to pick, to invest more and pick stock winners gives me a higher savings rate, is that an advantage for stock picking, perhaps?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Scott, that\u2019s really interesting. I never actually thought about it from that point of view. I think that if your goal is FI, the most powerful thing you can do is increase your savings rate. So if you said to me, gee, if I just buy index funds and it don\u2019t engage me, I\u2019m not going to be motivated to get my savings rate up. But if I can buy individual stocks, that can be a temptation. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The problem is that being successful picking individual stocks, as you just alluded to, can be so treacherous, and I\u2019m hesitating a little but because as I said earlier, I actually achieved FI myself picking individual stocks and actively managed funds. But I look back on it and realized that I would have achieved that goal much more easily and much more quickly, had I adopted index funds sooner. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So again, it\u2019s not a matter of choosing between something that\u2019s terrible and something that\u2019s great, it\u2019s choosing between something that does work and can work, depending on how skilled you are at it, and something that is simply superior and easier and more powerful. So I don\u2019t know. I think it would depend on your stock picking skills. Some people are better at it than others. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But if you\u2019re really dreadful at it then it probably would overwhelm even the advantageous savings rate. But you know, if you\u2019re decent at it, who knows. I would just say get over it. Get your savings rate where it needs to be at index, at least if you want to be FI.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>So I don\u2019t think there\u2019s anything wrong with picking a stock. I enjoy Diet Coke. It\u2019s delicious. I own Coca-Cola stock. It\u2019s not\u2014I don\u2019t own all Coca-Cola stock. I mean, not all of my investments are solely in Coca-Cola. I would like to own all of Coca-Cola.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>I was about to say, if you owned all of Coca-Cola, you\u2019d be doing quite well.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>I have to fight Ward for that. But that\u2019s a company that I want to support. I think that it\u2019s totally valid to choose a company that you want to support and buy their stock. Just don\u2019t sink all of your money into it. And you can pick individual stocks and invest in index funds and I don\u2019t think that that\u2019s something that\u2019s really discussed in the FI world. It\u2019s always index funds are good. Picking individual stocks are bad. And you\u2019re a horrible person akin to a child murderer if you pick individual stocks. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You know, and that\u2019s obviously, Jim is\u2014well, I guess I shouldn\u2019t say obviously. I don\u2019t know your sordid details and background, but you picked individual stocks and did very well. My husband has picked individual stocks and done very well, based to Jim. We are now switching over to index funds as we divest ourselves of these individual stocks but we\u2019re still looking at other individual stocks. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Oh, this is going to IPO. Or when this does\u2014or if BiggerPockets IPOs, I want to buy that because I support the company and I think they\u2019re going to do amazing. But I don\u2019t think it has to be an either or. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>I agree with you and this certainly doesn\u2019t have to be an either or and I, as you\u2019ve already said, I have the disease. I don\u2019t own any individual stocks at the moment. It\u2019s been a couple of years and I\u2019ve kind of resolved that I\u2019m not going to do it anymore because I do think it\u2019s a subpar thing to do.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The one thing I would object to in what you said, Mindy, is Coca-Cola doesn\u2019t care whether you own their shares or not so I don\u2019t think you are actually supporting the Coca-Cola company in any significant way. And I think when you mix\u2014it becomes an emotional decision. You\u2019re getting emotional satisfaction from owning Coca-Cola in addition to whatever economic growth you might enjoy. And I happen to be of the belief that you should separate your emotions from your investments. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">There\u2019s a saying that stocks are never going to love you back. So if you want to pick individual stocks because it\u2019s fun and you think every now and again, you come across something that will outperform, and your husband Carl has done a remarkably good job of that. I know him personally and I know some of the things he\u2019s chosen and so, by all means, go for it. I wouldn\u2019t do it just to say I want to support this company or that company. I would do it if I say I think this is a company that has a chance to outperform the index going forward.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And I think you should always have that benchmark. One of the things that drives me nuts is when people say, well I\u2019m going to pick individual stocks and I\u2019m not going to bother to benchmark it because I don\u2019t care what the index is doing. I only care about my stocks. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Again, taking the emotion out of it, there\u2019s no reason to invest in individual stocks unless you can outperform the index. I mean, there\u2019s just absolutely no reason to go through the time and work. I suppose you can make an argument and say well, if it\u2019s something you enjoy doing, but there\u2019s no financial reason to do it. So yeah, I would take the emotion out of it and I think if you see an opportunity to better\u2014at least that\u2019s how I did it with the individual stocks that I occasionally bought when I was indexing. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I discovered indexing about a decade before I finally accepted it. But once I accepted it, it\u2019s some heavy lifting in my portfolio ever since and the individual stocks have just been kind of a fun distraction because I liked doing it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>The real reason, I think\u2014the real power of index fund investing is when you look at wealth building from a very high level\u2014top down\u2014there\u2019s really four things that you need to be doing to move towards FI. You have to spend less money, earn more money actively, achieve high returns or returns on your accumulate assets and\/or start businesses or otherwise create assets from scratch.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You have to do some combination of those four things in order to go about this. And where active stock selection, picking individual securities is a real bummer, is it distracts you, particularly those early years when it can\u2019t have that much impact on your ability to build wealth from the other things that are more powerful. From focusing on your frugality. From actively earning more income. From actually pursuing something that could produce more sizeable investments or returns like perhaps real estate or a business acquisition or starting a business.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">When you have\u2014let\u2019s say you have a portfolio of $10,000 and you go through this exercise of picking winners in the market and instead of getting the average historical 10% of the stock market, you get 15%. You outperform by 5%. Well, you\u2019ve just made yourself $500 over the course of the year. $500 is immaterial to your financial position. It\u2019s immaterial to the goal that we all have here and we all share of achieving financial independence. You could have spent that time analyzing those stocks in a more productive way. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And that\u2019s where I see the big problem with active stock selection or selecting an active manager or something relative to index fund investing is, your odds are you\u2019re going to underperform or perform at exactly around the average if you just select stocks with kind of a dartboard approach. Or even if you do your own analysis, which has proven time and again in great books such as what I\u2019m sure we\u2019ll discuss in a little bit, to be no more effective than index fund selection and that is where the real crime is. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">That\u2019s where you\u2019re doing yourself a real disservice. That\u2019s where I do myself a real disservice is I wasted so many hours trying to learn about this and did not instead invest in index fund and actually build my financial position in a way that was more predictable. Is that a reasonable analysis in your opinion, Jim? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well, I think people who invest in individual stock would take issue with it and they would say there\u2019s greater potential than you allow for. But I would agree with you because it is vanishingly difficult over time to outperform the index. And so you are very likely to wind up investing a lot of time and effort analyzing the stocks, looking for them and once you own them, tracking them and what have you, only to if you\u2019re lucky, match the index, much more likely to lag the index and the rarest of circumstances, outperform the index.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And if you look at professional managers, some of whom outperform the index for some short period of time, they typically are outperforming it by a percentage or two. And then the magic goes away. So I think that yeah, I would agree with you that it is a lot of found and fury signifying nothing in the end. And you would be better off just buying the index. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Actually, when my daughter was in college and I started writing the blog for my daughter and I wrote the book for my daughter and so whenever I write anything, I have her in mind and she\u2019s one of those people who just is not interested in the financial markets and stocks and I have been trying to over the years, get her interested in it. She came home from college one day and I started, as is my one lecturing about this, and she stopped me and said you know, Dad, I understand this is important stuff. I just don\u2019t want to have to think about it all the time.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And that was an epiphany for me because I realized I\u2019m the odd one out. People like me who like this stuff, we\u2019re the odd ones out. Most people have better things to do with their lives like you were just alluding to. So that\u2019s another powerful incentive for index investing. If you just get a couple of things right in index investing, it takes up virtually none of your time. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You\u2019ll outperform over the decades virtually everybody who is picking individual stocks, all the active managers. And you\u2019ll do it with no effort on your part. You can go on and focus on your career or your hobbies or other kinds of income-generating things so yeah. Absolutely. I think it\u2019s a great baseline. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>All right, so you mentioned a couple of key things to do while you\u2019re index fund investing. Let\u2019s move onto those. What are the key things to keep in mind when you are looking to invest in index funds and be successful over the long-term?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>I think the beauty of index funds is you don\u2019t have to try to figure out which companies are going to outperform which other companies. So when you buy the Total Stock Market Index Fund, VTSAX, which is the one I have a preference for, you own virtually every publicly traded company in the United States. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So basically, what you\u2019re investing in is the United States and if you believe the United States is going to continue to do well and prosper, that\u2019s the bet you\u2019re making. Now if you don\u2019t happen to believe the U.S. is going to do well and prosper, then maybe you\u2019ll want to rethink it.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">You\u2019re also betting on the world because the top U.S. companies are by definition international companies. So as the world is growing, as China for instance is growing, as Asia is growing, as Europe is growing, as Africa and South America are growing\u2014even though you\u2019re focused on U.S. companies, you\u2019re benefiting from that growth. So you\u2019re betting on civilization around the world continuing to grow and prosper.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So I think for my approach to make any sense, you have to buy into those concepts. I think that civilization is going to continue and I think the United States is going to continue for all of the problems that we have, is going to continue to be a major economic force in the world. The beauty of indexing is something that I call self-cleansing. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So what happens is unlike buying an individual stock or even a collection of individual stocks, the index fund, by definition is always changing. Small changes but always changing. As companies fail and begin to drift away, they fall off the index. Because a company has to be of a certain size to be on the index. So the losers tend to drift away. At the same time, new companies are always being formed and as you mentioned, BiggerPockets might IPO at some point\u2014<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Speculation. Speculation. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Speculation. But if that were to happen, then that\u2019s another publicly traded company in the realm. And I don\u2019t have to guess whether BiggerPockets is going to do well or not if it IPOs. I\u2019ll be along for the ride. And if it explodes and becomes the next Google, I\u2019ll benefit from that. If you guys don\u2019t and you fade away, then that\u2019s okay. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Now here\u2019s the beauty of this. The companies that fade away can only lose a maximum of 100%. That sounds like a lot. But on the other side of things, if BiggerPockets skyrockets, its growth is unlimited to 100% or 200% or 500% or 10,000%. So you have a rigged game in the sense that the winners have no limit to the upside and the losers do. So that\u2019s what I mean by self-cleansing.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>So we have a couple of key assumptions to this philosophy which is one that you\u2019re betting on civilization to continue to grow and prosper. You understand that hey, these companies can only lose 100% of their value but they can grow at multiples of that. What if you think that civilization is going to grow and prosper but not for the next five to seven years? Should you stay out of the market and wait or what\u2019s your kind of timeline that you have for investing in the index funds here?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>So here\u2019s the thing. I get this question on the blog all the time and especially in times like these when the market has been doing well for a number of years\u2014if you think the market is not going to do well for the next five to seven years, then sure. You should probably stay out of it. It\u2019s your choice. It\u2019s your money. I would suggest to you that you really haven\u2019t got a clue because nobody has a clue because nobody can predict the future. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I have no idea what the market\u2019s doing right now for that matter, or tomorrow, what it\u2019s going to do tomorrow or next week or next month or next year. Or even the next five years. I\u2019m fairly confident if you go ten years out, we\u2019ll be rewarded for holding the index. If you go 20 years out, it is very rare, a 20-year period, where you are not rewarded. So if you look out in the long-term, investing in the stock market works out very, very well. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And that\u2019s the only way, by the way, you should consider investing in stocks. If you are investing and you\u2019re thinking you\u2019re going to need the money in five years or seven years, it probably doesn\u2019t belong in the market. Nobody can predict the future.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>I think that\u2019s great and I think the key there is yeah, if you\u2019re not investing for the long-term, which I almost consider it to be an infinite time period that I\u2019m investing for because you alluded to this in what you\u2019re saying\u2014the longer the time period you hold, the more statistically certain you can get that you\u2019re going to be rewarded with the long-term market average return, historically, right? If that\u2019s 10% and you\u2019re projecting something out, well it\u2019s almost impossible to project out three to five to seven, even ten years. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But as you get farther and farther out that trend line, mathematically I can be more certain that I\u2019m going to be close to that long-term historical average, which kind of gives me an interesting philosophical bent in terms of risk because I actually perceive having bonds as risky in a long-term portfolio. Because they lower the total return that I might get for my portfolio over a 30-year period. Kind of in a similar vein to what you\u2019re talking about here. Do you agree with that assessment? Am I off track here? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>I agree absolutely with everything you said, word for word. So first of all, my holding period for VTSAX is forever. The only time that I ever sell shares is now that I\u2019m living on the portfolio, I pull the dividend out of it and then I sell a few shares to make up for whatever I need to spend. But other than that, I\u2019m never going to sell VTSAX. And it is going to pass onto my heirs intact and with the recommendation that they never sell it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So it is truly something. So I invest, by the way, not for my own lifetime\u2014this is another area where the advice I give diverts from what you might typically hear because I\u2019m not investing just for my life, I\u2019m investing forever and for hopefully multiple generations that will just continue. And as long as civilization continues and as long as the U.S. is an active and viable part of that civilization in the world, VTSAX is going to do well. I am never going to sell it because it drops temporarily. It just doesn\u2019t make any sense. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So I agree with that. On the question of bonds, you\u2019re also absolutely right. Bonds are simply there to smooth the ride because stocks are extraordinarily volatile. So there are times when stocks plummet and sometimes they plummet brutally as we saw in 2008-2009 and that is gut-wrenching. And bonds smooth the ride. Now, when you\u2019re young and you\u2019re working and you have a high savings rate and you have cash flow going in, I don\u2019t think you need bonds because that cash flow allows you to take advantage of those periodic drops. You should welcome them. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">For people your age, you should be looking for the market to crash because it\u2019s nothing but a golden opportunity as long as you don\u2019t lose your nerve and as long as you keep investing in it. So that cash flow from your earned income is how you smooth the ride. When you give up earned income because you retire, whether you retire early or later, whatever over time, and you don\u2019t have that cash flow, then maybe you\u2019ll want to consider bonds to smooth the ride then when the stocks plummet, you\u2019ll have the bonds to provide a source of capital to take advantage of those lower stock prices that you rebalance. So that\u2019s the role bonds have. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">One of the questions I get every now and again and on the blog, for instance, I why do you recommend the Total Stock Market Fund, the VTSAX, which is what I recommend, when this bond fund did better. It\u2019s got a higher yield. Well, bonds are not in my portfolio to enhance my performance. They\u2019re there to smooth the ride. If I want to enhance my performance, I simply adjust my allocation and have more stocks. Because as you pointed out, over time, stocks are going to dramatically outperform bonds. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So when you buy bonds, you have to understand that you are buying a ballast, if you will, that will smooth the volatility of your stocks. But you are paying the price for that and the price that you are paying is a lesser performance over the decades. Does that all make sense? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Oh, I think it\u2019s fantastic. I agree completely and that is exactly how I\u2019m approaching my own personal portfolio.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Yeah, well done.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Okay, I want to go back to something you just said a moment ago. You said at your age, you should hope for the stock market to crash, which is not common advice that you hear from people. Gosh, I hope I lose a lot of money. You wrote an article called <i>How I Failed My Daughter in a Simple Path to Wealth<\/i>. I love the title but it makes me kind of sad. You didn\u2019t fail your daughter but the article is really fantastic and we\u2019ll link to it in the Show Notes at BiggerPockets.com\/MoneyShow20. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">In this article, you give your daughter the simple path to wealth, nine basics. One of them is\u2014&#8221;realize the market and the value of your shares will sometimes drop dramatically. People all around you will panic. They\u2019ll be screaming, sell, sell, sell. Ignore this. Even better, buy more shares\u201d. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I have a friend who worked for a company that was acquired by Google in 2006. He was there for a few months. He was let go after that with some weird thing, and he pulled all of his money out of his investment funds and it was just sitting there like in a savings account or something. It wasn\u2019t a savings account but it was like not gaining any money. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But 2007 happened. The stock market went into the toilet and he lost out on all of that drop. He didn\u2019t put it back in the market so when the market going back up, he also lost out on all of that growth. And in 2008-2009, I guess a little bit later than that, 2012, the stock market really just went through the roof and losing out on all of that growth really hurt his portfolio. And I think that a lot of people see the, oh, it\u2019s down, I should sell. No, it\u2019s not down. You should buy more because now stocks are on sale. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Yeah, absolutely. I think stocks are on sale and I think one of the critical things, and I think this actually goes back to a question that Scott asked and I only answered part of, but one of the critical things you need to understand if you\u2019re going to be in the market is that the market is volatile and periodically, it does plunge. And unfortunately, whenever that happens, the media just goes absolutely nuts. You would think it was the end of the world. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I have a post I put up a couple of years ago now when the market went down 10%. 10% is what\u2019s called a correction. It\u2019s a small bump in the road. It\u2019s perfectly natural, even welcomed. And the headlines that I was seeing were \u201cBloodbath on Wall Street\u201d. Like, really? Bloodbath\u2014that\u2019s the title of the post. Maybe you can put it in the Show Notes. But it\u2019s amazing to me how insane the media goes when the market drops a little bit. And you would think that it\u2019s truly the end of the world and it\u2019s certainly the end of the stock market. And it never is. And someday, maybe it will be but then where you\u2019re investing won\u2019t matter because it will be the end of the country or the end of civilization. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The market always rebounds from those plunges but you would never know it listening to the media because there\u2019s panic everywhere. And you just have to ignore the noise. If I could leave one message for our listeners who decide to invest in index funds as I recommend, it would be that market drops are normal. They are absolutely normal. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I guarantee you, as I think I said in that post you were referring to, I guarantee anybody listening to this that over the next 10, 20, 30, 40 years, the market\u2019s going to plunge 10% on a regular basis. 20% on a pretty common basis and that\u2019s considered a bear market by the way. 20% is the correction. 20 plus percent is a bear market. It\u2019s going to plunge a few times in that 40-year period by 30, 40, 50%. That\u2019s considered a crash. This is normal. This is normal. And if you are going to panic and sell when that happens then my advice is going to leave you bleeding by the side of the road. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">In fact, the most recent edition of my stock series, which I just put up about a month ago is why you shouldn\u2019t be in the stock market. Because if you panic and sell when it drops, if you listen to the noise and all the panic, then you would have been better off not being in the market at all. So I think you need to fix in your mind, as they say in that post, you need to tie yourself to the mast. And you need to fix in your mind that selling is just not an option when the market drops. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Because if you do that, then it\u2019s game over. And that\u2019s how most people wind up being losers in the stock market. And that, I think, is the third post in the stock series is why most people lose\u2014third or fourth, somewhere in there\u2014why most people lose money investing in stocks. Because they panic and they sell instead of taking advantage and buying at discount prices. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>This brings up kind of an interesting dilemma. So I have the good fortune of starting basically from scratch, which is a big advantage. A lot of people start with debt, a lot of student loan debt. I started pretty much from zero with a college degree because I\u2019m very fortunate. Now, when I would be investing, I would put chunks of money into an index fund and I have consistently over the years and I will continue to consistently do so. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And that\u2019s a form of dollar-cost averaging. I\u2019m not really dollar-cost averaging, which I think the strict definition is putting in the exact same amount of money over a very consistent time period. Mine is just more like every time I have excess cash, I throw it into an index fund or my real estate savings for my next property.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Suppose that I had accumulated $500,000 in lifetime investible assets. And I\u2019m listening to this podcast and I\u2019m like hmm, I really want to move all of that into index funds away from these hodgepodge individual stocks and actively managed funds that I\u2019ve accumulated. Do you do that all at once or do you have a strategy for folks that have already accumulated a stockpile of money and how they should get into the market? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Because it seems like it would be a shame\u2014I don\u2019t want to time the market but it would be a shame if I put all of that money into the market right now and then it crashes 50%. That seems like it would be too much for me to handle kind of mentally. So is there kind of a strategy for that type of person to kind of dip their toe in and get all of that money invested eventually?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>So you covered, as you tend to in your questions, Scott, you covered a lot of ground. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Sorry.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>That\u2019s okay because it\u2019s all good stuff. It\u2019s just hard for me to remember it all as I\u2019m responding. But starting with the last part first, this post I have about why you should not be in the stock market, which is the most recent one on my blog, and the most recent one in the stock series, talks about exactly that. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But you started out by saying, so you said a little bit of two different things. So you started out by saying well what if I had been investing in actively managed funds and individual stocks and I\u2019ve got a bunch of those? And I have come to the decision that indexing is really the better way to go, how do I do that?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">That, by the way, reflects exactly what I went through because as I said earlier, I had been investing in individual stocks and mutual funds and finally, after ten years, after first becoming aware of index funds, I finally accepted how incredibly powerful they are. In that case, you can move it almost all immediately because you are going from one kind of stock investing to another. So you\u2019re not involved at all in that overall market risk that you were referencing.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The only caveat to that is if you own these things in taxable accounts and you\u2019ve had them for a while and you\u2019re sitting on significant capital gains by shifting all of these things into an index fund, you may trigger a very large capital gains tax. And there\u2019s no pat answer for that but you\u2019re going to want to be aware of that and think through how you do that. So that might imply that you move some things gradually over time to keep that capital gain from bumping you into higher tax brackets and that kind of thing. But that\u2019s a tax issue we spent a lot of time on.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The more common part of the question you were asking here is people who for whatever reason are sitting on a large chunk of cash and they are concerned. They say, hey I kind of like this index idea, but the market\u2019s been doing nothing but going up since 2009, which is true. And you know, I don\u2019t want to invest and have it fall 50% the next day. And of course, obviously, that\u2019s going to make you nervous.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But I would suggest that you think about it so the solution to that, by the way, is frequently classic dollar cost averaging. Let\u2019s say you\u2019ve got to make the math easier\u2014you\u2019re sitting on $120,000 and that\u2019s a lot of money to you. You say okay, I\u2019m going to put in $10,000 a month over the next year and dollar-cost average my way slowly in and that way, I don\u2019t get hurt if it drops tomorrow.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Well, that only works if in fact that market drops over the next 12 months. Because otherwise, you\u2019re simply going to wind up buying your shares at higher and higher costs, month over month, if the market continues to go up. And by the way, the market goes up three out of four years on average, so the odds are much higher that you\u2019re going to be investing dollar-cost averaging into a rising market than into a collapsing one.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But secondly, even if you do that and 12 months later, you\u2019re fully investing, who\u2019s to say that the day after you send in that last check is not the day that the market drops 50%? And the point is that if you\u2019re invested now in today, and it drops 50% tomorrow, you\u2019re going to have the same kind of pain. So when people ask that question and they make this point in the post I just put up, what is really tells me is that they\u2019re not psychologically ready for the rollercoaster ride and volatility that the market is.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Because it doesn\u2019t matter if you\u2019re sitting on cash or if you\u2019re sitting on $120,000 worth of VTSAX, the risk that it\u2019s going to drop 50% tomorrow is exactly the same. And if that risk keeps you up at night, then you probably shouldn\u2019t be investing in stocks. Does that make sense?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Yeah, absolutely. So mathematically, you\u2019re saying that you\u2019re better off statistically on average in the long run, of investing all of that cash at any one point in the market, rather than spreading it out because the market is going to be consistently rising throughout that normal period. So every day you wait, you\u2019re giving yourself slightly lower odds of accumulating wealth over time. So you invest it all immediately and move on with it, counting for tax advantages is kind of what you\u2019re arguing.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And I kind of agree with that assessment except for with the slight caveat of the psychological thing, which maybe I\u2019m not ready to invest in the stock market. Where if that is all of your lifetime accumulated assets and you can\u2019t afford to lose that for whatever reason in the short run, then your financial position is not capable of sustaining a loss if you\u2019re dependent on those resources to make it through some period of time.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>If I can interrupt you there for a second, if that\u2019s the case, then definitely you shouldn\u2019t be in the stock market. Again, the only way to invest in the stock market is for the long-term. So any money you have that you\u2019re going to need in the next five years, clearly you shouldn\u2019t be investing that in the stock market. The point is that at any given point in time, the odds are that the market is more likely to go up than down because it goes up more often than it goes down. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But that doesn\u2019t mean\u2014at some point, it will plunge. It could be plunging as we\u2019re talking now, I don\u2019t know. At some point, it could plunge and there might be somebody who invests a large lump sum of money the day before and hits that proverbial drop. What I would suggest is that person is no worse off than the person who invested a year ago and now is sitting on $120,000 worth of VTSAX that suddenly gets cut in half. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">If you\u2019re invested in the market, you just have to be prepared psychologically to wake up on any given day and see that your holdings are worth less than they were the day before. But you have to realize that you still own the same percentages of all those companies. You still own the same piece of the rock, as the insurance company used to say, and that hasn\u2019t changed. And now you have the opportunity to buy more of it at lower prices. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So yeah, my advice\u2014I have a post maybe you can put it in the Show Notes along with the most recent one, something to the effect of investing in a bull or in a raging bull, which was a response to a question I got very much along these lines based in 2013. They said there\u2019s no way the market can continue to go up from here. It\u2019s been going up since 2009. Well, here we are.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And by the way, I didn\u2019t know that. And as I say over and over again, I don\u2019t know what the market\u2019s doing today or tomorrow or next year. But since you don\u2019t know that, it can\u2019t inform how you go about investing. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Okay, so you\u2019ve said a couple of times, if you need this money in the next five years, you shouldn\u2019t be in the stock market. Where should you be?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well it depends on what you need the money for. And I wouldn\u2019t make an entire sweeping generality along those lines. So let\u2019s look at this in an example, if you will. First of all, to answer your question more directly, you\u2019d be in the money market fund or a savings account if you definitely need the money in the next five years. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Let\u2019s suppose you came to me and you said, you know, Jim, I\u2019m saving money for a down payment on a house\u2014<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>And that\u2019s what I was going to say because that\u2019s where real estate site and a lot of people ask that, what should I do with my money while I\u2019m waiting for it to grow to a down payment?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Which is why I chose that as our example. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>It\u2019s like you\u2019re a mind reader. Oh, maybe you can predict the market.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>No. It\u2019s just that I know a little bit about what BiggerPockets is all about. So you come to me and you say, hey Jim, I\u2019m saving money and I\u2019m saving for a down payment on a house and I want to buy this house in five years. At my current savings rate, I\u2019ll have the down payment I need. Should I put this money into the market? And I\u2019m going to say basically no, you should have that money in a savings account. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Then you might say to me, well yeah but Jim, I won\u2019t earn anything on the savings account. The market does so well and I\u2019m willing to take a chance. Then I\u2019m going to say to you, well, Mindy here\u2019s the deal. You can certainly put money in the market for your down payment. You just have to understand that the wind might be in your face and you might not be able to buy the house in five years.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">On the other hand, if the wind suits your back, maybe you can buy the house in three years. And it really depends psychologically on how important that five-year goal is to you personally. So if you said to me, you know what? If I couldn\u2019t buy it after five years, and I have to wait seven or eight years, I\u2019m okay with that. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Then I\u2019d say sure, maybe you should put some of it in the market. Maybe you can do a 50\/50 blend with stocks and bonds, which isn\u2019t as aggressive and volatile as all stocks but it\u2019ll give you much better potential return over five years than a money market fund or a bank account.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">So you can play with that depending on your own needs and your own psychology. But fundamentally if you say to me, nope, I want to have that house in five years, it\u2019s really important to me. I\u2019m going to say well you just need to give up returns and focus on just saving in the bank.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>So can I put a spin on that question? What if I said, Jim, I\u2019d really like to give myself the best odds at being able to purchase that house as quickly and as practical? Would you then change your advice to yeah, invest that money into an index fund and sell it and pull it out when you\u2019re ready to buy that house.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well Scott, I\u2019d have to respond with a question and say how heartbroken are you going to be if the wind winds up in your face and it takes you eight years instead of five or three? And if you say well gee, Jim, that\u2019s intolerable. I\u2019m going to say well\u2014but if you say to me you know, that\u2019s all right. I\u2019m willing to risk maybe it taking eight to ten years if I can get it done in two or three. It\u2019s, do you feel lucky, punk? Well, do ya?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>I think it\u2019s more like I suspect you\u2019re similar to me in a way like this but I always look at things and like, okay, I made the correct mathematical logical choice and I can live with it if it happens to not work out in my favor as long as it\u2019s not a devastating\u2014as long as it doesn\u2019t wipe me out. Bankruptcy is kind of an intolerable, impossible outcome so I try to stay as far away from that possibility as possible.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But if I have to delay something for a few years and that\u2019s the risk in exchange for getting it sooner, I\u2019d tend to take that and that\u2019s why for several down payments, I actually did invest that money into the index funds and I knew that exactly what you were talking about is a possibility, but I was willing to live with it and live with myself if it took me a lot longer to get to my goal because I thought, hey, the math is on my side in terms of helping me get to my goal sooner if I approach it this way.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Yeah and I think the fact that you said your multiple down payments also indicates that you were buying investment real estate and so, that is probably more flexibility perhaps than saying gee, in five years, my kids are going to be entering grammar school and I want to be in a certain school district so I want to buy a house. That\u2019s a much harder deadline than saying well, if I can only accumulate this investment real estate in eight years instead of five, that\u2019s not the end of the world.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The only caveat, Scott, that I would put out there is that for most of the people listening to this podcast, the volatility that we have seen in the stock market, while some of it has been brutal like in \u201908, \u201909, or even \u201987, it\u2019s been fairly short-lived. That\u2019s not always how things evolve. There are times when the market goes down and it stays down for years on end. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">It takes a lot longer so you have to understand that if you\u2019re going to do what you did and invest in the index fund with an idea of accumulating a down payment, that it\u2019s not just a matter of it may take you a couple of years beyond year five. It may take you considerably longer. It may mean that you\u2019re not going to own a house in the next decade or so, or plus. So there\u2019s always that possibility that we could get a long, protracted drop and the market, as you saw in the late \u201860s and through the \u201870s. Or just a flat market. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Great perspective. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Yeah. The market is fundamentally, it\u2019s a long-term game. If you invest in broad-based index funds which is what I recommend as we talked about earlier, your holding period mentally should be forever. I mean, that\u2019s\u2014and investing in it to help you get to another short-term goal, I\u2019m not entirely opposed to depending on how much risk you\u2019re willing to take. But it\u2019s a different bit of analysis before you pull the trigger on that.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>I think that is great.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>I think this is fantastic. Jim, thank you so much for taking the time to share this with us. You\u2019ve given some real solid reasons for investing in index funds over picking stocks and I think that, I really like your quote, oh my daughter said, Dad, I don\u2019t have any time for this. She is the norm. Nobody has time for this. Nobody cares. It means so much to me and nobody else cares. Oh, you can watch their eyes glaze over as you start talking about interesting things.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>And by the way, thank God for the benefit of the world. I mean, my daughter\u2019s going on doing much more important things, making the world a better place. Most people, they have bridges to build and companies to run and diseases to cure and scientific breakthroughs to come through and podcasts to put out. But the beauty of investing is that if you keep it simple, it doesn\u2019t have to take up much or really any of your time, very little of your time. And unlike many things in life, the less effort you put into it, once you understand and implement a few basic concepts the better your results will be. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">Jack Bogle is famous for saying it\u2014what you should do is buy the index and forget about it and then 20 or 30 years later\u2014don\u2019t even open your statements and 20 or 30 years later, when you open your statement, make sure you have a cardiologist standing by because you\u2019re going to be shocked at how well you\u2019ve done. Anyway.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Well, we just have a few more questions for you before we let you go. We have taken up quite a bit of your time today and I could talk to you forever because I really enjoy listening to you. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>And I could talk to you guys forever. This has been a blast.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>And this has been really informative. I hope everybody listening has gotten as much out of it as I have. I\u2019m probably still\u2014but we have fun, yeah. But you know, if they had fun too. I\u2019m probably still going to buy Coca-Cola though. I\u2019m not going to take the emotion out of it. But that\u2019s a good point. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">We have a few more questions for you. These are the same questions we ask everybody. We call them our <i>Famous Four<\/i> because there\u2019s five. Question number one is what is your favorite finance book? And I would just like to say that I think it was two episodes ago, The Mad FIentist was on and he recommended a little book called <i>The Simple Path to Wealth<\/i>. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>I\u2019ve heard great things about that one.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>I\u2019ve heard great things, too.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well assuming that you don\u2019t want me to recommend my own book, I think one of my favorites is actually <i>The Richest Man in Babylon<\/i>. I hesitate recommending it because it\u2019s a very small book. It\u2019s told as a parable, not surprisingly, the richest man in Babylon is basically explaining to some of the Babylonians who decide hey, we want to be rich so maybe it makes sense to talk to the guy who is rich. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">My hesitation is that the lessons in it are so simple and the book itself is so small and short and easy to read that people might not understand how profound it is. So it\u2019s a book I highly recommend but it\u2019s a book that will take you very little time to read but should take you a lot of time of reflection once you\u2019ve read it.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>So I actually like that it\u2019s a short book. It\u2019s a good introduction\u2014although I do want to say that it\u2019s written in King James Bible version, Shakespearean language, which I love so I enjoyed the book very much. I thought it was unbelievably profound because it was written a hundred years ago and they\u2019re saying the same things. Spend less than you bring in. Invest with people who know what they\u2019re doing.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Pay yourself.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Pay yourself, yes. All these things that everybody\u2019s telling you now and they were saying it a hundred years ago. Like it\u2019s not hard to figure out money.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Or as the book implies, they were saying it 5,000 years ago. Right? I mean, that\u2019s a great point, Mindy. This is not new stuff. I mean, what we talk about in the FI community is things that our grandparents knew. Be frugal. Don\u2019t spend money you don\u2019t have. I mean, how basic is that? How bizarre is it that we live in a culture that takes as normal the idea of spending money we don\u2019t have? Credit cards, borrowing money. I mean, that\u2019s a bizarre new concept. Your grandparents would have been horrified at the idea of spending money you don\u2019t have. I\u2019m horrified at it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>And yet you saying it is weird. You\u2019re bringing this up. How weird is this that it\u2019s okay to do in this society? Yeah, why would you even think about that? That\u2019s the norm. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Right. Now we\u2019re the odd ones out. Yeah, this is not\u2014the basic concepts which are save part of what you earn, spend less than you earn, invest the difference. I mean, you find this in the Bible. This goes back thousands of years. And that was the point that\u2014I forget the name of the guy that wrote <i>The Richest Man in Babylon<\/i> but that was the point he was making. It wasn\u2019t new a hundred years ago when he wrote the book.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>I love it. I also love that book and I\u2019ve read it probably three or four, maybe five times. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Yeah, exactly.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Because it\u2019s just so easy to read and it\u2019s so perfect.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>The only thing that I object to in the book is he recommends saving 10% of your income and I think that\u2019s too low.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>50%.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Yeah.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>10% is better than nothing.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Absolutely. And it\u2019s certainly better than going in debt and paying 18% to the credit cards.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>All right, what was your biggest money mistake?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Hmm. Well, there are so many from which to choose. But I would say, my single biggest money mistake is as I alluded to earlier, it took me a disturbingly long time to see the full value of indexing. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">The great irony is that I had started investing in 1975, which as it happens, is the same year that Jack Bogle founded Vanguard and came out with the first widely available index fund. So theoretically I could have been indexing from the very beginning of my career and my life would have been so much easier and I\u2019d be so much further ahead of the game. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">But I didn\u2019t hear about indexing in 1975. I did hear about it in 1985 and even if I had embraced it then, I\u2019d be far ahead of the game but as I said earlier, it took me a good decade plus to really accept the value of it. And this is an important point because I think there are a lot of people today who are resistant to it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">And it seems so counterintuitive as we talked about earlier that you can\u2019t outperform the market simply by avoiding the dogs or focusing on the high performers. But the research is definitive. I mean, trying to outpace the market just doesn\u2019t work over time. So that\u2019s my biggest mistake. I wish I had embraced indexing much, much earlier.\u00a0<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>I love how it\u2019s an opportunity cost rather than a \u201cI bought this fancy doodad that I shouldn\u2019t have\u201d. It\u2019s, I invested sub-optimally and that\u2019s what cost me tons of money.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well, that\u2019s part of it, Scott. But the other part of it is that because I was in indexing and I wasn\u2019t investing in other things, I have a whole litany when I said there are so many to choose from. I have a whole litany of like Mori International, my goldmining company. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Not my Chinese fruit company.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Like your Chinese fruit juice company. That indexing gives you all kinds of opportunities to make financial mistakes. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>That\u2019s awesome.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>What is your best piece of advice for people who are starting out? Oh, hold on. I\u2019m going to look into my crystal ball and say invest in index funds?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>So, it\u2019s interesting. When I was at Chautauqua last year which is the annual event we put together. We take people to an interesting place and I give a talk there. Somebody had asked me a question earlier along those same lines and so it was like, you know, how would you sum up your philosophy in a sentence or two? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">What I came up with and what I introduced at my talk at Chautauqua was basically when you go through my blog and my book, the fundamental message is, buy VTSAX. Buy as much as you can whenever you can and hold it forever. And that\u2019s actually what Scott was saying earlier that he does. He buys indexes. I don\u2019t know if he buys VTSAX or not but he buys whenever he can, as much as he can, then he holds it forever. VTSAX, by the way, is Vanguard\u2019s Total Stock Market Index Fund.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>And that\u2019s the one I\u2019m going to start switching to but I have in the past been buying VOO, which is their S&amp;P version. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Which is fine. I mean, the S&amp;P 500 is\u2014Jack Bogle himself owns the S&amp;P 500 fund so the S&amp;P 500 makes up about 80% of VTSAX. If somebody says to me, I own the S&amp;P 500, you\u2019re doing great. Don\u2019t lose any sleep.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Yeah, it\u2019s been good. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Exactly.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>All right, this is the most difficult question of our <i>Famous Four\/Five<\/i>. It is, what is your favorite joke to tell at parties?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Do you want a short joke? A normal joke? Or a shaggy dog story?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>How about a really long joke? <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Scott is underestimating the amount of time Jim can talk.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Yes, absolutely. When I say a shaggy dog story, we\u2019re talking about a 10-minute commitment. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Let\u2019s poll our users real quick.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>They\u2019re all saying short to medium, please.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Aw, all right. Fine.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Mindy, this morning actually, I was listening to the beginning of your interview with Alan Donegan and I heard you recite the term <\/span><span class=\"s3\">[Inaudible][69:03] <\/span><span class=\"s1\">which flew in and boy, are my arms tired.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>And Scott didn\u2019t even get it.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>It took me a minute. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>So that is a terrible joke but along the lines of a short joke of that kind, I will tell you the world\u2019s perfect joke. This is the world\u2019s perfect joke and it has the benefit of being very short. There are two muffins and they\u2019re in an oven and the oven is starting to warm up and the one muffin says to the other, man it\u2019s getting hot in here! And the second muffin says, holy crap! A talking muffin! <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Perfect.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Perfect joke.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Perfect joke, that was a delightful joke. Thank you for not making it a pun.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Every once in a while, our guests don\u2019t have jokes so I always have one prepared and this week it was going to be about a pizza but I\u2019m glad I don\u2019t have to tell it because it\u2019s kind of cheesy.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Oh, no.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>I\u2019ll tell you the ten-minute Moose Turd Pie joke.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Oh, Moose Turd Pie, well I am going to go on vacation with you this year, Jim, and I am going to make you tell me that joke in Greece.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>That sounds good. It is a joke best told in person.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Moose Turd Pie. I can\u2019t wait. That sounds awesome. Jim, where can people find out more about you?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well I don\u2019t know anybody who wants to find out more about me but my blog is the JLCollinsNH.com and if you go to the blog, you\u2019ll find everything I\u2019ve written and there\u2019s a button at the top titled \u201cStock Series\u201d and that\u2019s what the blog is most famous for and I think there are 32 now? If I\u2019m not mistaken, articles in the Stock Series. And then I list some other posts that are relevant to that that people can look at and once you\u2019re on my site, you\u2019ll see a link to my book, <i>The Simple Path to Wealth<\/i> and if somebody is interested, they can go and do that. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">I always tell people that there is nothing in the book that is not on my blog and that\u2019s very intentional. So you don\u2019t have to buy the book to get the information. The book is better organized and it\u2019s more concise and the writing, I won\u2019t say the writing is better but it is more polished in that I spent more time polishing it. But when I was writing the book, it was very interesting, people were saying, be sure you put things in the book that\u2019s not on the blog so people have to buy your book. And I thought well that\u2019s kind of crappy. I don\u2019t want to do that to my faithful blog readers. The book in large extent exists because I had an audience for the blog. So anyways. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>And I\u2019ll chime in that there is an audio version of the book as well read by this guy with a very soothing, deep voice that puts James Earl Jones and Mufasa from The Lion King to shame. You can also check it out at Audible. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well yeah, it is read by me and when the Audible people suggest that I read it, I said well I\u2019m happy to do that but I\u2019m not a professional narrator so understand I\u2019ve never done this before. And they said, no, no, no\u2014people will want to hear it in the author\u2019s voice. I said okay, so we did it. And if it sounds good, trust me when I tell you the credit belongs to the editors because what I actually recorded was one hot mess that they had to sort through. But I haven\u2019t listened to it myself. I\u2019ve had enough of it recording it so\u2014<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>No, this has been fantastic and awesome. We really appreciate you coming on and sharing this stuff. We had such a great discussion here. Love it. I hope that people go check out your blog and your book because of the show and do the right thing which is probably invest in index funds for the long-term.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well first of all, I had a blast hanging out with you guys. I am truly honored that when Mindy sent me the e-mail asking me if I would do it, I was thrilled to get it and it\u2019s an honor and it has been just so much fun hanging out with you so thank you.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>I was very honored when you said yes.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>We were honored when you said yes.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>We\u2014yes, I\u2019d like to exploit my friendships and say hey, can you come on my podcast? But I\u2019m always a little nervous. No, I don\u2019t do those or no, I don\u2019t have time for your little piddly nothing\u2014oh, okay. This is awesome. James said yes. It\u2019s not little piddly. It\u2019s amazing. Best show ever is what I think I\u2019ve heard.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>And Mindy, you know I will always say yes to you.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Woohoo, we\u2019ll see you next week. It\u2019ll be the Jim Show.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>That works for me. No, I would be happy to do it again. You probably don\u2019t want to inflict this on your audience next week but give them a few months to recover and we can do this again.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>That would be awesome. Okay, Jim, thank you so much for your time and we will see you again soon.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>I will look forward to talking to you again and to listening to this when it comes out. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Okay.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Good luck to your editor.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>We have a great editor. Shout-out to Dave for making us sound beautiful.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Well, you\u2019re going to need him for this episode.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Okay, Jim, I hope you enjoy your day and we will talk to you later. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Always a pleasure and enjoy your celebration this afternoon.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Thank you.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>Congratulations.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Thank you very much.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Jim: <\/b>All right. Byebye.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Byebye.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>All right, that was Jim Collins. Mindy, what did you think of that episode?<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Jim blows my mind. All these people tried to game the system, beat the market, and you can\u2019t do it. Jim was like look, just set it and forget it.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Well Jim did game the market, right? What I think is fascinating about Jim is Jim did game the market. He did try to pick actively managed funds. He did try to pick the winning stocks. And he succeeded in achieving financial freedom in doing so yet has the wisdom to go back and be like, you know what? I actually slowed myself down a bit. I could have done it faster if I had just stuck to this very fundamental passive boring index fund strategy, I would have been in the exact same position even sooner.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>Well so, in that respect then he didn\u2019t beat the market. He just did well.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Yeah. I think it speaks to the fundamentals that achieving financial independence is first and foremost a function of your savings rate and not your investment strategy, which I think is kind of a powerful insight. Your investment strategy is secondary to that savings rate. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\">As long as you invest something that has the potential to help you grow fairly quickly, be it real estate, be it stocks, be it bonds, be it actively managed funds with high fees\u2014you will build wealth over time if you have a high savings rate and continually invest in something that has a reasonable shot at upside. But you can do it faster and better and easier and more passively with index funds, I think is Jim\u2019s point. And a point that you and I would agree with. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>That\u2019s a really great place to leave this. I think that\u2019s a really great place to leave this discussion, to end this discussion, Scott. Jim just dropped knowledge bomb after knowledge bomb and that pretty much sums it up. You can do it in a multitude of ways but you can do it faster and cheaper and easier with an index fund.<\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Scott: <\/b>Yep, love it. <\/span><\/p>\n<p class=\"p1\"><span class=\"s1\"><b>Mindy: <\/b>All right, for episode 20 of the BiggerPockets Money Show, this is Mindy Jensen, over and out. <\/span><\/p>\n<\/div>\n<h2>Watch the Podcast Here<\/h2>\n<p><iframe loading=\"lazy\" title=\"The Simple Path to Wealth\u2014Index Funds Explained with JL Collins | BP Money 20\" width=\"640\" height=\"360\" src=\"https:\/\/www.youtube.com\/embed\/VgjRdxCfrfE?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<h2>Help Us Out!<\/h2>\n<p>Help us reach new listeners on <a href=\"https:\/\/itunes.apple.com\/us\/podcast\/biggerpockets-money-podcast\/id1330225136\" target=\"_blank\" rel=\"noopener\">iTunes<\/a> by leaving us a rating and review! It takes just 30 seconds.\u00a0Thanks! We really appreciate it!<\/p>\n<h2>Podcast Sponsor<\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"no-display appear alignright wp-image-99222 size-medium\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/05\/Entrust-Group-Logo-300x60.png\" alt=\"\" width=\"300\" height=\"60\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/05\/Entrust-Group-Logo-300x60.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/05\/Entrust-Group-Logo-768x153.png 768w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2018\/05\/Entrust-Group-Logo.png 827w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/>For over 36 years, <strong>The Entrust Group<\/strong> has provided account administration services for self-directed retirement and tax-advantaged plans. Entrust can assist you in purchasing alternative investments with your retirement funds, and administer the buying and selling of assets that are typically unavailable through banks and brokerage firms.<\/p>\n<p>Visit <a href=\"http:\/\/theentrustgroup.com\/biggerpockets\" target=\"_blank\" rel=\"noopener noreferrer\">The Entrust Group<\/a> today.<\/p>\n<h2>In This Episode We Cover:<\/h2>\n<ul>\n<li>Jim&#8217;s <strong>background<\/strong><\/li>\n<li>How he discovered the <strong>FI concept<\/strong><\/li>\n<li>The <strong>position of power<\/strong> in his life, and how he made bolder choices<\/li>\n<li>How he transitioned into <strong>financial business<\/strong><\/li>\n<li>How he was able to achieve <strong>high savings rate<\/strong><\/li>\n<li>Achieving FI, picking individual stocks, and <strong>actively managing funds<\/strong><\/li>\n<li>Separating your emotions from <strong>your investments<\/strong><\/li>\n<li>Four things you need to<strong> move toward FI<\/strong><\/li>\n<li>The key things to remember when investing in an <strong>index fund<\/strong><\/li>\n<li>What <strong>self-cleansing<\/strong> means<\/li>\n<li>His <strong>timeline<\/strong> for investing in index funds<\/li>\n<li>Buying <strong>bond market index funds<\/strong><\/li>\n<li>His take on the <strong>&#8220;Bloodbath on the Wall Street&#8221;<\/strong> headline<\/li>\n<li><strong>Strategy<\/strong> for getting into the market<\/li>\n<li>Ways to invest in the <strong>stock market<\/strong><\/li>\n<li><strong>And SO much more!<\/strong><\/li>\n<\/ul>\n<h2>Links from the Show<\/h2>\n<ul>\n<li><a href=\"https:\/\/www.biggerpockets.com\/forums\" target=\"_blank\" rel=\"noopener noreferrer\">BiggerPockets Forums<\/a><\/li>\n<li><a href=\"http:\/\/jlcollinsnh.com\/2011\/06\/08\/how-i-failed-my-daughter-and-a-simple-path-to-wealth\/\" target=\"_blank\" rel=\"noopener\">How I failed my daughter and a simple path to wealth<\/a> (Article)<\/li>\n<li><a href=\"http:\/\/jlcollinsnh.com\/2018\/03\/16\/stocks-part-xxxii-why-you-should-not-be-in-the-stock-market\/\" target=\"_blank\" rel=\"noopener\">Stock Investing Series &#8211; Part XXXII: Why you should not be in the stock market<\/a> (Article)<\/li>\n<li><a href=\"http:\/\/jlcollinsnh.com\/2013\/05\/22\/stocks-part-xviii-investing-in-a-raging-bull\/\" target=\"_blank\" rel=\"noopener\">Stock Investing Series &#8211; Part XVIII: Investing in a Raging Bull<\/a> (Article)<\/li>\n<li><a href=\"http:\/\/jlcollinsnh.com\/2012\/04\/25\/stocks-part-iii-most-people-lose-money-in-the-market\/\" target=\"_blank\" rel=\"noopener\">Stock Investing Series &#8211; Part III: Most people lose money in the market<\/a> (Article)<\/li>\n<li><a href=\"http:\/\/jlcollinsnh.com\/2014\/10\/18\/nightmare-on-wall-street-will-the-blood-bath-continue\/\" target=\"_blank\" rel=\"noopener noreferrer\">Nightmare on Wall Street: Will the Blood Bath Continue?<\/a> (Article)<\/li>\n<li><a href=\"\/renewsblog\/biggerpockets-money-podcast-17-building-lean-business-with-almost-no-capital-with-alan-donegan\/\" target=\"_blank\" rel=\"noopener noreferrer\">BiggerPockets Money Podcast 17: Building a Lean Business With (Almost) No Capital with Alan Donegan<\/a><\/li>\n<\/ul>\n<h2>Books Mentioned in this Show<\/h2>\n<ul>\n<li><a href=\"https:\/\/amzn.to\/2IaqSML\" target=\"_blank\" rel=\"noopener noreferrer\"><em>The Simple Path to Wealth<\/em><\/a> by Jim Collins<\/li>\n<li><a href=\"https:\/\/amzn.to\/2jRNnHK\" target=\"_blank\" rel=\"noopener noreferrer\"><em>Noble House<\/em><\/a> by James Clavell<\/li>\n<li><a href=\"https:\/\/amzn.to\/2I9tHhb\" target=\"_blank\" rel=\"noopener noreferrer\"><em>The Richest Man in Babylon<\/em><\/a> by George S. Clason<\/li>\n<\/ul>\n<h2>Tweetable Topics:<\/h2>\n<ul>\n<li>&#8220;It&#8217;s not a matter of choosing between something that is terrible and something that is great. It is choosing between something that does work and can work depending on how skilled you are at it.&#8221; <a href=\"https:\/\/twitter.com\/home?status=%22It&#039;s%20not%20a%20matter%20of%20choosing%20between%20something%20that%20is%20terrible%20and%20something%20that%20is%20great.%20It%20is%20choosing%20between%20something%20that%20does%20work%20and%20can%20work%20depending%20on%20how%20skilled%20you%20are%20at%20it%22%20BP%20Money%20Podcast%2020%20biggerpockets.com\/moneyshow20%20%40biggerpockets\" target=\"_blank\" rel=\"noopener noreferrer\">(Tweet This!)<\/a><\/li>\n<li>&#8220;Stocks are never gonna love you back.&#8221;\u00a0<a href=\"https:\/\/twitter.com\/home?status=%22Stocks%20are%20never%20gonna%20love%20you%20back.%22%20BP%20Money%20Podcast%2020%20biggerpockets.com\/moneyshow20%20%40biggerpockets\" target=\"_blank\" rel=\"noopener noreferrer\">(Tweet This!)<\/a><\/li>\n<li>&#8220;The longer the time period you hold, the more statically certain you can get.&#8221; <a href=\"https:\/\/twitter.com\/home?status=%22The%20longer%20the%20time%20period%20you%20hold,%20the%20more%20statically%20certain%20you%20can%20get.%22%20%20BP%20Money%20Podcast%2020%20biggerpockets.com\/moneyshow20%20%40biggerpockets\" target=\"_blank\" rel=\"noopener noreferrer\">(Tweet This!)<\/a><\/li>\n<\/ul>\n<h2>Connect with Jim<\/h2>\n<ul>\n<li><a href=\"http:\/\/jlcollinsnh.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">Jim&#8217;s Website<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Jim Collins has literally done it all. From busboy, produce, clerk, and gas station attendant, to ad agency founder, sales trainer, radio co-host, and publisher. He is a prolific world [&hellip;]<\/p>\n","protected":false},"author":353007,"featured_media":99143,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6473],"tags":[],"class_list":["post-99141","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-biggerpocketsmoney"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/99141","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/353007"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=99141"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/99141\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/99143"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=99141"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=99141"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=99141"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}