Investing for Beginners with JL Collins

18:44Tiffany Aliche:But I know that's not true. Debunk that for me of like, oh, but they're experts. So I'm willing to pay them a fee. Like, are they actually good at their jobs?

18:52J.L. Collins:Well, it depends on what their job is. If their job is making money for themselves and their firms, they're very, very good at that. Right. You know, there's the old joke of two guys are walking through a harbor and the financial guy is pointing out that yacht belongs to this financial executive and that yacht belongs to this other financial executive. And at one point, the other guy says, where are the customers' yachts? Right? So yeah, in terms of what you need, no, there's not great value to be had there. If I thought that spending money on a professional would give me a better result, a significantly better result, or even a small better result, then I'd be happy to spend that money.

19:41J.L. Collins:It would be worth it. But in investing, the very opposite is true. And this is not, by the way, just my opinion. This is years of research that indicate that professionals do not outperform the market. This was one of the great insights that Jack Bogle came up with. He's the guy who created the first index fund that was available to mere mortals like us. He was the guy who started Vanguard. This was his insight, was that active management really didn't provide much value, if any. And at first, he was vilified for that concept because it was a huge threat to the income stream of people engaged in that kind of business.

20:27J.L. Collins:But he famously said, you know, performance comes and goes, but costs are there forever. And if you buy the whole market and hold it at a very low cost, you will outperform all those professional managers. and people sneered and laughed and what have you. But that was 1975. So here we are 50 years later. And the research for decades now has been conclusive that he's absolutely right. There is no value to be had there. There's only costs.

20:58Tiffany Aliche:And for anybody listening, like I don't need to back him up, but this is what I invest in as well. This is what's made me a millionaire is these index funds. Yep, you heard me. Index funds, straightforward investing is what made me a millionaire. When we come back, we're talking to JL about what index funds actually are, the biggest mistakes that new investors make, and so much more. We'll see you back here after the break.

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23:37Tiffany Aliche:I want to define a couple things because I'm going to have you explain it to us like we're five years old, right? So when we're talking about like actively managed, meaning that, you know, again, we're paying a hefty fee to somebody to manage our portfolio for us, that's probably not a great idea, right? He just proved why you're going to spend a lot of money, you're not going to get anything really in return. Passively managed stuff is what we're talking about with index funds. And I think a lot of people don't realize it's just this easy. So explain to me what an index fund actually is and how I might go about actually investing in one.

24:10J.L. Collins:Sure. If you look at the stock market in the United States, there's about 3 ,600 roughly publicly traded companies. And an actively managed fund, let's start there, as you alluded to, those are run by people who try to look at all those companies and figure, try to figure out which ones are going to outperform and buy those and hold them in their fund. And that sounds great in theory, right? And in some ways, and by the way, I was a stock picker for decades and I was also spent a long time investing in actively managed funds, trying to figure out which managers would able could actually outperform.

24:52J.L. Collins:So I'm pretty familiar with this whole process. And it sounds it's the soul of logic because you think, you know, if I just avoid the bad companies, I'll outperform everything. Or if I just focus on the good companies, I'll outperform everything. Well, the problem is it's surprisingly difficult to figure out which is which. because the companies that look really great today can turn out to be the ones that blow up tomorrow. And the companies that look like dogs today can turn out to be tomorrow's cool turnaround story. So what the research indicates is that if you just buy the entire market, if you just buy VTSAX as an example, which is Vanguard's total stock market index fund, it's the one I happen to invest in, it's the one my daughter Jessica's in, You own now every publicly traded company in the United States of America.

25:47J.L. Collins:And everyone from the factory floor to the CEO is working to make you richer. Now, I don't have to worry about which ones are going to succeed and which ones aren't. Because the ones that succeed, like cream, are going to rise to the top. And these are what's called cap-weighted funds. So the larger, more successful companies are a larger part of the portfolio. And those that fail will drift down and eventually will go away. So unlike when I buy an individual stock, I immediately have to start thinking about when am I going to sell it? Let's say I'm correct. My analysis has been good and it starts to go up.

26:27J.L. Collins:Well, how high is it going to go and for how long? And if it pulls back a little bit, is that temporary or is that the end of the ride? And with an index fund, it's what I call self-cleansing, which means that, as I said, the ones that are successful rise and the ones that are not drift away. I never have to wonder about where I'm going to sell it. My holding period for VTSAX is forever because I just don't have to think about that. The same thing, by the way, is true not only of the individual companies within the index, but also the sectors. So right now, technology dominates the total stock market index fund because those companies have had a phenomenal run.

27:12J.L. Collins:That's not always been the case. You know, I remember one of the few advantages of being an old guy is I remember times when financials dominated or when consumer goods dominated or when energy dominated. Those two rotate. So I have no idea how long technology is going to dominate. But what I do know is when the day comes that something else takes its place, I will also own that.

27:40Tiffany Aliche:I think that's the thing when you start learning about investing that does blow your mind. And obviously, you wrote a book called The Simple Path to Wealth. But I think people think it's really complicated because, again, the industry has made it feel like it's complicated. And I cannot say enough that the way you get rich is actually very, very simple. It is picking one of these general market index funds, for example, and just continuing to invest in it for a long period of time. So can we talk about mistakes that people often make in their financial journeys? We've already kind of talked about trying to make it too complicated.

28:16Tiffany Aliche:Are there other mistakes that you see people make?

28:20J.L. Collins:Well, so the first one is believing that it has to be complicated. And that's not surprising that people believe that because that's the message in the broader media. That's all you really hear about. I use the analogy of a mug of beer, right? What you hear about in the media is the foam on top of the beer, right? That's the trading that's going on day to day. That's when stocks go up and down. You look at Tesla in recent weeks. I mean, it can go up or down 10 % to 15 % a day these days. Tremendous volatility. But under all that volatility in foam, there's the actual beer. The actual beer is what we as investors for the long term are interested in.

29:10J.L. Collins:That is the actual company that is manufacturing something or providing some service, hopefully effectively, hopefully profitably. That's what we want to own, and that's where the long-term value lies. But everything you see on TV, everything you hear in the media is all about that phone. It's all about that short-term trading. If you want to become wealthy in the stock market, you don't care about the phone. you care about the beer.

29:41Tiffany Aliche:I always talk about it as investing shouldn't be sexy. Like all the stuff we see on TV, you know, is like the sexy, exciting stuff. And it's Jim Cramer, like, you know, banging on a bunch of buttons, sound effect buttons. And like, you know.

29:55J.L. Collins:Buy, buy, buy, sell, sell, sell.

29:57Tiffany Aliche:Right. And like what craziness happened in the market today. And I'm just so focused on telling people, like what happens on a random Tuesday actually doesn't really matter. What happens to one or even a couple particular companies doesn't really matter if you have chosen these diversified investments like an index fund. I think one of the other mistakes I see that, again, if you've been listening to the show for a long time, you've heard me say a million times, but we always catch somebody new who's been making this mistake. Our audience is primarily women, and a lot of women don't know because no one's ever taught them that the Roth IRA or the 401k is not the investment.

30:32Tiffany Aliche:It is the account that holds the investments. So I can't tell you jl the amount of people who have reached out thousands and thousands and thousands of people Who have reached out to me and told me my money was in financial purgatory until I heard you speak about this because I thought it was a bank account I put my thousand dollars in my roth ira And I didn't actually invest so for everybody listening. That's one of the mistakes I see you put your money in the roth ira or you put your money in a 401k And then you have to go invest in something like an index fund. You have to do a two-step process Do you see that in your work as well?

31:04Tiffany Aliche:It's one of the biggest mistakes I see people make.

31:07J.L. Collins:Yeah, you're absolutely right, first of all. And it's not just women. It's everybody. It's everybody. It's all beginning investors. And I think of it, your IRA or your 401k or whatever, as you well said, is not an investment. It's a bucket that you put your investment in, right? So the first thing you do is you go out and you get yourself the bucket. You get yourself the IRA or the 401k, you sign up for those things. And then, as you also said, so I'm just reinforcing your point, then you have to go out and decide what to put into that bucket. And of course, if you're going to follow the simple path to wealth, it's going to be a broad-based, low-cost index fund.

31:50Tiffany Aliche:Let's talk about FIRE for a little bit because I know, especially in my early 20s, I was doing probably multiple times a day. I'm a little embarrassed to admit, but I was on the calculators trying to figure out if I was able to save even or invest even$50 more a month, I could cut the amount of time I was working. And I think that once people start realizing that, it kind of blows your mind to understand. In the early days, you're exactly right. I think there was a certain archetype of the person who could achieve FIRE. And it was a straight white guy who had sold a tech company in his 20s. Like, that seemed to be the kind of person.

32:33Tiffany Aliche:But there's more and more people who are able to pursue financial independence, retire early. That's what FIRE stands for. and achieve their own version of that, whether it is truly laying on a beach by the time they're 40 or taking many retirements or just being able to scale back. So why is the FIRE movement so interesting and how can we start almost rewiring our brains to make this something that we think is doable or that we feel like we can be in pursuit of? Yeah.

33:07J.L. Collins:So I think one of the biggest obstacles that I hear is that if you're going to pursue financial independence, and I'm less interested in the retire early part, by the way, because that's optional, right? I never retired early. I liked working. You don't have to retire early just because you're financially independent. I'm financially independent now.

33:31Tiffany Aliche:I'm 30. I've been financially independent for three years. I don't plan on retiring anytime soon. Yeah. Right.

33:36J.L. Collins:But you're also doing exactly what you want to do. You don't have to do anything. It gives you an option, right? The biggest obstacle that I see is people who say, well, because you're going to have to take your earned income and you're going to have to learn to live on less than you're earning to create a cash flow that you can then invest because that's how you buy your freedom, which you have already obviously done. And I hear too many people say to me, well, JL, that just sounds like deprivation. I have to save that money. I can't spend it. I like spending it. That's the wrong way to think about it in my world.

34:18J.L. Collins:For me, when I look at all the things that my money could possibly buy for me, there was nothing more important than my freedom. There was nothing I wanted more than my freedom. So setting aside a large percentage of my income to invest, to buy that freedom, was the furthest thing from deprivation. It was me spending my money on the most valuable thing. Now, I appreciate the fact that not everybody values their freedom at the level I did, and it's their life, it's their money. I think the real tragedy is to get to your 50s or 60s or whatever and not having saved a dime and then to learn that this approach existed.

35:07J.L. Collins:So my mission, such as it is, is just to let people know this is an option. Whether they choose to take the option or not, that's up to them. But at least they will know that there is something they could buy with their money other than trinkets and trash. They could buy their freedom. And I think that's, you know, that's, I can't imagine anything I'd rather have personally.

35:35Tiffany Aliche:Yeah. Well, and I think you can get tastes of that freedom while you're continuing to pursue a larger goal. I don't think either of us would say, you know, you can never travel or you can never do anything joyous until you've reached financial independence. But I do think that it's always a good question to ask yourself. And I encourage people to ask a version of it before they're about to spend money, which is like, is this purchase worth being in debt longer? Or worth putting off that full freedom? And sometimes maybe it is, right? Sometimes it is. And sometimes it's not. We've largely been taught, I think, as women, that the reason we're not rich is because we spend money.

36:16Tiffany Aliche:And so in order to get rich, we have to scrimp, we have to cut. And in actuality, it's a lot easier to make more money than it is to cut the things that we're already spending. I think we can do both, but your earning potential in theory is seemingly limitless versus scrimping. So if you are listening and you're like, I don't want to give up everything, I think that's understandable. But there's ways that you can make more money so that you have more to save as opposed to getting to a point where, you know, you're just eating oatmeal for the rest of your life because you're not doing anything fun.

36:49Yeah.

36:49J.L. Collins:So a couple of things on that. When I got out of college, I came out of college in the seventies and it was the era of stagflation. So it was very difficult economic time. It took me two years to get my first professional job, which paid me ten thousand dollars a year and i arbitrarily and remember there was no internet there was no i i never heard the term fight the coin to fire it hadn't been coined yet i i wasn't even thinking about financial independence i just wanted to have what i refer to as fu money so that i wouldn't be as vulnerable as my as my father was and so i arbitrarily thought you know i'm going to spend half my income getting that and that meant I was going to live on$5 ,000 a year.

37:37J.L. Collins:Now, in those days, that was perfectly doable and I knew lots of people who were doing it. It was a lot more than the money I'd been making doing landscaping for that two years between college and that professional job. It was a whole lot more than I was living on in college. So, I was stepping up my lifestyle and then as my income grew I stayed at that 50 % which meant that the amount of money I had to invest grew but so did my lifestyle when I make it 20 grand a year now I'm living on 10 when I was making 50 25 100 you know so you could see so I let my lifestyle inflate but in that very controlled way at the same time my investments were inflating the other thing I'd add to that is that when you're young, there are certain things that you enjoy doing that don't take much money that maybe you're not going to feel the same way when you're older.

38:35J.L. Collins:So when I was in my 20s, some of my vacations were riding my bicycle around Wisconsin or one year around Ireland, and that doesn't cost a whole lot of money. I used to go backpacking, and sleeping on the ground was fine. I had no problems. At this point in my life, I want to stay in luxury hotels and sleep in a bed. But now I can afford to do that. In my 20s, it would have been kind of silly to have those kinds of aspirations. So everything that you do has its season. And the advantage is that when you're building your wealth, the things that don't take a lot of money tend to be easier to do and more fun.

39:18Tiffany Aliche:Can we talk about the formula to FIRE? Because we've talked about it on the show before, but can we talk about actually calculating that number for yourself?

39:28J.L. Collins:Sure. So there's a thing called the 4 % rule. I kind of hate the word rules. I think of it as a 4 % guideline. And what that suggests, and there's research to back this up, of course, is that at any given point, you could spend 4 % of your portfolio and your portfolio invested properly will continue to grow over time and your money will last. And so if you put numbers to that, if you have a million dollars invested as an example, well, 4 % of that is$40 ,000. So that suggests that if you can live on$40 ,000 a year, you are now financially independent and work has become optional. You might want to continue to work.

40:13J.L. Collins:And that has a success rate based on research done with the Trinity study of 96%. So one of the reasons I don't like calling it a rule is I would never recommend that you set it up, start pulling 4 % adjusted for inflation, and then forget about it for two reasons. One, there is a slight chance that you run out of money and you certainly don't want that to happen. but there's an even bigger chance that at the end of 30 years your million dollars in our example will not only have thrown off that four percent a year adjusted for inflation but it will have grown to be six eight ten fifteen million dollars because that's how powerful a wealth generator the stock market is and presumably by paying attention you're aware of that and you could enjoy that money in the process rather than waiting to the end.

41:11J.L. Collins:The final thing I'll say about this, people that I've talked to have said as an example, you know, I've got a million dollars invested, but I need$50 ,000 to live on. And that's 5%. And I'm in this soul-crushing job, and I don't know what to do. Well, if you look at the Trinity study, 5 % withdrawal rate has a, I think it's an 86 % success rate. If I'm in a soul-crushing job, I'm going to take that gamble. I'm going to pay close attention. If the stock market turns against me in the early years for an extended period, I might have to go back to work. I might have to adjust my spending. But I'm not going to stay in that soul-crushing job until I get the theoretical 4 % that's ideal.

42:01J.L. Collins:And then the other thing that I will say to people is, if you really want to stick to that 4 % withdrawal rate and you need the$50 ,000, do you think there's something you could do over the course of a year that would generate the other$10 ,000? There's nobody I've met who has the smarts and the drive and the skill set to get to that point who says no to that question. These are smart, motivated people. So everybody who's listening to us can probably figure out how to close that gap with what's now come to be known as barista fire. You take some job that doesn't have to pay you very much money to close the gap while your wealth grows.

42:44Tiffany Aliche:And also sometimes get health insurance. Like that's the other one I hear about a lot. I'm working at Starbucks just to get health insurance. A version of this, and it's the same formula, just for me it works in my brain better, is the amount of money you're spending every year. So let's say$50 ,000 multiplied by 25. And that's the number that you need to hit in your investing account. That, for me, takes the percentages out of it. So it makes it a little easier.

43:06J.L. Collins:Yeah, that's a good point. You could look at that from two different directions. You could start with the lump sum like I did. But you could also work up from what you're spending. And as you say, you multiply it by 25. And that tells you what you're going to need.

43:19Tiffany Aliche:Yeah. Okay, JL, I have to ask you the question that everybody is asking me. and I am 99 % sure we're going to have the same answer. Right now, there's a lot of volatility in the stock market. There's talks of a recession. It seems politically like news changes, I mean, moment to moment at this point. Everyone is in my email and in my Instagram DMs asking me, do I keep investing? Do I change anything? My answer is, stay the course. what is your answer to should we keep investing either while it's crazy while there's talks of a recession do I need to do anything different like what is your response we got you on a cliffhanger there when we come back JL answers my question about market volatility and we also talk to people in our inbox and comments who are 40 plus and worried about their investments so close to retirement age and how you can adjust your strategy to accommodate these crazy times We'll be right back.

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46:26J.L. Collins:my answer would be listen to tori and stay the course i like you tori my inbox when when the market hits a rough patch lights up i actually wrote a post about this probably a couple months ago now and in that post i look back to covet and which was only a few years ago and the same thing was happening and people were saying to me at the time, JL, this time it's truly different. This time the simple path to wealth isn't going to work anymore. This time it's a pandemic. This time people are dying. This time entire economies across the world are being shut down to deal with this. Surely this time is different.

47:14Tiffany Aliche:We're hearing the same thing now. Yeah, we're We're hearing the same thing now.

47:18J.L. Collins:We've never had a guy who feels like a dictator before.

47:21Tiffany Aliche:We've never had tariffs this high. We've never been this, you know, Elon Musk has never been this involved in the government before. Yep, absolutely.

47:31J.L. Collins:And my response to COVID, and it's my same response to now, is that you're right. This time is different in that the trigger that is drove the stock market down 33 % during COVID. So far, I think it hasn't even gone down 20 % yet, and it's bounced back, so it's volatile. But the trigger is always different. Last time it was a pandemic. This time it's tariffs and political turmoil. So the trigger is always unique. And it's always uniquely scary. There are always reasons around that trigger to be terrified, right? That's why the market crashes. The market doesn't crash when it's feeling comfortable and good.

48:17J.L. Collins:It crashes when there's a pandemic and it's scared. But it always passes. It's like hurricanes in Florida, right? I mean, it's a perfectly natural part of the process. If you live in Florida, you should expect hurricanes. Doesn't mean they're not dangerous. But if you hunker down, the hurricane passes and the sun comes out. If you panic and run out in the middle of the hurricane, you're probably going to be in a world of hurt. If you panic and sell during one of these periods of time, then you're going to be left bleeding by the side of the road. You do not want to invest in the stock market. You do not want to follow the simple path to wealth unless you are going to follow Tory's advice and stay the course.

49:02J.L. Collins:That's critical. You have to tie yourself to the mast and not listen to the siren song that will only bring you on the rocks. And further, you need to learn to think about these periods of decline in two ways. One, they are perfectly natural. They have always happened, whether it's a 10 % correction, a 20 % bear market, or a crash above that. These are to be expected. They are a perfectly natural part of the process. and they always pass. And if anything, if you're accumulating wealth, this gives you an opportunity to buy shares on sale to improve your position. So instead of being terrified when the market gets crazy, you should see it as a gift it truly is, providing you stay in the course and keep investing.

49:57Tiffany Aliche:The metaphor I've heard that I think you'll love is the only person who gets hurt riding a roller coaster is the person who tries to get off.

50:06J.L. Collins:Yep, that's good.

50:08Tiffany Aliche:And that's true. However, I think there is a huge asterisk on here that we haven't really had the opportunity to talk about. But again, a lot of people in my comments, a lot of people in my email who are in their 50s or their 60s or even late 40s and they're nearing retirement, and a shocking amount of people seem to have all of their money still in the stock market. And so they're panicking. They're like, I'm trying to near retirement. I'm maybe even retiring, trying to retire this year or in a couple years, and the downturn is going to significantly affect me. And my first question for them is, I'm really concerned that you have all of your eggs in this one basket because I've watched my dad use things like certificate of deposit ladders or slowly pulling some of the money out of your investments to protect it because he's in his, both he and my mom are in their early 60s.

51:00Tiffany Aliche:But talk to me about the people who are nearing retirement. Does the stay the course advice get any different and what adjustments do they need to make?

51:10J.L. Collins:I think of it as two stages. You have a wealth accumulation stage where you are building your wealth. And this is when you are working and you have earned income. And if you're following the simple path to wealth, as we've already talked about, you are saving and investing a significant amount of that income to buy your freedom. In my world, you should be 100 % in stocks during that period of time. And because you have that cash flow from your earned income, when the market drops, it works to your advantage, assuming that you stay the course. Now, the second stage is when you're living on that portfolio and you no longer have that earned income to smooth the ride for you to take advantage of the drops.

51:57J.L. Collins:At that point, you want to add something like CDs or what I recommend is a total bond market index fund because that smooths the ride. And bonds tend, not always, but they tend to not drop when stocks do, or if they do drop, not as dramatically. So then the way it works is you have an allocation. You choose whatever allocation works for your tolerance of volatility. But if you have a, let's say, well, I use 20 % bonds. that's pretty aggressive on the stock side. More conservative would be 40 % bonds. You never, by the way, want to get less than 50 % stocks because then you lose the engine of growth that's essential for the portfolio to survive for a long time.

52:48J.L. Collins:But let's suppose you go 60-40 bonds and stocks. If your stocks plummet, the percentage that they represent will drop below that 60 and the percentage of your bonds will rise above the 40. And in that case, you start shifting some of that bond money into the stocks that are underperforming. That's taking advantage of those lower prices and it's bringing your allocation back into the alignment you want it. That's how you handle it. If you're newly retired and you haven't done that yet, you're still 100 % in stocks, you've made a strategic error. If you're coming up to retirement, you probably should begin this process, I don't know, five years out.

53:30J.L. Collins:before retirement to begin slowly making this shift. But yeah, it's all in asset allocation. So if you're still a hundred percent in stocks and you're retired, you're not paying attention. Right. And I think, unfortunately, a lot of people, because the stock market has been so strong in the last 15 years, they don't want to give up those lucrative returns. But if you're going to be dependent on that portfolio and you're, you know, If you have a portfolio that is so large that you're not pulling 4 % of it, then you can be more aggressive with it. But if you're cutting that line where you've got a million dollars and you need the$40 ,000, you better have a bond proportion to get you through times when it gets rough.

54:23Tiffany Aliche:As a reminder to everybody, stocks, tiny little slivers of companies, right? And then index funds are these groups of stocks. We were talking about index funds before. And bonds are either the debt of a company or government. So you are getting money off the interest of a loan to a company or government. Stocks tend to be more lucrative, but they also tend to be more volatile. Bonds tend to be less lucrative, but also less volatile. So what JL is saying is if we can take some of the money and start reallocating it, we can better protect it because there's not as much volatility there. When we're talking about this kind of moving money to different sources to better protect it, who should not be doing this?

55:02Tiffany Aliche:I'm thinking like people in their 20s. But I think when we hear panic, it's very easy to say, oh, I'm going to take all my money out of the market and put it in a savings account. Like my mom, even though she knows she's wrong, always jokes that she wants to take all of the money my dad has invested and put it under the mattress. Like that's my mom's joke all the time. Who should not be making such drastic changes even during times of economic volatility?

55:27J.L. Collins:Well, nobody should be doing any changes in a panic. During COVID, I got a great comment on my blog from a woman who said, because of course, then like now I was saying stay the course. And this woman said, I'm staying the course with a side dish of panic. that's okay as long as you can you can be as panicked as you want to be as long as you don't start fooling around with your portfolio while you're panicking so nobody should be making changes when the market's going through a tough time you should be thinking about these things in the good times you should be making these adjustments in the good times so right now you You know, the stock market, I gather, has rebounded, and it's pretty much back to where it was.

56:15If you were scared with this recent volatility, and you, for instance, in your example, are newly retired, and you've been 100 % stocks,

56:24J.L. Collins:you probably have an opportunity now to change that allocation without getting hurt too badly. The other thing I would add to that, by the way, is when you start living on the portfolio and the market goes down and it goes down, let's say 30 percent, you're like, wow, I've lost 30 percent of my money. Well, not if you stay the course. And remember, even though you're living on your portfolio, you're not selling your whole portfolio to do that. You are, first of all, you're taking your dividends to live on. And then if you have bonds, you're taking the interest from those bonds. and let's suppose that makes up two and a half percent of the four percent you want to withdraw.

57:04J.L. Collins:So now you're only pulling a percent and a half a year out of your portfolio. So even in the extended downturn, that damage isn't as great as the panic in the news media will make you feel like it would be.

57:19Tiffany Aliche:The thing I always tell people is you don't lose unless you sell. You also don't gain unless you sell because the value of the assets just going up and down. So I will hear so many people tell me, oh my gosh, I lost so much on the stock market today. And I'm like, well, did you liquidate? Did you sell? And they're like, no. And I'm like, okay, then you actually didn't lose anything. And the example I give is it's like buying a house. And after five years, if Zillow tells you that house is worth$100 ,000 more, that's great. But you don't get$100 ,000 in your pocket unless you sell the house. And it's the same thing with the investment.

57:48Tiffany Aliche:It's an asset. The asset's going to go up in value. It's going to go down in value. You don't lose any money or gain any money unless you choose to sell.

57:56J.L. Collins:Well, and with stocks, it continues to go up. I mean, it'll be volatile. It'll go up and down.

58:02Tiffany Aliche:But historically, it goes up relentlessly.

58:08J.L. Collins:And I have one of the key chapters in the book and in the stock series is the stock market always goes up. And of course, that's intentionally shocking because people hear when the stock market plunges. So understand, I'm not saying it's not volatile. I'm not saying it never goes down. I'm saying that over time, relentlessly, it goes up. So you can feel very confident 10, 20, 30 years out, it will be significantly higher than it is today. And that's how we benefit as long-term investors picking up shares along the way.

58:44Tiffany Aliche:When we come back from a word with our sponsors, we're rounding out our conversation with JL by talking about some of the most controversial questions we get on the show, ethical investing and working with financial advisors. We also asked JL what successful investors know that others don't. Stay tuned.

59:05Tiffany Aliche:can we talk about the idea of ethical investing and how we approach that that seems to be the

59:12J.L. Collins:other really common question we get right uh i hate it tell me more and the reason i hate it is First of all, what is ethical is an eye of the beholder.

59:29Tiffany Aliche:Yes.

59:29J.L. Collins:So when you say ethical investing, basically the next question has to be, well, for whom? So for instance, if you're a Muslim, you're not going to invest in any company that makes money by charging interest, by giving loans and charging interest. Because charging interest is against the principles of Islam. So that would be a whole different set than it would be for a Christian looking at or an atheist looking at their investment portfolio. So it's very much a moving target. The other thing I don't like is, of course, investment companies have jumped all over this because they see a great opportunity.

1:00:10J.L. Collins:And if you're going to go into ethical investing, basically you're going into active investing, which is expensive. because somebody has to decide based on whatever fund you, let's say you and I, Tory, create a fund, the JL and Tory or the Tory and JL Ethical Investing Fund. And you and I sit down and decide between the two of us what that means and what companies qualify. We put that in our perspective and then we go out and buy those companies. Well, that's active investing. We have to get paid. And so the expense ratio on those funds are going to be much more expensive. The third thing I don't like about it is it really doesn't affect the world in any meaningful way.

1:00:53J.L. Collins:The better way, in my opinion, is to do, frankly, what I do, which is obvious because I think it's the better way, is buy the broad-based index fund, understanding that it's going to hold some companies that you're uncomfortable holding. and you got to kind of hold your nose to do that and take the lower cost and probably the stronger return over time. And then as it makes you wealthy, you can choose what charities or what causes can really make the world a better place based on your definition of what that is and channel that money you made into those institutions. And that, in my opinion, will have a much more powerful effect of achieving what you're trying to achieve, which is to make the world a better place on your definition, than in arbitrarily saying, you know, I'm just not going to invest in companies.

1:01:55J.L. Collins:But that's my opinion. A lot of people, of course, have drawn to these things. And if you feel strongly about that, my opinion isn't going to matter to you, and that's okay. but just be aware that you're probably going to have lower performance. You're definitely going to have higher costs.

1:02:10Tiffany Aliche:I think it'll shock a lot of listeners to know that I agree with you. I largely agree with you because I think the first point cannot be overlooked that you just made. There is no governing body deciding what goes in these ethical investments. There is no like B Corp for investing. We have our stock market school that we built that teaches women how to invest and that actually gets them investing. And we have like a collection of socially responsible funds. And one of them is ESGV, which is the Vanguard ESG, the socially responsible fund. So I'm literally looking at this. So it excludes companies related to adult entertainment, right?

1:02:51Tiffany Aliche:So pornography, alcohol, tobacco, cannabis, gambling, weapons, nuclear power, coal, oil, gas. Okay. So yes, we've eliminated those companies. We've also potentially eliminated the gains of those companies, but it still has Tesla. And a lot of people do not want to invest in an Elon Musk-owned company right now, or an Elon Musk-led company. So again, this gets back to what is ethical for you might be different than what's ethical for me, might be different than what's ethical for the person putting together this fund. And I think that shocks a lot of people as soon as they look at this three-fund We're socially responsible collection.

1:03:26Tiffany Aliche:They literally go to us in the forum and they're like, but this has Tesla or this has this company. And I'm like, there is no governing body who decides what's ethical. Everybody has a different definition. And then with this expense ratio of this fund, it's actually pretty low. It's 0.09%. But to your point, there are a lot of funds out there that are charging an exorbitant amount of fees. And my not-so-conspiracy conspiracy theory is that financial institutions know that they can make money off of you trying to do the right thing. and I'm putting the right thing in quotes here. But I think that they've seen this as yet another product that we were talking about at the beginning of this conversation, another way to make money off of you.

1:04:07Tiffany Aliche:So I would rather largely take my money, do exactly what you say as well, invest it maybe in some companies that I don't absolutely love and that I don't support, but that I can use to then transform my life, transform my family, my community, give to charities I believe in. And I will also say we had Madeline Pendleton on, who's a previous guest, and she talked about actually being a shareholder in some companies you disagree with might be the most powerful way of making change in these companies. So if you own an index fund, you know, you potentially own part of these different companies, and you might get to go to a shareholders meeting where you get to have your voice be heard because you're now part owner.

1:04:47Tiffany Aliche:And when she said that, that was something that I think a lot of people don't consider and think about too.

1:04:53J.L. Collins:Well, to do that, you probably want to own the individual company rather than through an index fund. So if you wanted to do that with Tesla, for instance, you'd have to buy a share of Tesla and to go to the meeting. But the only, and I agree with everything you said, the only thing I would add to that, and using Tesla as our example here, the people who would be uncomfortable owning Tesla today are uncomfortable because of of Elon Musk's political activities. But remember, there's a segment of the population that for whom that makes Tesla more appealing because they like his political activities.

1:05:33Tiffany Aliche:Or it's also an environmentally positive company. I am not a fan of Elon Musk at all and have ever been. But if you just look at Tesla as a company, it is getting away from oil and gas. It is, it might be, the reason it's in these funds is because it is not an oil and gas company. It checks like the environmental standard box. So that's the trade-off.

1:05:58J.L. Collins:Well, I mean, Tesla, Elon Musk and Tesla single-handedly created the electric vehicle market, the EV market. It was not a thing before that. And it's an amazing accomplishment on that score. So, you know, again, it speaks to the point you and I are both making that what's ethical is very much in the eye of the beholder. And if this is really important to you, then there are lots and lots of ethical funds out there that slice that pie in lots of different ways. And you can probably find one that slices it in the way that you're most comfortable with. But you'll pay a price probably in performance and absolutely in cost to do that.

1:06:42Tiffany Aliche:Okay, speaking of spicy hot takes, JL, you and I, I think, believe the same thing about financial advisors. So every time I talk about it on the show, people get mad. What is your reasoning behind your stance of financial advisors?

1:06:56J.L. Collins:Well, let me start with the disclaimer that I'm sure there are lots of wonderful ethical financial advisors out there.

1:07:03Tiffany Aliche:You and I have the same script. I'm like, there's a lot of good people doing good things out there. Yeah.

1:07:10J.L. Collins:You know, but the truth is when I first started writing about this, I didn't really think that. And since I've been writing about it, I've met some of these financial advisors who are on the side of the angels, so to speak. So with that caveat, it's tough for a financial advisor to be on the side of the angels because the incentives for the advisor are not aligned with the incentives of the customer. For the advisor to make a living, they have to charge. And that comes directly out of the investor's hide, just like an expense ratio does on an actively managed fund. But there are a couple other problems.

1:07:53J.L. Collins:One is there's no guarantee that the advisor you happen to find is going to be good. Like most professions, they're not all particularly confident. One of the pushbacks from the advisor community back in 08-09 when we had the financial crisis and the market dropped, I think, 56%. So they said, you know, now the advantage of advisors is they are keeping their customers from panicking and selling. Well, that sounds great. And if that were true, that would be a great advantage. But it's interesting, the statistics indicated that advisors as a group were more likely to panic and sell in those days than the average investor.

1:08:42And the other thing is, there's inherent conflicts of interest.

1:08:48J.L. Collins:So the example I like to use is, let's suppose you go to your advisor and you say, you know, I'm thinking about paying off my mortgage. I've got a mortgage of half a million dollars. I've got$2 million invested. I think I want to take half a million of that and pay off my mortgage. Now, depending on your situation, that could be a good idea. That could be a bad idea. For the advisor, it can only be a bad idea. Because if you do that, that is half a million dollars that he no longer or she no longer has under management. And that costs them money. Now, it really takes somebody who's strongly on the side of the angels to give you advice that costs them money, that takes food out of the mouths of their children in order to make your life better.

1:09:40J.L. Collins:Now, it's possible. And that leads me up to the final comment I'll make is if you're going to use an advisor, have very specific questions for that person in mind and use one that charges an hourly fee, because that is the only way that you don't have that conflict of interest. Now, advisors don't like that because it is less lucrative for them. They're better off getting a percentage of your investments or your assets invested with them or getting a commission. Customers don't like that because those fees never really show up, whereas they have to write out a check for the hourly rate. And a good advisor, by the way, is not going to be cheap.

1:10:30J.L. Collins:So the advisors, you know, typically say, well, our customers don't like that model. And, you know, it's less advantageous to us. But it's certainly the better model for the customer. So put on your big girl pants and pay the hourly rate and then know specifically what you want to ask. So you keep the number of hours you're paying for as low as possible.

1:10:54Tiffany Aliche:I will plus one everything you just said. you also need to make sure they're a fiduciary, meaning that they're legally obligated to act in your own best interest because a lot of people aren't. If so, you have somebody who's trying to get you to invest in life insurance, like an IUL policy, you don't have a financial advisor, you have a life insurance salesman. And I will also say too, we built Stock Market's goal in that way. We work with our team who is my business partners who are fiduciary. So there's other ways that you can go about getting financial advice. You can read books, you can listen to podcasts.

1:11:23Tiffany Aliche:there's other ways to get financial advice that's more accessible than paying somebody$500 an hour or two if that's not in your budget.

1:11:31J.L. Collins:I would agree with all of that. But if I may, let me offer one caveat.

1:11:36Tiffany Aliche:Yeah, please.

1:11:36J.L. Collins:And certainly you should see people who are fiduciaries, but that alone is not a guarantee because not everybody lives up to that obligation.

1:11:47Tiffany Aliche:Yeah, sure. No, I think that's a great point.

1:11:50J.L. Collins:That's a good starting point, but it is not the ending point.

1:11:54Tiffany Aliche:Yeah. More questions. How do you get paid? What, you know, what is your investment philosophy? How are they speaking to you as well? Because I think a lot of women's experience is they walk into a male financial advisor's office and they either just talk to their husband or they condescend. And so there's other things and like gut checks that you can ask most definitely. I think that's a good call out. Okay. JL, what do successful investors know that the average person doesn't?

1:12:19J.L. Collins:I think they know a couple of things we've already talked about. First of all, they know that the market is inherently volatile and that drops are an expected part of the process and they're nothing to be upset about. and they know to stay the course. They know the difference between being a speculator, a trader, the foam in our mug of beer, and the difference between that and being an investor that is buying the underlying operating businesses that are providing a product or a service. So that's a very important distinction you have to make. and the average person only sees the speculation part of it.

1:13:05J.L. Collins:That's the Jim Cramers of the world. That's almost everything you see on television is the speculative side, is the trading side of the investment world. And to be clear, that's a big side. And when you hear people say, I would never invest in the stock market because it's just gambling. It's like going to the casino. Well, they're absolutely right for the foam in the beer. That's exactly what it is. And that's why we as investors don't go there. We don't care about the short term. We're investing for the long term.

1:13:37Tiffany Aliche:My final question for you, how will taking your investing education seriously change your life?

1:13:44J.L. Collins:Oh, profoundly. It'll make you richer and freer. The whole point of having money, again, it's a tool, right? And it's a way of buying your freedom so you own your time. and it's also, it's not an on-off switch because I think sometimes if people are at the beginning of the journey, right? And, you know, they're at ground zero and they're saying, wow, this all sounds great, but accumulating a million dollars, I mean, wow. Crazy. Yeah, crazy, right? Well, understand, first of all, it's a journey and it's like going to the gym. right you know the first day you go to the gym you're not you're not gonna be bench pressing 300 pounds but you'll get a little bit stronger than the day before and a little bit stronger and a little bit stronger and a little bit stronger and a little bit stronger it's the same thing whether you're investing from the very first dollar you invest you're a little bit stronger than you were before and that progresses over the time it takes to become fully financially independent.

1:14:59J.L. Collins:One of my all-time favorite quotes, and it's in the first quote in the book, both in the new edition and in the old one, is from Leo Burnett, who was an advertising guy back in the day in Chicago. And the quote is, if you reach for a star, you might not get one, but you won't come up with a handful of mud either. And by the corollary is, if you set your goal to accumulate a million dollars and you fail and you only have half a million dollars at the end of whatever the period is well are you better off than if you had done nothing i think the answer is true is absolutely you're better off and the final thing is if you have an aggressive savings rate say around 50 percent depending on how the stock market does behind you whether the winds at your back or at your face, this is about a 10 to 15 year journey.

1:15:54J.L. Collins:So I wrote the book for my daughter who was in college at the time at the beginning of her journey. A question I get a lot from older people is, well, I'm 50. What about me? Well, okay, if you're 50, it's still a 10, 15 year journey for you. Every step of the way, you're getting stronger. So if you're 70, you may not get there 100%, but you can make yourself stronger.

1:16:19Tiffany Aliche:Well, dad, I really appreciate it. Thanks.

1:16:23J.L. Collins:Anything for such a lovely daughter.

1:16:26Tiffany Aliche:Thank you for being on the show. Again, you don't need my endorsement of it, but this is one of the best books you can read about truly taking your money and using it wisely. And there's a reason it is considered a classic. And I love that it's in a new edition. I'm so excited to read the new edition. Please tell me where people can find out more, get the book, et cetera.

1:16:48J.L. Collins:I suppose the best place to start is the blog, which is jlcollinsnh.com. And from there, you know, there'll be links to the book. The book comes out. You can pre-order it now, but it comes out May 20th to find it everywhere. And Tori, thank you for having me. It's been a real pleasure to be on the show. I have to tell you before I go, when my daughter heard I was going to be on your show, she was so excited. She's a fan of yours. She's a listener. I'm kind of horrified that I'm not the only source of financial information for her now. But I'm thrilled that she's listening to somebody like you.

1:17:27J.L. Collins:And so she was like over the moon excited that you were willing to talk to her old man.

1:17:33Tiffany Aliche:Oh, I love that.

1:17:34J.L. Collins:Thanks. You made me a hero in my daughter's eyes.

1:17:37Tiffany Aliche:That's so sweet. Was it Jessica? Is that what I heard? Is that her name? Yes, it's Jessica. Please give her my love. That's so sweet. And please tell her that I could not do this work without her darling dad. So thank you.

1:17:49J.L. Collins:I'll make her listen to this interview and she can hear you say that yourself. Perfect.

1:17:54Tiffany Aliche:Because she won't believe it coming from me. I'm being held hostage. No, thank you. Thank you so much for your work.

1:18:00J.L. Collins:Yeah, okay. Now I'll unhandcuff you, Tori, and let you go on with your day. You've said the right things.

1:18:08Tiffany Aliche:Perfect. Here's today's newspaper. Okay. Thank you so much. Thank you so much to JL for joining us. His book, which is incredible. I highly recommend it. The Simple Path to Wealth. It is an updated version. It is out now, available wherever you get your books. It was such a lovely conversation and is a great one to share with the people in your life who are nearing retirement or who are stressed out about the craziness going on in the stock market right now. Thank you as always for being here, Financial Feminist. Thanks for supporting Feminist Media and we'll see you soon. Bye. Thank you for listening to Financial Feminist, produced by Her First 100K.

1:18:44Tiffany Aliche:If you love the show and want to keep supporting feminist media, please subscribe or follow us on your preferred podcasting platform or on YouTube. Your support helps us continue to bring this content to you for free. If you're looking for resources, tools, and education, including all of the resources mentioned in this episode, head to herfirst100k.com slash ffpod.

1:19:06J.L. Collins:I'm not giving up. I am selling the building. The final season of FX is the bear.

1:19:15Tiffany Aliche:The restaurant is flooded. Everything's either going to be okay. No, stop. Or not.

1:19:23J.L. Collins:We are outgunned and we are outmanned. We have each other. FX is the bear, the final season. All episodes now streaming on Disney+.