JL Collins, The Simple Path to Wealth

JL Collins, author of "The Simple Path to Wealth,” says that simplicity beats mathematical optimization when it comes to investing your retirement portfolio.

We skip the basics and dive into whether his simple approach actually beats sophisticated strategies. His answer might surprise you.

Collins says that complex portfolios probably outperform mathematically.

But execution trumps optimization every time.

Most people can't stick with complex strategies for 20 years, he says, especially when they require selling winners to buy losers – something that goes against human nature.

He calls index funds "self-cleansing" because they automatically rotate out failing companies while rotating in the new winners. You don't need to predict which companies will dominate next – you'll own whatever rises to the top.

But what happens after you've reached financial independence? Collins says it depends entirely on your spending rate, not your net worth.

Someone with $5 million spending $100,000 per year can stay aggressive with stocks.

Someone spending $200,000 needs bonds to smooth the ride.

Collins walks through his withdrawal strategy using his daughter as an example.

His daughter stepped away from corporate life in her early 30’s, with an 80-20 stock/bond allocation. She pulls dividends, which cover 2.5 percent of her 4 percent withdrawal rate. She sells shares for the rest.

Collins calls the 4 percent rule extraordinarily conservative. Research shows 5 percent withdrawals succeed 86 percent of the time. He'd take those odds to escape a soul-crushing job.

We discuss the tension between frugal habits that build wealth and learning to spend money once you have it.

He explains why financially independent people often stay engaged with work — the problem was never work itself, but working without agency.

Listen to his first appearance on our podcast in 2016: https://affordanything.com/episode36

Timestamps:
(0:00) Intro
(1:00) Efficient frontier
(2:00) Simple versus optimal paths
(3:00) Tinkering destroys performance
(4:00) Four-fund versus VTSAX only
(6:00) Execution challenges over decades
(7:00) Listener questions introduced
(8:00) Risk parity complexity
(10:00) Jack Bogle email story
(15:00) VTI versus VTSAX
(17:00) S&P 500 alternatives
(19:00) Magnificent seven concentration
(22:00) Self-cleansing fund concept
(24:00) Dominant companies fall
(26:00) US versus international stocks
(33:00) World funds preferred
(35:00) Global transition indicators
(38:00) Bond allocation timing
(42:00) Target date funds
(47:00) Investing when you've won the game
(53:00) Spending rate versus total wealth
(56:00) Three-year versus ten-year timelines
(59:00) Adding bonds gradually or all at once
(1:02:00) Why 4 percent is extraordinarily conservative
(1:04:00) Soul crushing jobs and 5 percent risk
(1:08:00) Withdrawal frequency and dividends
(1:11:00) Automatic share sales setup
(1:13:00) Starting business while financially independent
(1:17:00) Accidentally making money after retirement
(1:20:00) Agency versus having to work
(1:23:00) Spending advice for frugal philanthropists
(1:29:00) Charity auction magnifying effect

Resources Mentioned:
https://affordanything.com/377-how-i-...
https://affordanything.com/bill-benge...
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