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DIY Investing Resource #1: JL Collins’ “Stock Series”

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The following post was originally published on Eat the Financial Elephant in February 2015, shortly after my wife and I dug out from under our past investing mistakes. I posted it as the first of the four most valuable resources that helped us go from feeling clueless to competent managing our investment portfolio.

The biggest challenge we faced in our financial lives was figuring out how to invest. Over the next few posts, I’m going to share and review a few very focused resources that my wife and I found most helpful to educating ourselves on the topic of investing.

The first of these resources is a series of 34 (and counting) posts found at JL Collins’ blog jlcollinsnh.com, categorized as the “Stock Series”.

Start Here First

While I’m trying to help you sort through the vast amounts of information on investing by providing specific, focused and valuable resources, I’m finding myself a bit sidetracked already.

Before starting on the “Stock Series” I would be cheating you if I didn’t recommend that you read another post from JL that is not a part of the series, “How I failed my daughter and a simple path to wealth.” This post exemplifies everything that I love about reading his blog. It is written as advice for his college-aged daughter about why money is important and what it can (and can’t) do for you.

JL’s writing is sincere and without the conflicts of interest seen in so much of the financial literature. It recognizes that most people simply don’t care about investing and personal finance, so he lays out 9 steps for a simple path to wealth. This is the basis for the “Stock Series”. Hopefully it will get your attention as to why this is so important and why anyone can do it.

Making the Complex Simple

The thing I most liked about the “Stock Series” was the way topics that had always seemed so complex were made simple. For example, I explained in this post how we held 15 different mutual funds when investing with our advisor, in the name of diversification. After reading parts I-VI of the “Stock Series” we realized that all we held were domestic stocks and bonds which could be held with an equal amount of diversification (or more) in a portfolio containing 2 funds, VTSAX and VBTLX.

This simple two fund portfolio recommended throughout the series is far cheaper, more tax efficient, and over time almost guaranteed to outperform the 15 funds we owned, precisely because of the significant cost and tax advantages.

Why don’t advisors tell you all of this? The idea of complexity makes a lot of money for the financial industry. In many ways making the simple complex is why advisors have a job and Wall Street always wins. The “Stock Series” explains that investing should be simple and low-cost.  Understanding this will make you far more money in the long run.

A Wake-Up Call

Reading the “Stock Series” opened our eyes to how superficial our knowledge of investing was while working with a financial advisor. Through disciplined savings we had managed to accumulate a substantial investment portfolio.

While we were very good savers, we had no idea how the funds we were invested in actually made us money and what the risks of the investments were. Our level of knowledge prior to reading the “Stock Series” was “bonds are safe and stocks are risky.”

Our eyes were opened widely in Part XII-Bonds when we learned about default risk, interest rate risk, and inflation risk. All of this without even mentioning the biggest risk of all (weaved in throughout the series), the risk that we were holding a substantial portion of our portfolio in asset classes (bonds and cash) unlikely to get us to our goals of building wealth to achieve early retirement, all in the name of “safety.”

Simple, But Not Too Simple

I decided to feature this series as my first resource because it is very beginner friendly. Throughout the series, JL uses effective one liners and analogies to explain key concepts effectively.

He comes blaring out of the gates in Part I with “Toughen Up Cupcake” to explain the importance of staying the course through market ups and downs. In Part III, he uses a great analogy comparing the stock market to a glass of beer to explain why stock prices vary widely and do not necessarily reflect the value of the underlying assets. (He had me at beer!)

While the information is written in a way that is accessible to beginner investors, it is not just catchy sayings and oversimplifications. Collins explains in Part III how and why most people lose money investing in the market. In Part VIII, he introduces the complex topics of using tax advantaged and taxable accounts as different “buckets” in which different assets are more tax efficient

He has two excellent posts on using the 4% rule: first to determine how much money you need to be financially independent in Part XIII, and then how to practically apply this knowledge to live in retirement in Part XXVI. He also tackles the conventional wisdom behind dollar cost averaging in Part XXVII.

You Must Understand Yourself

In addition to explaining technical concepts in clear ways, Collins does a great job at getting into behavioral aspects of investing that cause most investors to greatly underperform the market. This goes far beyond the simple “Toughen Up Cupcake” mentioned above.  

It is best exemplified in my mind in Part XVIII-Investing in a Raging Bull when he takes on a reader’s question and turns it into a full post explaining how many people’s fear and greed drive them to make poor investing decisions.

Getting Some Help From Friends

As good as JL’s posts are, I have to recommend that as you work through the series you also take the time to read the comments. He responds to almost every comment with well thought out responses that clarify topics. 

He also has many knowledgable readers whose comments add greatly to the original posts.  There is also a full guest post in the series by the Mad Fientist, in Part XX, which was instrumental in developing our saving/investing strategy of maxing out tax deferred accounts as I outlined here.

If Only…

I will make the bold statement at this point to say that if my own parents had given me the advice that JL gave his daughter and we had followed it, we would already have comfortably achieved financial independence and be retired by now. (And what teenager doesn’t hang on their parents every word and listen to everything they say?) The information held in the stock series is that powerful.

Updates

Since originally publishing this post, JL Collins has taken the material from the “Stock Series” and compiled it into the book The Simple Path to Wealth. The book contains the information found in the stock series, organized and distilled to make it easier to read.

The Stock Series continues to be a living document, occasionally updated with new posts and addendum to existing articles. When this review was originally published, the “Stock Series” contained 27 blog posts. As of this republication date, that number is 34.

A personal update on the If Only… section. After using the Stock Series as the foundation for taking control of our portfolio, we saved five figures annually between decreased income taxes and capital gains taxes we had been paying. We also cut the expenses on our portfolio by about 95% from 2% to .1% annually saving us thousands more.

The combined savings from making these changes in combination with improved investment performance propelled us to financial independence. Thanks Mr. Collins!

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Comments

  1. I’m reminded of the way quantum mechanics was very simply explained to me: when you’re not looking, it’s a wave but when you look, it’s a particle. I get the buy-and-hold philosophy and expected fluctuations in the market.But what do you do when you are actually ready to retire and sell some stocks but the market has tanked compared to when you started? This is the situation I don’t want to be in and what makes me hesitate to invest more of my hard-earned cash, especially when I’m looking at a 5- to 10-year window and not a 40-year one. What’s the best way to wrap my head around this and invest wisely?

    • Phillip says:

      Beth,
      My plan is to keep a cash buffer of 5+ years of cash in safe investments (e.g. high yield savings, CD ladder) for essential spending during down years and spend it during that time. The big assumption I’m making is that I am FI with $2M+ in investible assets and have a paid off mortgage. I can live a modest life on around $40k/yr. doing local activities and travel without sacrificing too much. The market will eventually come back and I will sell some “winners” to live off of to preserve my cash buffer. And if the market starts a good bull run, I’ll sell more to replenish my cash reserve and eventually get back to my 5 year buffer.

      I’m not retired yet so can’t say how well it works so am curious what othe readers have done.

      • Chris Mamula says:

        Beth,

        Great questions. That said, your concerns are not a reason that you can’t manage your own investments. I think the answer is that we all need to understand that an investment plan is not the same as a financial plan or retirement plan. Instead, your investment plan is part of your bigger overall plan. Phillip’s comment above is a great illustration. If you are an early retiree relying only on paper investments, volatility is a major concern. If you have a non-traditional retirement with some continued earned income, or if you’re a real estate investor with regular rent checks coming in, or a retiree with SS benefits it may mean volatility is much less of a concern b/c any of those sources of income can provide an income floor that meets your basic needs. Another factor is how much margin you build into your plans. If you need every penny, you can’t afford much volatility, but you also can’t afford to get too conservative b/c you need growth. There is no easy answer that a portfolio can solve. All of these things demonstrate how your bigger picture effects your investment plan. Unfortunately there is no one size fits all approach, but JL Collins and the other resources I will share will give you principles that allow you to get started with the investment part. Hope that makes sense and helps.

        Best,
        Chris

  2. Hi Chris,

    Great article and good resource for those looking to invest on their own. While I only found J.L. Collins’ site a couple years ago, I had already discovered how to be a DIY investor.

    What a difference it made from Major League brokerage that managed to cost us over half of our savings after convincing our naive selves that they could do better for us than we had done in our 401ks.

    I learned and applied knowledge of investing and tax management so that today we now have a 7 figure net worth despite what we lost from Major League brokerage.

    I could write a book about our experiences but you and your readers probably wouldn’t want to read that much.

    Best, Ray

  3. If people really understood how simple it can be.. as evidenced by J.L. Collins most excellent book then the whole “money management” industry would be looking for new work. Of course there are always many who prefer to outsource this most critical task of managing ones wealth. Just look at Johnny Depp who is now asking where his 650M went.