The Simple Path to Wealth Book Review

Mr. The Poor Swiss | Updated: | Investing, Financial Independence
The Simple Path to Wealth Book Review

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I have recently ordered a few more non-fiction books, and I have just finished The Simple Path To Wealth. This book was on my reading list for a very long time.

The Simple Path To Wealth, by Jim L. Collins, is about investing simply to amass enough money to reach Financial Independence. The entire focus of the book is to keep investing as simple as possible. And it is something done quite well.

In this article, I share my review of The Simple Path To Wealth, what I liked, and what I did not like.

The Simple Path to Wealth

The Simple Path to Wealth
The Simple Path to Wealth

The Simple Path to Wealth is a book by Jim L. Collins. Jim is the author of the JL Collins blog. It is a great blog about investing in the United States. He wrote this book in 2016, several years after having started his blog.

This book is about having enough FU-money. When you have this money, you have the freedom to quit your job or change. And having this freedom is very powerful.

I think it is a great goal to try to become Financially Independent. You do not have to want to retire. I am still not entirely sure I will want to retire early. But I am sure I want to have the freedom to do it if I choose!

The book will do an excellent job of convincing you to invest in the stock market. It is well backed by data to show that, on average, the stock market always goes up. It is an excellent instrument to make your money work for you.

The author will then go on and present a simple way to invest in the stock market. This simple strategy is based on investing aggressively in mutual funds. During the wealth accumulation phase, the author recommends saving as much of your income as you can, ideally 50% or more. And invest this in the stock market, using index investing.

The author recommends investing in Vanguard mutual fund VTSAX. This mutual fund invests in the entire U.S. stock market. During the accumulation phase, it is really the only fund you will need.

And once you reach retirement age and the wealth preservation stage, you can add a second mutual fund, VBTLX, to add bonds to your portfolio and smooth the ride.

And this is almost everything there is to the strategy. On top of that, the author will explain how to make good use of the various retirement accounts available in the U.S. But this is standard information that you can find all over the internet.

It is good that the author gives some recommendations for other investment alternatives. For instance, the author knows that in some countries, Vanguard mutual funds are not available. For these investors, Exchange Traded Funds (ETFs) are a good alternative. And the author will also give you his recipe to choose mutual funds and ETFs by yourself.

The author itself does not diversify internationally at all. Since he is in the United States, it will not make a huge difference, and he has some good arguments. But he still recognizes that people can diversify internationally. And this is a necessary strategy for international investors.

The book will also go into the dangers of financial advisors. Indeed, most of them do not have your interest at heart. There is a big conflict of interest because they get more money from the fees you pay than from the returns you earn. So, you need to make sure to be extra careful about this.

Overall, this strategy is straightforward and really effective. If you follow it through, you should get excellent results.

What I liked

Overall, the Simple Path to Wealth is a great book! I liked many things about it.

First, I completely agree with the author on the advantage of keeping it simple. Having only a few funds in a portfolio, one ideally, is a great advantage. If you have only one fund, you do not have to rebalance. If you have only one fund, you never have to think about what you need to buy. You need to buy a single fund every month.

The author is a great advocate for simplicity in investing. He really made a lot of effort to keep his investing simple. And the book itself is simple as well. Some chapters are more complicated, but you can skip some of them if they are going too deep. The author itself is recommending to skip some if necessary!

The writing style of the book is highly enjoyable. It is not too formal yet not too informal, either. I feel like the author strikes an excellent middle ground here. I had a great time reading that, and I have read it extremely fast. This book is one of the few personal finance books that was really enjoyable.

I also completely agree with using a very aggressive approach during the wealth accumulation phase. When we are young with a long time before retiring, we can afford a 100% allocation to stocks. Most people should not need bonds while they are still working. And it is much easier when not having to rebalance!

The author is really honest about his mistakes in this book. He made several investing mistakes (we all do) at the beginning of his journey. It took him a long time to recognize the value of passive investing. But then, he made a lot of money with simple passive investing. An honest person needs to recognize and talk about mistakes.

I also appreciate the fact that the author advocates Financial Freedom for the focus on freedom. If necessary (or if you want), being able to stop working is a very powerful tool. If you want to live on your term, being financially independent (even for a few years) can be life-changing.

Even though this book is highly-focuses in the United  States, it can be easily adapted to other countries. I do not think it would be complicated to adapt it to Swiss investors. Of course, the part about retirement would not work well. But the other parts would work nicely.

Overall, The Simple Path to Wealth is an excellent book.

What I did not like

There are very few things in The Simple Path to Wealth that I did not like.

I think it is not a good idea to base any calculation on an 11.9% yearly return. This 11.9% is indeed the return on the 40 years that the author took as an example. But expecting anything like 11.9% on average is foolish at best. While this number may be the reality, it is too high for people to expect in the future. Even though it would have been more synthetic, I would have preferred an 8% return rate for all computations of the book.

I do not entirely agree with the author’s view of foreign diversification. The author argues that investing in the U.S. stock market is enough since many of these companies are doing business in other parts of the world. And this should reflect on the performance of the stock market. And to some extent, this is true. Globalization made international diversification less important. But even for U.S. investors, diversification remains important. But this is the only thing I would change on the strategy of the book.

That is really it. This book must be the one I agree the most with. Most of what the author is doing with his money is what I am trying to do with mine.

Conclusion

I really enjoyed reading The Simple Path to Wealth. It is the best investing book I have read so far, and it is also the best personal finance book. It teaches a simple yet very powerful message. And it teaches this message very well.

Even though the book is aimed at U.S. investors, it is not very difficult to adapt to any country, including Switzerland. So, I would recommend this book even to people outside the United States.

The value of simplicity in investing is very high. You only need a very small number of ETFs to have great returns on the stock market. If you want to achieve financial independence, a simple path to wealth is an excellent path to wealth. You should not try to be too smart, but be smart enough to make your money work for you, with minimum fees and maximum returns.

If you are interested, I have reviewed many other personal finance books.

Have you read The Simple Path To Wealth? What did you think of it?

Mr. The Poor Swiss is the author behind thepoorswiss.com. In 2017, he realized that he was falling into the trap of lifestyle inflation. He decided to cut on his expenses and increase his income. This blog is relating his story and findings. In 2019, he is saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

6 thoughts on “The Simple Path to Wealth Book Review”

  1. Thank you very much for this book tip. It was also a pleasure to read it for me.

    When reading through your review I just found out a small error in the text where I think “what I liked, and what I did like.” should be changed to “what I liked, and what I did not like.”.

    So, keep up your good work.

    Best,
    Cédric

  2. When guidance on investing a proportion of your income, e.g. invest a minimum 15% of income for retirement, is this generally referring to gross or net income?

    Thanks,
    Brett

    1. Hi Thomas,

      I see a few ways of adapting it:
      * Simply invest in VT (Vanguard Total World) during the accumulation phase (or any other good world ETF)
      * Simply invest in VOO (or any other good S&P500 ETF) during the accumulation phase. This is less diversified but probably okay because of globalization and probably of higher returns
      * Invest in VT and a percentage of your allocation into your local stock market. This is what I am currently doing with 80% in VT and 20% in CHSPI (Swiss Stocks)

      In retirement, it will depend on the future of Swiss bonds. If Swiss bonds yield something again, I would invest a part of my portfolio in Swiss bonds. Otherwise, I would keep the entire allocation to 100% stocks.

      What do you think?

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