The Simple Path to Wealth by JC Collins markets itself as “Your map for financial independence and a rich, free life.” After reading about half of it, I want to give a first impression opinion and a halfway review. There will be a full book review later as well.
If you are new to personal finance, the book would be a great one for you. It’s also one that is easy and pleasant to digest, with plenty of anecdotes and things formatted in lists and bullet points. The author’s thought is clear and focused.
In the first half of the book, the key take away is that Collins is very high on index funds, and specifically the VTSAX. He reasoned that the market, or in this case, the S&P 500, will always go up over a long period of time. Taking a look at the 40 year span between 1975 to 2015, the S&P has 11.9% annualized return. Of course, this strategy takes patience, and the ability of the investor to be able to ride through the highs and lows of the market.
Collins is honest to the word “simple” in the title of the book. He advises investors to keep their investments simple with index funds. He also argues timing the market is difficult, or maybe even impossible, and most funds are likely to lose money, so index funds are the best way to go.
VTSAX does not include bonds and international stocks, so it does not diversify completely, but the second part of the book will explain that in more details.
One thing that concerned me while reading this book is how little the author spoke about potential downsides of putting all your money into index funds. He reasoned that as long as the investor is patient, there is little risk in doing so as historically shown and the investor would save a lot of time. The author did not thoroughly address the possible advantages of privately managed funds. The whole time I read the book, I was thinking that I would need to understand the downsides of index funds to fully convince myself of the author’s point. In the attempt to supplement my knowledge, I found this very good article that discusses both the advantages and disadvantages of index funds.
My first impression is that the book is very educational and easy for everyone to understand. The only caveat I have so far is sometimes it seems a bit persuasive when I would have preferred more informational. We will revisit again with a discussion of the complete book in a few weeks.