Simple Path to Wealth
Part one of a two-part reflection on JL Collins' The Simple Path to Wealth.
I read JL Collins' The Simple Path to Wealth. He is writing to answer a dilemma: how does one live understanding that money matters, without spending life thinking about money? The book is clear, straightforward, and mercifully free of jargon. I agree with quite a bit of it. Because financial planning concepts are simple.
Spend less than you earn. Avoid debt. Invest the surplus. And how to invest? Keep it simple, stay diversified, trust the market and hold on through the storms. I preach these things, and have held so for years. So have you, I believe.
I would like to share some points that Collins writes on; and where I think added nuances helps to complete the story. Because while the rules are simple, each rule has an unspoken complication. That is not a criticism of the ideas. It is the inherent difference between a map and the road.
A rule can be right, and still not be the whole rule.
Spend less, invest the surplus, avoid debt.
The first two need no defence from anyone. The third is where I would add a nuance.
Not all debt is the same. Debt to finance a lifestyle is certainly bad. If you are borrowing to have a better life today, stop; that can be the trap you never exit. Debt to acquire an asset can be reasonable. It is called leverage. It carries real risk, so tread carefully.
Having said that, there is one asset that many of us borrow to buy, though it’s an asset we call personal use asset. This asset is one I firmly believe is not an asset in the normal sense: the house you live in. To me, it is not an investment. It is an expensive indulgence, a good, worthwhile one, but an indulgence nonetheless. It does not feed you, and you cannot spend it without selling the roof over your head. I have written before about why I value my own home at zero[1]. It is not an investment, neither is it a bad debt in the strictest of sense. Just make sure you borrow reasonably towards financing your house.
The right rule. Just not complete.
Wealth is about limiting wants as much as growing assets.
This is the idea in the book I find very true, and very neglected.
The part you can actually control, in building the surplus to invest, is your spending on wants. Two people with the same income can be at completely different points in life, because one has quietly let his wants expand to swallow everything he earns, and the other has reined in that monster. The line between a need and a want is not fixed. It moves; if you can hold your wants still, you are in a good place.
The easiest way to grow your surplus is by wanting less.
But here too, the simple version is too simple. It is not a pure maximisation problem, where the answer is always want less, invest more. A life stripped to nothing today, purely to have more tomorrow, is its own kind of poverty. You are alive today; do not live so that tomorrow-you wishes he had lived a little more along the way. Somewhere between hoarding and squandering there is a balance, and finding it is genuinely hard.
The right rule. Just not complete.
Stay invested for the long term.
This is the basis of nearly everything I write on investments. Markets, historically, have tended to rise over long periods, though never in a straight line. Growth arrives with a generous side portion of panic. The disciplined response is to stay broadly diversified, keep costs low, and hold the course through the noise.
Here, Collins also highlights the natural incompleteness of the rule. He does not pretend this rule runs unchanged forever. He acknowledges that the phase changes once you stop accumulating and start drawing down. A portfolio built for growth is not the portfolio you want when you are living off it, and that the shift generally means holding steadier, lower-returning assets. He is right, and it matters more than most people realise. The very rule that serves you flawlessly while you are adding money has a hidden complexity the moment you begin withdrawing. I have written separately about why that is — why the order in which your returns arrive can matter as much as their average, once you are drawing down[2].
The right rule. Just not complete.
So where does that leave us?
None of the ideas here is hard to understand. You don’t need rocket science to prove the statements. A teenager can grasp "spend less than you earn." Nearly everyone knows they should invest. The points I have added are refinements, not revelations. Even the complete, refined version of each rule would still be simple enough to fit on a card.
Which raises the real question, what I think the book ignores: if the path is so simple, and the map is freely available, why do so few people arrive?
Part of the answer is that knowing a rule and walking it are very different things. That gap is not a gap in knowledge. That gap is a gap in action. And in that gap is one place where I diverge with Collins: his conclusion that you can do everything on your own. That is where I part ways with him, and it needs an article of its own. And it gets one.
Stay tuned for part 2 next week.
I write on topics related to financial habits and decisions. Do explore my other articles at https://www.williamseah.com/blog if the ideas resonate. Drop me an email at reach.william@gmail.com or text me at 9673 1523 if you'd like to chat over coffee or whisky.
[1] Three Things I Do That Might Sound Wrong (But Aren't) — https://www.williamseah.com/post/three-things-i-do-that-might-sound-wrong-but-aren-t
[2] If you are turning, you can wait. — https://www.williamseah.com/post/if-you-are-turning-you-can-wait
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