The Simple Path to Wealth | JL Collins | Talks at Google

Please welcome to JL College. Thanks, welcome. So my first question for you, the title of your book is The Simple Path to Wealth and it is a road map to financial independence and a rich and free life. So what does

wealth

mean to you and how is it linked? to a free life, well I guess we could look at that in two different directions, so if we think about the psychological part, for me personally what

wealth

represents is security and freedom, so security to protect you from what the world can throw you you and the freedom to chart your own

path

in a way that you couldn't do without financially.

I guess when I think about what the benchmarks are, are you rich or not? Have you achieved financial independence or not? What has been called the 4% rule is a good guideline that comes from the so-called Trinity study and, without insisting on that point, it simply suggests that if you have enough assets, 4% of that amount can cover your annual expenses. Consider yourself financially independent so you can work at it from two different directions. You could say, well, I have a million dollars, so four percent of that is 40 thousand dollars and I live on forty thousand dollars a year or not, and there is the answer to your question. question or you can look at it from another direction, you didn't say, you know I need 40 thousand dollars to live, so how much do I need to be financially independent?

You multiply 40 thousand by 25 and you get a million dollars. and there's your answer, so it really depends on what your needs are and why it's important to keep it

simple

. I think there are a lot of people who tune in or people in the audience who have read books about financial independence and maybe their eyes roll. in their head because they just can't make sense of it all, so why is it important to keep it

simple

? Well, that's a good reason, but the reason I prefer to keep it simple is that simple is simply more powerful.

Simple is what gives you the best. results and in this case when I talk about simplicity I mean index funds and specifically broad based stocks and then bond index funds, when you incorporate those there are many reasons why simplicity is an advantage as it keeps low costs. It makes your life simpler, it makes things easier when the time comes for your heirs, but most importantly, it is the most powerful way to achieve financial independence. The people who come to my blog I always have two types of readers on my blog. They're really interested in this stuff and they always want to tinker and that's not who I really write for.

I'm writing for people like my daughter, who knows it's important, but has other things she'd rather do with her life than obsess over finances and investing, so when you have a simple

path

you can do a few things well, you know. , have a very powerful performance, you will outperform the vast majority of professionals and I like to say to those people who want to Play if I thought there was a way to do it successfully and do it better, then that's what I would have written the book about and, in fact, I wasted a couple of decades trying to find that, so you have a blog by JL Collins and H comm yes friends.

If they are interested in your content, they should start with your blog or your book, what I would suggest is that if you don't know anything about me or this concept, I would go to the blog first and go to there is a button at the top called The stock series and the blog is best known for my stock series of posts and when you click on that button it will take you to an introduction and in that intro there is a link to what I think is the best review of my stock series that has been done. and that's better because it's more favorable but, in my opinion, more accurate, so you can click on it and read that short review and after reading it you'll know very clearly whether this will resonate with you or not and whether it's worth your time. so I would start there and then read a couple of posts and then if you like what you read you might consider continuing with the book.

There is nothing in the book that is not on the blog so you can get all the information. just by staying on the blog the book is more concise it's better organized because the blog posts came about organically as they occurred to me or were suggested and the book has the advantage of being better organized it's more concise and I spent more time polishing the writing, so I hope the writing is more polished, but @uj you'll get there. There's an advantage to that and I think back to the early days of your own investing story. How did you learn all these things?

How did you learn to invest? Well, I did it the hard way, I mean trial and error, yes, I spent, as I mentioned, previous decades trying to do things that weren't, what's seductive about this is that they performed mediocre but not bad ? I've been telling people this for a long time. Before I discovered or embraced index investing, I had achieved financial independence, so I achieved it by picking stocks and choosing mutual fund managers, active managers who could pick stocks or thought they could pick stocks so they could. The problem is that it is more expensive. It takes more time and is not as effective as indexing, so it would have been much better if you had discovered indexing earlier.

The great irony is that Jack Bogle was the founder of Vanguard and the inventor of the first index fund available to the public. that fund in 1975 1975 was the first year I started investing. I had never heard of Jack Bogle or Vanguard or index funds when I started, it was ten years before I heard of them and then it took me a disturbingly long time to accept it and so I wouldn't say, as people say, how Do you know all these things and this well? Because I made if you can think of one mistake you could make when investing.

I've probably committed it to the extent that I know anything. Of my mistakes, speaking of mistakes, what do you think was working for you versus against you as you were trying to figure this out on your own? Well, I think the main thing that was working against me at that time and that's working. Contrary to everyone listening to this, there is a large industry on Wall Street whose pace is against our best interests because it is based on making this as complex as possible, issuing a siren song that you too can be Warren Buffett, you can pick stocks too.

You can also beat the indices only if you are willing to pay us for the privilege and that is a very seductive message because everyone wants to think that they can be above average and outperform people, but maybe it is not a good investment right now. , the irony is that if you invest in index funds and of course the knock that active managers put against index investing is that you will only get average returns, that's a little misleading because yes, the index gives you the market return on overall, but that performance is well above average, index investing according to research that has been done exceeds, depending on the numbers you look at, between 80 and 85 percent of active managers over a 15-year period , if the number of active managers is investigated for 30 years. who can beat the index is less than 1%, that's statistically zero, so when you invest in the index and get the average return of the market, you're actually getting the best return you can expect by far, got you, etc. .

What was working in your favor I think what was working in my favor is that I kept being curious and I kept trying different things that I kept researching and indexing, which was first introduced to me in 1985 by a good friend of mine. There is something. about that, that's very counterintuitive and I think particularly for smart people like the people in this room and the people listening because you look at it and say, well, indexing says they buy every stock in the index and yet if I can just not the obvious dog saw it work, I mean, outperforming seems like it should be so simple, but the problem with that or even if I just buy the best performing ones and don't even buy the mediocre ones, the low performing ones, already You know, obviously I'm going to get through it and still.

If you look at that research that says that doesn't happen and of course the reason it doesn't happen is the dogs of today or sometimes the big success stories of tomorrow and the ones that are flying high are the stories of how They crash and burn, so there's no way to know what's going to happen with specific actions and it's too easy to guess wrong, so one thing that stood out to me about your blog and your book is how specific the actions are. tips, so in other books there are websites that I have tried. Reading in the past, the advice was always very vague, like investing in mutual funds, and left me wondering which one and how much, so why do you think other authors' advice isn't very specific?

Well I'm not sure I can answer that because I can't get into other people's heads, maybe I can answer by telling them why my advice is what it is and that's because I didn't write this blog to have the international audience that I have. today and it never occurred to me that that would happen. In fact, I had started writing a series of letters to my daughter about the financial things she wanted; No, and I told him he was a business colleague of mine and he said, “You know Jim,” these kinds of interesting things you might want to do. share with your friends and family and a blog would be a good way to do it and this is 2011.

I like the idea of ​​a blog because it occurred to me that it would be a great way to archive information, but I didn't have one. a plan to create a blog as a business or as a successful way to reach a broader audience, was just archiving the information that I wanted my daughter to know and that was basically the mistakes I made, what worked, what kicked me in the ass. rear. and what I specifically think she should do and that's why I think that's why my advice is so specific these are the things I'm doing now these are the things I wish I had done in 1975 or at least 1985 when I realized of indexing these are the things that I want her to do and that I asked her to start doing, so maybe that's why my advice is more specific than others, okay, yeah, I can't tell you how many times I've talked to a friend. about how I'm on this new path where I'm investing and they're like, well, what are you doing? and I just send them one sentence of exactly what I'm doing, that's what I read in your book and they say That's it and I say, that's it, that's all I'm doing, other than telling them to open their computer , they start it and what clicks they must do to log in to their account.

It's such a simple tip. You know, I had a year and a two and a half years ago, Faranoush Torabi interviewed me on his podcast and I don't know if anyone listened to his podcast, but at the end of his interview he likes to ask a question that says, "If you were suddenly given a hundred million dollars, what?" What would you do? And the typical types of responses she gets are so broad that I give this money. I do that and of course she's interviewing me. We are talking about investing in index funds and specifically VTS Ax, which is Vanguard's total stock market index. background and the one that I recommend the most and love the most, so when she got to that question, Jim, what would you do?

I would put it on VTS Ax and she actually submitted that's what you do so one of my favorite posts on your blog is called why your house is a terrible investment and I know you've gotten a lot of feedback from your readers about your comments. A way of saying yes. So why do you think this post is so controversial? Why are dear readers so excited about this? post, do you know someone, not me, but someone said that homeownership is the American religion and that you could go to Daley Plaza in downtown Chicago and you could set up your little soapbox and stand on it and elect any religious leader important and start vilifying. that individual Jesus Christ Muhammad Buddha who had once vilified them in the most horrible terms possible and people just turned around and walked away, I mean, they ignored you, you get on the same box and suggest that home ownership is not It's the perfect thing that's so ready to do and they start picking stones so I think it's polarizing and people who love their homes and love the idea of ​​owning a home get that response and then there's another segment of people who They don't like being owners. houses and they see the value and the rent and they join the cause and that's what makes that post surprise me because I did it ironically and by the way I'm not against homeownership.

I have been a homeowner for most of my life, I am against believing the propaganda that it is always or even commonly a good financial decision, it can be a great lifestyle decision and that is why I bought the houses that I bought them over the years, but I never bought them thinking I was doing something that was financially astute because unless you get lucky with a rising market and that happens,it's generally not the best thing to do with your money if it's financial and depends on your goal, and so for the person who is at the point where they're considering buying their first home or condo, what considerations would you advise?

What did they do before doing it? Why not the first thing in line with what I just said was to understand that you are not making an investment, you are making a lifestyle decision. In my manifesto on my blog, one of the things I say is that all of our decisions don't have to be motivated by financial considerations, but you should always understand the financial dynamics of what you are choosing to do. and I have a post about buying versus right and I run the numbers that tells you how to do it, so I suggest that if you are renting now and if you are thinking about buying a house or a condo, run the numbers first and find out exactly what it will mean financially and it might be less expensive than the place you're renting.

That may happen. Most commonly, you'll find out it will be more expensive, but then you already know, and just because it's more expensive doesn't mean you don't have to buy the house, it just means you understand what you're paying for. the lifestyle decision you're making and that was one of the first conversations we had at Chautauqua. I wanted to tell you a story about how I often get asked like Rach, are you going to buy a place in Chicago and I say, well, I read? JL Collins book and rent great so far and I told you a story about how my refrigerator broke right before I came to Ecuador and I just called my landlord and told him I needed a new refrigerator.

See you later. I'm going to go, so aside from this post called Why Your House is a Terrible Investment? Are there other posts on your blog that have generated a lot of comments or controversy from your readers? Well, that's the one that generated the most controversy because it's a hot topic, less controversial but probably very popular. The two that are most popular are How I Failed My Daughter and A Simple Path to Wealth and that was one of my first posts and in that post I summarize all the blog content in the book, so it's popular. why you need some money is probably at least as popular and from the audience reaction I think there are people who agree that there is a famous video on YouTube called the importance of money fu.

I haven't seen it, write it down, put on your headphones. on your desk, yeah, it's not suitable for work, so I'll just make a brief comment on that, if I make a movie called The Gambler, which is not a particularly good movie, so I don't recommend it, but there is a wonderful segment starring John. Goodman and he was a wonderful actor and there's a wonderful little segment in that movie and you can Google it and find this clip where John Goodman

talks

to Mark Wahlberg and about the importance of having some money and when I saw I thought I wanted to do a version of that clip.

I want to keep it as close to the original as possible, but modify it to reflect my values. He

talks

about buying a house, for example, and we've talked about that, but my problem is that he didn't know anyone who could make the movie, but one of the wonderful things about Chautauqua, which is where you and I met, is that you meet some really cool and interesting people who come to Chautauqua, including a couple of years ago a couple of filmmakers who were less than an hour from where we lived at the time and they came over and I give them all this background because if they choose See this, it's full of salty language that I don't use every day.

Acting, I'm trying to channel John Goodman and he uses the same language and if you like it you think I do a good job, credit goes to my filmmakers Joan and the terrible Branagh who left a blank in his name, but it's Yes you go to my blog and you go to the search function you will find it and you will see who is given credit so it is early 2018 and this is a good time for people who are trying to get their financial house to maybe coming up with a plan for 2018 and beyond and the number of investment options is confusing and overwhelming, so I know a lot of people who are maxing out their 401k because it's such sound advice, we get the full mix.

They may also have an emergency savings fund, but beyond those two things, they don't know what to do with what they have left over and they just keep their money and the savings they are reviewing or maybe they are outsourcing their money management to someone. Otherwise, for people who don't feel confident investing beyond the 401k match and just keep their money maybe in savings or checking out how they should start making sense of all these different options, how would you advise them to get started? Well, the way the circles go back to the advantage of things being simple, so if you think about maybe if you have a visual image of, say, a long banquet table that just groans under the weight of all kinds of food , preparation and dish that you can.

Possibly imagine thinking about that image as what the financial community is and has presented to us and that they want us to participate in the problem. These are all very expensive things that are mostly designed for the people who created them. and who sells them to make them rich is not necessarily what is best for us that is bad news the good news is that you can put your arm on that table at one end except for a small corner and sweep everything under the floor because none of that matters Only a small portion of what we really care about and building our wealth are index funds and very specifically broad based stock index funds and broad based bond index funds.

I mentioned that the one I like the most is VTS Ax which is the most common Vanguard total stock market index fund and the original fund that Jack Bogle created is the S&P 500 index fund which is perfectly acceptable and the two are surprisingly close, so what sometimes people get obsessed with deciding between the few acts that have access to one and not the other extreme, pick which one you have and then there's the total bond market funds, that's with those two tools, that's all that you really need. It gets a little complex with 401k and 403 B plans for people not in the private sector because I don't always offer those particular Vanguard funds that I prefer.

Most plans offer some type of broad-based stock index, usually equivalent to an S&P 500. It may not come from Vanguard, which is my company of choice, but an S&P 500 index fund is pretty much it. Same thing, no matter who's loyal to you or the price, they're all good options, so if someone was looking to get started this year and wanted to take a look at some index funds, but also knows that there are HSA 529 plans, how do you do that? ? Would I recommend they start? Maybe if 2018 was a simple year, what would be your advice if they're feeling overwhelmed by all the different places they could invest their money?

I think manure really starts from ground zero. I don't really have any knowledge base on this and that's not a bad thing, that could be an advantage because at least it means you don't have bad knowledge and there's a lot of bad information out there, so if you're in that realm. Level zero, don't feel bad about it, it's an advantage for some, there's nothing you have to unlearn except the risk of promoting my own book on my own blog. I would go there, read a little, and learn a little. So there's one thing in the way you ask the question that people need to be clear about and this is something that I run into a lot when I say well, I want to invest in my 401K or I want to invest in my IRA or I want to invest in VTS Axe, you are combining investments with what I call buckets, so a 401K is not an investment, an IRA is not an investment, a TSP plan is not an investment, those are buckets and then in those buckets you keep your investments .

Investments are things like mutual funds, stocks and bonds so those are the investments that you choose to put into your account so if you have a 401K like you have on Google and I have no idea what your 401K is like but You'll have a list of investment picks that you can put in that 401K bucket. If my approach resonates with you, then you believe in broad-based index funds. Index funds are something you want to go with, you can go through that list and maybe find the I'm talking about specific funds, but you're bound to find something that's a broad-based index fund.

By the way, the easiest way to do this is to find the column that shows the expense ratio and you should swipe down. that and when you find the lowest expense ratios, you will have found the index funds and you will focus on them and analyze why you think some people choose to manage their own investments while others outsource them to someone else. I think the people who outsource it to someone else have convinced themselves that this is too complex for their pretty little head and scoff at the vast majority of things on that banquet table;

We talk about how we are too complex for anyone's pretty little head when in 2007 2008 2009 when the economy collapsed Wall Street was selling products that they didn't understand, so if this seems complex to you it is because it is complex and in some cases intentionally complex, but that we don't care because we don't need any of that and once you understand that you don't need those complex things then doing it yourself becomes much more feasible even if you have no interest in financial matters like, frankly, my daughter, she doesn't. He has, he has better things to do with his life than waste time. with these financial things that intrigue her father and that's great, I mean, people are bridges to build and you know ways to make the world work.

The beauty of this is that if you do a few things right financially, you can profoundly change your financial life. without having to dwell on it and you can continue doing things that are more important to you and maybe more important to the world and what do you think are 2 or 3 of the biggest mistakes people can make when investing or managing their money well I think two immediately come to mind: One is thinking that you can pick individual stocks, and by extension, that you can pick people who can pick individual stocks, that is, people who run actively managed mutual funds.

One of the comments that gives me goosebumps is when I hear people say something like well, Warren Buffett became a billionaire by picking individual stocks, I'll just do what Warren did, as if there's a reason why Warren Buffett is famous because Warren Buffett has managed to do something that is extraordinarily difficult. to do the ability to do it is extraordinarily rare and the arrogance of thinking oh, I'll just go and do what Warren has done is to me impressive, it's absolutely impressive and the research indicates that what Warren has done as we talk about you. I'm thirty years old and less than one percent of the people who try to do it and have survived that long have made it, so I think you need it and this is the one I mention first because this was my own obstacle.

I kept believing that I could pick people who could pick stocks and I think I could pick stocks and because once in a while I get it right and maybe I did it more often than I got it wrong, that fuels that belief and that's what made me reluctant to get back into indexing, but the truth is that the few times I got it wrong reduced my performance to worry about and this is what happens to the vast majority of people who are trying to do it to where I would have been much better off with the index. much better, so trying to pick individual stocks and managers comes first, maybe not necessarily an order;

The second thing is trying to time the market and you can't watch the financial news or open a financial publication without finding someone to tell you. Definitely where the stock market will go, no one knows. If you could do that accurately and consistently, you would be much richer than Warren Buffett and much more acclaimed. It would be magic dust. No one can tell you where the market is going, you just can. Not predicting the market and trying to do so is a fool's game, so Fidelity Investments did a little research and thinking about a year and a half ago and they were curious to know which group of investors in their funds performed best because the research indicates that people who invest in a mutual fund have a higher return than it, a lower return than that fund and you say well how is it possible if they are investing in the fund, their return must match that of the fund the reason why they have underperform when they try to dance in and try to time the market, so when Fidelity did this research, they determined that one group of investors did significantly better than any other group that held their funds and that the dead ones performed better How can you guess why?

Because they didn't. Don't take it with your investment, the second best performing group were people who forgot they owned the fund, so you can't time the market and,especially when the market has been active, there has been a bull run for a long time, as the media is full of people. telling you that they know what it's going to do next, at some point the market is going to crash because the market is volatile, that's what markets do, so if you invest in the market, you should expect that you'll actually have to wait for the volatility that you need.

I will be willing to move forward, but I don't know when it will and it could be happening as we sit together in this room today. I haven't looked at the market, it could be 10 years from now. I have no idea and no one else knows the difference I'm willing to say I don't know. For someone who might be interested in investing, maybe when you get home today you have some cash and you want to start investing and you say Well, the markets are at the highest they've ever been. I'm going to wait for it to come down.

What advice would you give to people who are waiting for the next fall? Well, if we went back to March 2009, which was when the market hit bottom. and his collapse almost every month since could arguably have said the same thing. I wrote a post and I want to say 2014 responding to a reader who was asking the exact same question: the market the S&P 500 was 1600 and the change and this The reader was asking how could I reinvest? How could I invest it so that nothing goes up for the last five years? and here it is, it's 1,600 and then the fund I doubt, I mean six hundred something and where we are today.

I didn't know it at the time because I didn't know where the market was going to go, but I just don't know, you can't predict the market and, by the way, it's become fashionable to suggest that P/E ratios or Shiller ratios B give some insight into this in that investor post called investing in a raging bull, which is in stock series I. just excuse me, I just put a link to a post I found very well done where the guy breaks down where the stocks were. different P/E ratios at the beginning of the declines and there is no predictive correlation, so you just simply can't know.

I also have a post called Why I Don't Like Dollar Cost Averaging. And in short, dollar cost averaging is the idea of ​​investing a little bit of money at a time over a period or period of time. The problem with this is that unless the market conveniently goes down while you do it, you will have given up profits instead of avoiding losses and what really bothers me is that at the end of your investment period, when you have finally deployed all your money , who's to say that the next day isn't the day the market takes its big drop, so you have $120,000 that you wanted to play and you say: I'm going to do it for the next 12 months and I'm going to put in $10,000 a month and I'm going to avoid that risk.

You are not avoiding risk. You're just delaying the risk until you put in that last 10,000. Now, if you get lucky with market downturns, you will pat yourself on the back, but understand that it is just luck because no one knows where the market is going. There is a saying that the best time to invest was yesterday and the second best time is today. Timing the market is more powerful than trying to time the market. Well said, I like it, so we have one more question for Jim, but for people who have questions live, feel free to line up in front of the microphone.

We also have Dory in Go Slash Jim, Dory. My last question before we move on to the live questions is that there may be people in this room who have a New Year's resolution to get their financial house in order and they may be one of the people who you know have a lot of cash and checking accounts. . or savings or they're just so overwhelmed by things that they don't even know where to start, so what would you say are the key takeaways that they should focus on when they leave this room? Well, I would encourage anyone to do it, but if you have that amount of cash and I guess that amount of cash represents a big part of your non-value, since money is relative, but if you have $100,000 as an example and that's a big Some of your net worth indicates that you're not comfortable investing and that's okay, so the first thing you should do is educate yourself and you can start with my blog or my book and see if that resonates and go from there if you find it.

If it doesn't resonate, there are many other sources available, but do your research first, but if you are prepared and some of the posts I referenced are in the stocks series, you can read about how to invest in a Raging Bull, you can read about the dollar . cost averaging, but once you decide to invest in stocks you have to accept the fact that the market is volatile, the market at some point will go down, whether it goes down 10% and keeps going up 24 who knows, no one knows except the market. you can count on it to be volatile and at some point it will go down and you have to accept that and you have to be absolutely sure that when that happens, not if, but when, don't panic because the only way you lose is if you go into you panic and you sell at the bottom now trust me when I tell you because I've lived through some of them when the market is taking one of its dips it's ugly it's painful it's scary it's easy to sit here now and say well I'll stay the course, but no It's so easy to do it when it's happening, so the first thing you need to know is the first thing you need to figure out.

It seems to me that in your own mind, in your own heart and in your own instincts. that when that happens, selling is not an option, it is simply not an option. Now in my world I divide the moments of our lives between the stages of wealth accumulation and wealth preservation in a more traditional moment in time that might have been good when you are young and you are working, that is your wealth creation stage. wealth and then you get to 60 or 65 and retire preserving wealth, but today people routinely enter and exit their careers, so you will go from wealth preservation to wealth creation and back again .

I know I've done it several times in my career when you do that, there are two ways you can mitigate market volatility and really use it to your advantage when you're in the wealth creation stage, you've earned income and if our goal is to be Financially independent, a large portion of that income is being diverted into investments, which means that, on a regular basis, you are investing substantial amounts of your income in the market, which by extension means that when the market falls, you are reaching Buy stuff on sale now, you're not going to try to time this because we know we can't do it that well.

What it means is that when the market drops you should celebrate because, oh, I'll be able to buy when I put in that extra. a thousand dollars or ten thousand or whatever every month, I get more shares on my VTS ax than I would have otherwise, the volatility works in your favor that way, so you sleep easy at night because you don't It matters what it is. Sir. The markets are going to do now, when you move into the wealth preservation stage, you no longer have that income stream to smooth the ride and that in my world is when you add bonds and the bonds become like ballast on your sailboat, where there was your income stream.

So far you're going to replace that with the drag of bonds and that means that when the market crashes, stocks crash and you reallocate to stay in whatever allocation you've chosen, you'll be selling bonds that you've rallied in as a percentage of your portfolio, let's say like I do right now, you have 30% bonds, 70% stocks, well, when stocks plummet, that percentage of bonds will go up, you sell some of those bonds and buy those stocks at lower prices. as if your cash flow allows you to do it before, when stocks go up again and suddenly that percentage of stocks starts coming our way or you want it to go above 70, you start selling some of them to replenish your bonds with those two strategies: you no longer have to worry if the market goes up or down because you know that over time the market is going to go up and you have eliminated worries about volatility, so I would accept those two concepts, I understand that I would not ever panic sell just because it went down, that's just not an option that you're ever going to consider and then depending on what stage you're at, use bonds or use cash flow to smooth out the right, we're ready to go to some live questions thanks for coming , so I only had two questions about the future, so number one, you are addressing the wrong guest earlier in the talk, you mentioned a very simple sentence, what do you do with your money, put it in VTS ax, a more similar fund ?

So in one sentence, it seems like you can do it with a few clicks, so my question is: do you know the financial advisor system? The biggest type of system where you call someone on the phone and you basically have it. Do exactly the same. My question is: how do you see that changing as the world becomes more financially literate and then as a corollary to the broader system? If everyone accepts this idea of ​​indexing, is there any systemic risk? everyone invests in an index, okay, so with financial advisors I think, to be fair to financial advisors, they can be helpful on a wide range of topics other than making investment decisions for you, but I have one of the chapters of my book and one of The publications in the series of actions is the reason why I do not like investment advisors because if you accept the simplicity that I suggest, at least from an investment point of view, as you point out , why would you need an advisor to do what you can? do with a few clicks and when I gave my talk at Chautauqua, when I preferred that talk last year, I took a little bit of a different approach than they had taken before and I was thinking about the content of my book and the content of my blog. and they're trying to sum it up in one line or one sentence and really what I came up with is that my advice is VTS ax buy as much as you can when you can, buy it when you can and keep it that way forever and it's really like that. simple and as you say, it's a matter of a few clicks the second question and this is one that is in the financial community a good amount okay, what if everyone adopted indexing?

What effect will that have on the markets and the problem it suggests? is that indexing simply buys all the stocks where the stock pickers, whether individuals or fund managers, are the ones who try to evaluate the companies and therefore create a trading mechanism that looks like some kind of objective objective parameters and generates the values ​​and is there a danger that that will disappear as everyone adopts indexing? It does not worry me. I don't know if there is a danger or not because it is hypothetical. However, I'm not worried about indexing, I think, at this point.

It's 20 to 25 percent of the market, it's growing, more people are adopting the idea, but I think if it continues to grow, what I think will happen is that the active management portion will become narrower and more and more people. are indexing, the opportunity to actually beat the index will start to increase and as that happens some of those active managers will post success stories and that will start to tip it in the other direction and I think the other reason I'm not The concern about indexing taking over the world is because, as I mentioned earlier and in response to one of your questions, it is contradictory that it is so powerful and that it is human nature to want to think that we can get ahead.

It is part of human nature. to want to get the best of the benchmark, I still have the disease every night again. I'm still trying to pick stocks so I think that aspect of human nature will also prevent indexing from taking over the world, does that help everything? Yes, thank you, my pleasure, thank you, thank you, but do you see any advantage in trying to diversify away from the sp500 and think about global markets, bonds or commodities? Well, bonuses, as I mentioned. I think bonuses are added depending on who had what. At that point in your life you are like ballast for your investment ship and I don't know if I don't see any role for bonds.

What interests me about that question is that the S&P 500, as the name suggests, basically has the 500 largest companies in the United States. VTS ax companies, which is a total stock market index fund, owns and varies, but about three thousand six hundred companies when I started investing and it was before such things existed or were just coming into operation, the idea of ​​diversifying was because you were the most The vast majority of people were picking individual stocks, they had to because they were available, there were some mutual funds, but the advice that was given to individual investors was that you know you want to pick seven, eight, nine, maybe ten industries, and within those industries, they want to choose. two or three companies and then you have a diversified portfolio because you can't really physically and mentally follow more than 20 25 maybe the 30 companies outside and that was considered a well diversified portfolio, so when someone tells me, do I have to do it? ? diversify beyond 500companies mm yes I think you're there I think you're there now the international aspect I kind of disagree with the rest of the world or most of the rest of the world the advice that most people give is that in addition to buying the S&P 500 or VTS ax that are American companies you need to buy funds that bring you to the rest of the world internationally from other countries.

Vanguard itself gives that advice. At least I don't buy it. Not yet the US is still very dominant in the global economy, it will continue to be so for the foreseeable future, but the most important thing is that the companies in the S&P 500 index, especially the top 100 of those companies, Google is an example of our international companies by definition, so if you're invested in the S&P 500 and of course the S&P 500 is 80% of the VTS axis, you, by definition, are invested in the world before we answer our next live question. I want to go to the most voted questions about Dory, so the question is from Stephanie here in Chicago.

She said many Google employees receive a significant portion of their compensation in Google stock. There are often strong sides that never sell a stock or those that sell them all and diversify immediately. What do you think about holding Google stock since then? We are all very interested in the success of Google, well that is a politically charged question in some ways. I guess I should say old Google, but that's not really my opinion and that has nothing to do with how Google stocks or what I see. It's the future of Google, the problem I have is looking at the question when it says that we are all very committed to the SEC, the success of Google, that is a great thing, but it is also an emotional thing and I think you have to separate your emotions from your investments. , so everyone wants to see Google move forward, succeed and prosper, it is your career that qualifies your paychecks and therein lies the problem because when you also invested in Google, you have more and more eggs in that basket.

I don't know what the future of Google is and no one really knows, presumably everyone in this room and in the organization is working hard to make that future wonderful and profitability continues indefinitely and I've done a wonderful job so far, but the world It's full of people trying to eat your lunch. I think about General Motors, so when I was a kid, General Motors in the 1960s, had a hard time. For most of their lives, in the 1960s, the federal government was on the verge of breaking up General Motors because no one else could compete with them.

General Motors was so dominant that the government was concerned that no other car company could compete and they have to step in and they were specifically talking about breaking up the Chevrolet division, which was just huge and dominant. Well, of course, history tells us two things: one, that the government decided not to do that and two, that they didn't have to worry. because the world was full of places with other companies waiting to eat General Motors' lunch the moment they slipped up or just the moment the competitor figured out a better way to do it, so you have to be very careful when putting all your eggs in the same basket you work in, going back to the question the gentleman asked earlier about the sp500.

I would rather have the S&P 500 or at least have most of my net worth in the S&P 500 because now I don't have to guess who is going to win because the losers fall and the winners continue to prosper. One of the beautiful things about the index is what I call being smooth, it's self-cleaning and by that what I mean is that if you look at any specific company in that index you can only lose one hundred percent of that company, but any other company that index and Google is a wonderful example of this in the last few decades it can grow exponentially, there is almost no limit to how far it can grow, so it's kind of a winning, losing combination.

They fall and don't actually make it to one hundred percent before being delisted, but the losers move away and new blood is continually added as new companies emerge and you benefit from those that are successful and from all those companies. . They are full of people who are working hard to make sure your company succeeds this investor. I don't have to find out who the winner will be because I own the mafia and we have time for one more question, so I was going to ask two. but I think they're quick on retirement day funds, thinking about those target retirement date funds, so they automatically adjust the allocations as you get closer to retirement, or you think you should do the allocation yourself via Bond and Vanguard shuttles. funds on your own and then the second one was really about and in what scenarios you would find it useful to use a financial advisor.

I think doing it on your own is great, but at some point you want some kind of assurance that you're doing it right. enough to choose investments, but you have to go to someone to get insurance, so a target retirement fund, just to quickly explain what it is, there are mutual funds available. Vanguard has them and they are called target date retirement funds or target retirement funds. and the idea is that inside it is what's called a fund of funds, which means it's a mutual fund that contains a bunch of other funds within it, usually five or six different funds and with a target retirement fund. you choose a retirement date and you buy the fund and as the gentleman just indicated you can hold it forever and automatically the closer you get to the retirement date the more conservative the fund allocation will be i.e. typically the more bonuses will add , so the idea is that you'll never have to. adjust your allocation as it comes in, now you can adjust, so some people say, well, maybe you want to be more aggressive or less aggressive than the retirement fund, well, you can adjust that if you want to be more aggressive, just pick one with a retirement date that is actually further away than what you yourself anticipated in retirement, if you want to be more conservative you can simply move that retirement date closer to where you actually plan to retire and the idea is that you will never have to do anything again , It is not like this. a bad approach, you really want to invest in a way that is hands-off at all or you never have to think about it.

This is not a bad way to do it and in fact I have a post about this and the series of actions and I think it is a chapter in the book, I'm not sure if I put it in the book or not but there is a post in the stock series where I talk about these things, it's not a bad way to do it, what I suggest to people is that if you can read my stock series and you feel comfortable with what you read or you read my blog or my book and you you feel comfortable with what you read.

It's less expensive to just do the assignment yourself and it's not very difficult. It won't take long and that's how I encourage you to do it, but on the other hand, if you read the series of actions or start reading it and say you know what I really don't want, this is simply not the case. My thing and by the way there are topics in my life that I would have that reaction to and then move on to the post about tired tired retirement funds and you can end it and you won't it won't be a bad thing. to do and the second thing very quickly in terms of financial advisors again.

I don't think you need them if you follow an approach like mine, which is a simple investment, you don't need them for that, but there are other aspects where they can be useful, the problem with financial advisors is that, while there are good ones, there are many who are not and they are not for a couple of reasons, one is simply that they are not as competent or the other, a little more insidious, is that their interests are not necessarily aligned with what is best for you, so if you read my post on why I don't like investment advisors, one of the conclusions I come to is that when you know enough to choose an investment advisor, why would you have done so wisely? you spent that time learning on yourself you would know enough to do it yourself thank you thank you we ran out of time thank you for coming to Google Chicago it has been a pleasure to have you it has been a pleasure to be here you