The JL Collins Simple Path to Wealth Portfolio is one of the simplest lazy portfolios around. Here we’ll take a look at its components, performance, and the best ETFs to use in its implementation.
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Who Is JL Collins?
JL Collins has held many jobs and has traveled the world, and is now a book author and a financial blogger. His bestselling, self-published financial book The Simple Path to Wealth can be found on Amazon here.
Collins’s book is very approachable for beginners interested in investing and personal finance, especially those with a DIY mindset. Collins is very much a Boglehead – a follower of Jack Bogle, the father of index investing and founder of Vanguard. Collins lays out his personal experience and success with low-cost index investing with a long-term approach instead of focusing on short-term shiny objects. Like Bogle (and me), he staunchly opposes things like day trading, active management, market timing, etc. that can seduce novice investors for far too long.
JL Collins advocates for frugality, planning, diversification, and low-fee investing as “a simple path to wealth.” Can’t argue with that. Long-term approaches and lazy portfolios like these are admittedly boring, but that doesn’t have to be a bad thing. Bogle espoused the “majesty of simplicity.”
What Is the Simple Path To Wealth Portfolio?
The Simple Path to Wealth Portfolio is precisely that. Collins suggests one needs only one index fund – the total U.S. stock market – for that path, allowing you to be fully diversified across all sectors and cap sizes. Thus, the JL Collins Simple Path to Wealth Portfolio is as follows:
100% U.S. Stock Market
JL Collins Simple Path To Wealth Portfolio Performance
Since the JL Collins Simple Path to Wealth Portfolio is just the entire U.S. stock market and nothing else, we can see performance data from 1972 through 2019:
During that time, we can see the U.S. stock market has had a CAGR above 10%, but with pretty significant volatility and drawdowns as we’d expect. And there’s the rub. With its extreme simplicity, although the Simple Path to Wealth portfolio is diversified across all sectors and cap sizes, we’re still investing in only one asset type in one single country.
Consequently, I firmly disagree with JL Collins on two main points, which are the two primary criticisms of the Simple Path to Wealth Portfolio:
- No international stocks. JL Collins argues that dedicated exposure to ex-US stocks is unnecessary because U.S. companies do business overseas. I’ve always found this argument pretty silly. I think it is a flawed, reductive view of global equities investing. The U.S. is one single country out of many in the world; we wouldn’t expect it to outperform every year, and indeed it hasn’t historically. If it did, that outperformance would also lead to relative overvaluation and a subsequent reversal. For example, during the period 1970 to 2008, an equity portfolio of 80% U.S. stocks and 20% international stocks had higher general and risk-adjusted returns than a 100% U.S. stock portfolio. In short, geographic diversification in equities has huge potential upside and little downside for investors.
- No asset diversification. JL Collins claims that he “hates bonds.” Again, this statement seems reductive, simplistic, and downright erroneous. While I’m the first to support young investors holding 100% stocks for a while to maximize growth, Collins’s blanket argument against bonds is completely unfounded. He claims that since we should ignore the short term noise of any market turmoil during accumulation, we don’t need bonds. That sounds great on paper, but the emotional and psychological aspects of investing are very real. The reality is most investors will pay attention to the short term noise and don’t have the stomach for a 100% stocks position during a market crash. Investors tend to severely overestimate their tolerance for risk, only realizing during a crash when they panic sell. Asset allocation should obviously depend on one’s time horizon and personal risk tolerance; one that lets you sleep at night and stay the course is the right one for you, which may very well include bonds. And since we’re talking about a lazy portfolio in which allocations may not change over one’s investing horizon, it would be silly to simply throw bonds out the window for no reason. Collins does admit that an investor at or nearing retirement should probably have some bonds in their portfolio. But long bonds also beat stocks from 2000 to 2020 with much lower volatility and risk, so a “lower performance” argument doesn’t hold much weight either. If we look at STRIPS (e.g. $EDV), the performance difference widens even further. We also know there have been plenty of periods where the market risk factor premium was negative, i.e. T Bills beat the stock market – the 15 years from 1929 to 1943, the 17 years from 1966-82, and the 13 years from 2000-12.
Collins claims to be a Boglehead, but he must have missed the sections on international stocks and global bonds…
JL Collins Simple Path To Wealth Portfolio ETF Pie for M1 Finance
M1 Finance is a great choice of broker to implement the JL Collins Simple Path to Wealth Portfolio because it has zero transaction fees and allows for fractional shares. I wrote a comprehensive review of M1 Finance here.
Using Vanguard’s low-cost ETF for the total U.S. stock market, we can construct the JL Collins Simple Path to Wealth Portfolio pie like this:
VTI – 100%
You can add the JL Collins Simple Path to Wealth Portfolio pie to your portfolio on M1 Finance by clicking this link and then clicking “Invest in this pie.”
Adding Some Bonds
Older investors or those with a lower risk tolerance will probably prefer to hold some bonds. I’m a fan of an 80/20 asset allocation for the “average” investor. Using Vanguard’s Total U.S. Bond Market ETF, we can construct an 80/20 Simple Path to Wealth Portfolio as follows:
VTI – 80%
BND – 20%
You can add this pie to your M1 Finance portfolio by clicking here.
Want to add some international stocks? It then becomes the Bogleheads 3-Fund Portfolio.
Disclosure: I am long EDV in my own portfolio.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.