JL Collins investment principles are simply these…
- Spend less than you make.
• This creates a cash surplus. - Use that cash surplus to pay off debt.
• The acceptance of debt is the single biggest reason why most people will never achieve financial independence.
• Debt must be serviced so you are enslaved to whatever source of income until paid off.
• Make minimum debt payments paying off the highest interest rate first. - Once that debt is gone, use that cash surplus to invest.
• Celebrate the achievement! - Invest as much as you can, whenever you can.
• Time in the market is more important than timing the market.
• Dollar cost averaging is built in. - Invest simply using a combination of a broad stock market index fund (like VTSAX/VTI) and a broad bond index fund (like VBTLX/BND).
• It is incredibly difficult to select stocks that will outperform the average performance of all stocks represented in a broad stock market index fund.
• You can’t pick winning stocks consistently year after year.
• The stock market index fund owns a piece of every publicly traded company in the USA for diversification; many companies are also international.
• Passively managed funds (index funds) outperform actively managed funds (funds run by professional managers) at least 80% of the time.
• In the total stock market index fund, everyone, from the guy on the factory floor to the CEO, is working to make you richer!
• The stock market is volatile, so investing a portion in the bond index fund smooths the ride because bonds are much more stable. - Actively traded fund fees and advisor fees cost you more than you think
• The actively managed fund fees severely erode at the ability for your interest and dividends to provide significant compounding of earnings over time.
• A $10k initial investment, with add’l $10k annual investment (with no appreciation) for 30 yrs, whose annual dividend of 1.9% is reinvested, should yield a total earnings of $114,564 at the end of 30 yrs. But, if you had annual management fees of 1.2%, only 0.7% of the dividend was reinvested, and that would only yield $37,192. You earn $77,372 less. That’s (67.5%) less! earnings! - Keep investing over time.
• You’ll take advantage of the drops when they happen to buy at a discount.
• You’ll be there for the rise when that happens too.
• Letting an Index work its magic over the years isn’t very exciting. It is only very profitable. - Don’t try to time the market.
• You don’t know what’s going to happen next.
• Our emotions cause us to sell low and buy high.
• The market always goes up eventually. - Use the 4% rule when you are ready to live off the earnings of your investments.
• This rule seeks to provide a steady income stream to the retiree while also maintaining an account balance that keeps income flowing through retirement.
• Consider what your rate of return your interest and dividends contribute before selling any positions to take the 4%.
Kristy Shen of Millennial Revolution says words to the effect, it’s never a good time to buy stocks. Either they are too expensive because the market is going down, or the market is dropping and they are loosing value.
