JL Collins Part 2: What Happens When You Don't Need to Work Anymore?
#625: What do you do when you've reached financial independence? JL Collins says it depends entirely on your spending rate, not just your net worth.
Collins joins us for part two of our conversation about what happens after you reach financial independence. He tackles the question of whether you should invest differently once you've "won the game."
Someone with $5 million spending $100,000 per year sits in a completely different position than someone with the same amount spending $200,000 per year. The first person can afford to stay aggressive with stocks. The second person needs bonds to smooth the ride.
Collins walks through his withdrawal strategy using his daughter as an example. She stepped away from corporate life in her early thirties and now follows an 80-20 stock/bond allocation.
She pulls dividends from both funds into her checking account, covering about 2.5 percent of her target 4 percent withdrawal rate. Vanguard automatically sells shares to cover the remaining 1.5 percent.
We cover Collins' thoughts on the 4 percent rule, which he calls extraordinarily conservative. He references Bill Bengen's research showing that 5 percent withdrawals succeed 86 percent of the time.
Collins would take those odds to escape a soul-crushing job, especially since most financially independent people end up accidentally making money anyway.
We discuss the tension between frugal habits that build wealth – and learning to spend money once you have it. Collins flies first class, but he drives a basic car.
Collins explains why financially independent people often stay engaged with work — the problem was never work itself, but working without agency.
Timestamps:
Note: Timestamps will vary on individual listening devices based on dynamic advertising run times. The provided timestamps are approximate and may be several minutes off due to changing ad lengths.
(0:00) Intro
(2:00) Investing when you've won the game
(5:30) Spending rate versus total wealth
(8:00) Three-year versus ten-year timelines
(11:00) Adding bonds gradually or all at once
(14:00) Why 4 percent is extraordinarily conservative
(17:00) Soul crushing jobs and 5 percent risk
(24:16) Withdrawal frequency and dividends
(27:16) Automatic share sales setup
(31:16) Starting business while financially independent
(36:16) Accidentally making money after retirement
(47:09) Agency versus having to work
(50:09) Spending advice for frugal philanthropists
(54:09) Charity auction magnifying effect
Resources Mentioned:
https://affordanything.com/377-how-i-discovered-the-4-percent-retirement-rule-with-bill-bengen/
https://affordanything.com/bill-bengen-created-the-4-rule-now-he-thinks-we-can-withdraw-more/
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JL Collins Part 1: The Simple Path vs. The "Optimal" Path
#624: JL Collins, author of "The Simple Path to Wealth" — the guy synonymous with VTSAX and chill — joins us for Part 1 of a two-part series where we skip the basics and dive straight into the complex stuff.
We ask him whether his simple approach actually beats more sophisticated strategies, and his answer might surprise you.
He says that Paul Merriman's four-fund portfolio probably outperforms his one-fund approach mathematically. But Collins argues that execution trumps optimization every time.
Most people can't stick with complex strategies for 20 years, he says, especially when those strategies require selling winners to buy losers – something that goes against human nature.
Collins prioritizes what works in real life over what looks good on paper. He calls index funds "self-cleansing" because they automatically rotate out failing companies and sectors while rotating in the new winners. You don't need to predict which companies will dominate next – you'll own whatever rises to the top.
The episode covers his thoughts on VTSAX versus VTI, international diversification, and why he'd rather put Tabasco than Cholula on his eggs — his quirky way of explaining personal preferences in nearly identical investment options.
Resources Mentioned: Episode 31, Interview in 2016 with JL Collins
Timestamps:
Note: Timestamps will vary on individual listening devices based on dynamic advertising run times. The provided timestamps are approximate and may be several minutes off due to changing ad lengths.
(0:00) Intro
(1:00) The efficient frontier
(2:00) Simple vs optimal but complex paths
(4:30) Paul Merriman's four-fund portfolio vs VTSAX
(6:00) JL says Merriman's approach is mathematically superior but not behaviorally
(7:30) Risk parity investing discussion
(8:30) Sequence of returns risk and retirement bonds
(12:30) JL's birthday email from Jack Bogle
(15:00) VTSAX vs VTI
(17:00) Total stock market funds across brokerages
(23:30) Mag 7 concentration risk
(27:00) Sears story and self-cleansing index funds
(30:30) International diversification and US dominance
(39:00) World funds versus separate international
(45:00) When to shift to world fund
(47:30) Bond allocation timing strategies
(48:30) Target date funds
(50:30) One-fund vs two-fund approach
(52:00) Historical diversification and Nifty 50
For more information, visit the show notes at https://affordanything.com/episode624
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Q&A: “Help! My Mom’s Financial Crisis Is Becoming Mine!”
#623: An anonymous caller feels trapped in a no-win situation with her financially reckless mother. She has the means to bail her out, but it doesn’t feel right. What should she do?
Shannon is excited about investing in several companies overseas. But she can only access them using American Depository Receipts. What are they, and how do they work?
Jennifer calls back with an update on putting a vacation on a credit card and playing the rewards game.
Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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First Friday: Why Americans Are More Pessimistic Than Ever
#622: #622: The headlines said America added 147,000 jobs in June. The reality? Private companies actually cut 33,000 positions.
Grad students just lost access to unlimited borrowing. Parent PLUS loans now cap at $65,000. And tariffs are about to jump as high as 70 percent.
Everything is changing at once — taxes, tariffs, student loans, and immigration policy. And data from the University of Michigan says that consumers feel more pessimistic than they did six months ago.
Welcome to the 4th of July First Friday episode. On America's 249th birthday, we unpack these economic stories.
Timestamps:
Note: Timestamps will vary on individual listening devices based on dynamic advertising run times. The provided timestamps are approximate and may be several minutes off due to changing ad lengths.
(0:00) Introduction
(1:19) Historical trivia about the Declaration of Independence
(2:28) Three presidents died on July 4th — statistical improbability explained
(4:24) Trump signs domestic policy bill extending 2017 tax cuts
(6:13) Student loan changes — borrowing caps and repayment plan eliminations
(8:53) Tariff pause expires July 9th, new rates announced
(12:00) Original tariff rates and Lesotho example breakdown
(16:26) June jobs report headlines versus private sector reality
(22:54) ADP reports private job losses while government hiring grows
(26:46) Consumer confidence drops 18 percent since December
(30:59) Inflation expectations versus actual 2.4 percent rate
(34:19) Fed takes wait-and-see approach amid policy uncertainty
(36:58) Labor market stagnation mirrors Federal Reserve strategy
For more information, visit the show notes at https://affordanything.com/episode622
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Q&A: Which Investments Should Go Into Which Accounts?
DOWNLOAD the FREE Cheat Sheet: ASSET LOCATION MADE SIMPLE at affordanything.com/assetlocation
#621: Jared is attracted to the favorable terms of the annuity plan that his employer offers, but he’s hesitant to pay the opportunity cost of locking up his money now. What should he do?
An anonymous caller is struggling to find the efficient frontier with only three funds to choose from in his Thrift Savings Plan. Is there any hope for him?
Jack feels great about the funds in his portfolio, but he’s losing sleep over how to apportion them between his taxable, pre-tax and Roth accounts. What’s the best tax strategy for him?
Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it at https://affordanything.com/voicemail
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You can afford anything, but not everything. We make daily decisions about how to spend money, time, energy, focus and attention – and ultimately, our life.
How do we make smarter decisions? How do we think from first principles?
On the surface, Afford Anything seems like a podcast about money and investing.
But under the hood, this is a show about how to think critically, recognize our behavioral blind spots, and make smarter choices. We’re into the psychology of money, and we love metacognition: thinking about how to think.
In some episodes, we interview world-class experts: professors, researchers, scientists, authors. In other episodes, we answer your questions, talking through decision-making frameworks and mental models.
Want to learn more? Download our free book, Escape, at http://affordanything.com/escape. Hosted by Paula Pant.
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