JL Collins is unfamiliar with the concept of the efficient frontier. The author of "The Simple Path to Wealth"—often associated with VTSAX and a relaxed investing style—acknowledges this upfront when confronted with more complex investing ideas.
In Part 1 of a two-part series, Collins engages with us as we bypass the fundamentals and delve into intricate topics. We question him on whether his straightforward method can outperform more elaborate strategies, and his response may surprise you.
He admits that Paul Merriman’s four-fund portfolio is likely to outperform his one-fund strategy in mathematical terms. However, Collins contends that execution is more important than optimization. Most individuals struggle to adhere to complex strategies for 20 years, especially when those strategies require selling winning investments to purchase losing ones—something that contradicts human instincts.
Collins emphasizes practicality over theoretical appeal. He refers to index funds as "self-cleansing," as they inherently phase out underperforming companies and sectors while incorporating new successes. There's no need to forecast which companies will rise; you will benefit from whatever ascends to the top.
The episode includes his views on VTSAX compared to VTI, the need for international diversification, and his preference for Tabasco over Cholula on his eggs—his unique way of illustrating personal tastes in nearly similar investment choices.
Resources Mentioned:
Episode 31, Interview from 2016 with JL Collins
Timestamps:
(Note: Timestamps may vary on different listening devices due to dynamic ad lengths. The provided timestamps are approximate and may differ slightly.)
(0:00) Introduction
(1:00) JL admits ignorance of the efficient frontier
(2:00) Simple versus optimal yet complex strategies
(4:30) Comparing Paul Merriman’s four-fund portfolio with VTSAX
(6:00) JL acknowledges the mathematical superiority of Merriman’s strategy
(7:30) Discussion on risk parity investing
(8:30) Sequence of returns risk and retirement bonds
(12:30) JL shares a birthday email from Jack Bogle
(15:00) VTSAX in contrast to VTI
(17:00) Total stock market funds across various brokerages
(23:30) Risks associated with Mag 7 concentration
(27:00) The Sears story and the concept of self-cleansing index funds
(30:30) The importance of international diversification and US market dominance
(39:00) Comparing world funds with separate international options
(45:00) Deciding when to transition to a world fund
(47:30) Strategies for timing bond allocations
(48:30) Discussion of target date funds
(50:30) One-fund versus two-fund investment approaches
(52:00) Historical diversification and the Nifty 50
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JL Collins is unfamiliar with the concept of the efficient frontier. The author of "The Simple Path to Wealth" — known for VTSAX and a laid-back investment approach — openly acknowledges this when we pose advanced investing ideas to him.