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FIRE Investing – The Simple Path to Wealth

Updated: Dec 3, 2020

If you want to be financially independent and retire early, this is probably the simplest way to do it:

  1. Pay off all your debt.

  2. Set up auto-investing to buy VTSAX.

  3. Don’t sell, ever!

Several months ago, I read The Simple Path to Wealth, by JL Collins.  This book has been a game-changer for me. If you don’t know much about the stock market, or are thinking about investing, this is the book for you.

What The Hell is VTSAX?

VTSAX is a total stock market index fund offered by Vanguard. This fund comprises every public company in the market, but is highly weighted towards the top S&P 500 companies, such as Apple, Google, Microsoft, Facebook, and Amazon. Every share you buy of VTSAX is giving you partial ownership of the greatest companies in America.

The idea is to buy and hold for the long-term. A very small percentage of investment advisory firms have been able to beat the S&P 500 over time, so buying VTSAX is less risky than giving money to an investment advisor, and is likely to give you the highest returns.

There are other companies, like Fidelity or Schwab, that also offer similar total stock market index funds, so just choose whichever one you like more and go with it. Vanguard allows you to set up auto-investing, which can be timed with your paycheck. Determine how much money you want to have by a specific date, and do the math to figure out how to get there. You need a specific target to shoot for, otherwise you are just shooting arrows into the darkness.

Johnny Boy Wants to Be a Millionaire

Let’s say Johnny Boy is 25 years old. He hates his job, and wants to retire at 40 with $1 million. He has no savings or debt. Using the Dave Ramsey Investment Calculator, Johnny figures out he needs to invest an average of $2,415 per month for the next 15 years.

Johnny Boy needs to auto-invest $1,200 every bi-monthly paycheck. Everything else in Johnny’s life should be built around this strategy. Johnny is not going to buy a new car for 15 years. He must live within his means, and he will succeed at his goal.

Generally, our income will increase over time. If Johnny can’t quite invest $2,400 per month at 25 years old, he just needs to put in whatever he can afford. His average investment per month should be $2,400. So, as Johnny makes more money, he should increase his investing. “Lifestyle Creep” must be avoided. He must stay focused on his goal.

Sacrifices Must Be Made!

If you want to reach FIRE, you must be prepared to sacrifice certain pleasures in life. You can’t go to dinner every night. You can’t be ordering Grubhub or DoorDash every night. You can’t be spending your whole paycheck at the bar or at Whole Foods. You can have a “fun” budget, but make sure you aren’t stealing time away from your future. Every decision you make with money has a cumulative effect. If you buy coffee from Starbucks every morning, you could be spending $1,000 per year.

If you lease a car or have a loan on a car, your cost of ownership could be $5,000 or more per year. These expenses add up. If you don’t need a car, sell it and ride a bike. If you like going out for dinner and drinks every Friday and Saturday night, you could be spending $5,000-$10,000 per year on entertainment.

Keep Your Eye on the Prize

Imagine life in a world where you have unlimited vacation days, where you don’t have to wake up early. Imagine all the random things you could do with your time. You could travel constantly, living in Airbnb’s. You could hike the Appalachian Trail for a few months. A whole world of possibilities could open up to you.

If you have $1 million invested in VTSAX, you can safely withdraw 4% ($40k) per year for the rest of your life and not have to worry about depleting your total investment. Discipline with money now will equal a stress-free future full of passionate enjoyment of time, our most valuable asset.

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