The VTSAX-and-Chill Strategy
Buy one total stock market index fund and let compounding do the rest
The VTSAX-and-Chill Strategy is the central thesis of Collins' approach to building wealth. It argues that the single most effective investment strategy is to buy shares of Vanguard's Total Stock Market Index Fund (VTSAX), which holds virtually every publicly traded company in the United States (roughly 3,700 companies), and then simply leave the money alone to compound over decades. The strategy rests on the evidence that broad-based index funds outperform 82-99% of actively managed funds over periods of 15 to 30 years.
The beauty of this approach is its radical simplicity. There is no stock picking, no market timing, no manager selection, and no complex rebalancing. The fund is self-cleansing: failing companies drop out and are replaced by rising ones. There is no upside limit on individual stocks within the index, but the maximum downside for any single stock is 100%. This asymmetry creates a powerful upward bias over time.
Collins demonstrates that from January 1975 to January 2015, the market returned an annualized 11.9% with dividends reinvested. A simple investment of $200 per month over that period would have grown to over $1.5 million. The key requirement is not skill or knowledge but psychological toughness: the ability to stay the course when the market drops, which it inevitably and repeatedly will.
- The stock market always goes up over the long term despite short-term volatility
- Index funds outperform 82-99% of actively managed funds over 15-30 year periods
- VTSAX is self-cleansing: failing companies fall away and are replaced by rising ones
- There is no upside limit on stock gains, but maximum downside is 100%, creating a net upward bias
- Complexity in investing exists to profit those who create and sell complex products, not investors
- The expense ratio of VTSAX at 0.05% is a fraction of the average mutual fund's 1.25%
- Nobody can reliably time the market; not even Warren Buffett tries
- Open a Vanguard accountCreate an account at vanguard.com. If VTSAX is not available (requires $10,000 minimum), start with VTSMX ($3,000 minimum) or the ETF version VTI (no minimum). If Vanguard is not available in your employer plan, find the lowest-cost total stock market or S&P 500 index fund offered.
- Invest as much as you can as soon as you canPut every dollar you can afford into VTSAX. Collins advocates investing 50% of your income if possible. Do not wait for a market dip or try to time your entry. The longer your money is in the market, the more time compounding has to work. Lump sum investing beats dollar cost averaging because you want money working as hard and as soon as possible.
- Automate contributions and ignore the noiseSet up automatic monthly contributions and stop watching the market. Do not check your portfolio daily. Ignore CNBC, market predictions, and financial pundits. The media profits from drama; you profit from patience. When the market drops, recognize it as a buying opportunity, not a reason to sell.
- Stay the course through crashesExpect your portfolio to lose 30-50% of its value multiple times over your investing career. Collins tells his daughter to expect 2-3 events of 2008-level magnitude during her 60-70 years of investing. These are not the end of the world; they are part of the process. The market has recovered from every crash in history. Panic selling is the only way to permanently lose money in a rising market.
Collins demonstrates that from January 1975 to January 2015, an investor who put $200 per month ($2,400 per year) into the S&P 500 index and simply left it alone would have accumulated $1,515,542. A one-time lump sum of $10,000 invested in 1975 would have grown to $897,905. This was achieved through multiple recessions, crashes, and the worst financial crisis since the Great Depression.
Collins spent decades as an active investor, picking stocks and trying to beat the market. He lost $50,000 on a gold mining penny stock called Mariah International. After years of expensive mistakes, he finally embraced the indexing lessons that Jack Bogle had perfected when he founded Vanguard and launched the world's first index fund in 1976. Collins realized that his unwavering 50% savings rate, avoidance of debt, and eventual embrace of index funds were the three things that made him financially independent despite all his investing errors.