JL Collins, VTSAX, FIRE & Impact Investing can they all get along?

A blog I highly recommend is JL Collins. A book I highly recommend is Jim’s book A Simple Path to Wealth. Both are tremendous resources for building wealth and savings. I follow Jim’s methodology which is to save as much as possible and invest it into low cost index funds. The key is not to waiver, stay focused and keep investing even when the market tanks. The beauty of Jim’s message is its simplicity and as such its become a favorite among the Financial Independence Retire Early (FIRE) community.

The backbone of Jim’s philosophy is index investing through Vanguard and the fund he focuses most attention on is VTSAX, their total stock market index fund with a super low .04 expense ratio (ER).

The challenge for me is VTSAX and other funds like it are index funds of the top companies in the United States. For example, VTSAX holds over 3,500 companies, as an impact investor some of those I don’t want to invest in. Among those companies are more than 150 in the oil/gas industry, 13 in the coal industry, 5 manufacturers of civilian firearms, 16 manufacturers of nuclear armaments and 31 major military contractors according to screening tools outlined in my first post.

Simply put I don’t want my investments supporting any of those areas. In reality, completely divesting from all areas you personally deem problematic and still having a relatively simple investment strategy is a challenge and may not be possible. The good news is with minimal effort you can significantly reduce or eliminate exposure to some problematic areas and keep costs lows, sticking to the approach outlined on JL Collins.

VFTAX the Impact Investing ESG Alternative to VTSAX

My core holding is Vanguard’s FTSE Social Index Fund (VFTAX). VFTAX, like VSTAX is an index fund that holds US-based companies and has a low ER of .14. VFTAX has almost 500 companies in its fund and tracks an index modified for certain environmental, social and governance criteria. Looking at its stocks, VFTAX has 25 holdings in the oil/gas industry, none in coal, zero gun manufacturers and 1 major military contractor. Is it perfect? No. But it is a hell of a lot better than VTSAX in areas I care about and it allows me to do all the things that are key to following JL Collins like: high savings, automatic investing and low costs.

Supplements

VTFAX is my core holding. Of all the impact investing ESG mutual fund options out there, this fund has the lowest costs and best balance. I intend to supplement VFTAX with either another fund to pick up some international exposure and/or some ETFs in areas I am personally interested to invest in. Those endeavors will be the focus of future posts.

2 thoughts on “JL Collins, VTSAX, FIRE & Impact Investing can they all get along?

  1. Isabella

    VFIAX, representing the large-cap sector of the stock market has a lower return by itself than VTSAX. This is because VTSAX holds the smaller companies. Note that the volatilities of the 3 small-medium cap funds are all higher than VTSAX and VFIAX this is why they have higher returns, their investors are rewarded for hanging on for the bumpier ride they take you on!

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  2. Ramon

    VTSAX is literally as diversified as you can be in domestic stocks because you own EVERY company at its respective market-cap! As Collins pointed out in his book, if you want to, all you need to add to this is a total bond market fund (VBTLX) and you re set for life. Unless you want to do a little bit more for a very little, one-time time investment in making a couple tweaks that have the potential to boost your returns over the next 10-40 years of investing!

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