John Bogle, founder of Vanguard and the creator of index mutual funds, has a word or two of advice for investors everywhere.
Based on his 65 years of experience in the investment industry, he’s put together a list of seven—just seven—tips for investors.
The tips are part of an extensive essay Bogle wrote for the CFA Institute on balancing professional and business values. It’s a long, worthwhile read from a man many consider to be the head of the index investing revolution.
Quoting directly from the document, here are some of Bogle’s words of advice:
- Invest you must. The biggest risk facing investors is not short-term volatility but, rather, the risk of not earning a sufficient return on their capital as it accumulates.
- Time is your friend. Investing is a virtuous habit best started as early as possible. Enjoy the magic of compounding returns.
- Impulse is your enemy. Eliminate emotion from your investment program.
- Basic arithmetic works. Net return is simply the gross return of your investment portfolio less the costs you incur. Keep your investment expenses low.
- Stick to simplicity. Basic investing is simple—a sensible allocation among stocks, bonds and cash reserves; a diversified selection of middle-of-the-road, high-grade securities; a careful balancing of risk, return and (once again) cost.
- Never forget reversion to the mean. Strong performance by a mutual fund is highly likely to revert to the stock market norm—and often below it.
- Stay the course. Regardless of what happens in the markets, stick to your investment program. Changing your strategy at the wrong time can be the single most devastating mistake you can make as an investor.
‘Markets Have Been Solidly Upward’
“Over the long run, the growth trends in our economy and financial markets have been solidly upward, despite the gyrations and uncertainty we inevitably experience as the years roll by,” Bogle concluded.
“It is reasonable to assume that this growth will continue,” he said. “Do not let false hope, fear and greed crowd out good investment judgment. If you focus on the long term and stick with your plan, success should be yours.”
Bogle founded Vanguard, the largest mutual fund manager and the second-largest ETF issuer in the U.S., with more than $720 billion in ETF assets alone. Vanguard is known for its low-cost focus, and among its 70 ETFs in the market are giants such as the $79 billion Vanguard Total Stock Market ETF (VTI) and the $68.7 billion Vanguard S&P 500 ETF (VOO), both of which cost only 0.04% in expense ratio, or $4 per $10,000 invested.
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