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Investment Advice From John Bogle, the Late Founder of Vanguard

In 1975, John C. Bogle, the founder of Vanguard Investments, invented the first low cost index mutual fund which put millions of dollars into the pockets of many investors of moderate means. Bogle’s innovative idea was that index funds, consisting of broad holdings, would mimic stock index performance in the long run. Unlike high cost funds where managers try to beat the market by picking winning stock, mutual funds spread the risk, providing a cheaper, safer investment alternative.

Bogle’s approach paid off. Vanguard has become a financial-industry giant with $5 trillion of assets under management; his disciples, after 10 years of investing, typically belong to the top 20 per cent of all investors.

Bogle died on January 16, 2019 at the age of 89.

Bogle took a common sense approach to investing. Here are his simple rules for investors.

  1. Invest for the long term.
    Never try to outsmart the market. If you buy diversified index funds and hold them long-term, you will ultimately earn returns. Bogle believed it is the time in the market that is critical, not the timing of the market. When asked about money managers who try to pick individual stock winners he said, “After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently.”

 

  1. Keep your costs down.
    What makes Vanguard so attractive to investors are the low fund expenses. Vanguard has no outside owners. The company is owned by its funds, which in turn are owned by their shareholders, which includes you, if you are a Vanguard investor. Instead of paying outside shareholders of a typical investment company, Vanguard’s profits are returned to the investors in the form of lower expenses. The company’s average fund expense was only 0.11 percent in 2017, compared to an industry average of 0.62 percent.

 

  1. Diversify
    John Bogle said: “Don’t look for the needle in the haystack. Just buy the haystack”. Buy purchasing an index fund, you buy the whole stock market.

 

  1. Beware of experts.
    Bogle was unimpressed by expert money managers who missed the warning signs of the 2008 financial crisis and ignored the “toxic-filled, leveraged balance sheets” of the banks. He believed the only role for a financial planner is to help you get started investing. After that, you don’t need a money manager at all.

 

Warren Buffett agrees: “Full-time professionals in other fields, let’s say dentists, bring a lot to the layman. But in aggregate, people get nothing for their money from professional money managers…. The best way to own common stocks is through an index fund.”

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