Tuesday, October 22, 2019

Boglehead Investing

Years ago, I stumbled on an internet investing forum entitled "Bogleheads", named after Vanguard founder Jack Bogle . On it, physicians, government workers, tech specialists, lawyers, active duty military personnel and numerous others threw around their investing experience, and (most importantly) what they had learned.

Every year, Bogleheads hold an investing conference in Philadelphia and share the investing wisdom that they sling about on-line at panel discussions, power-point presentations, and one-on-ones in the hallways. Janette and I have attended a lot of them, but this year was the FIRST over which Jack Bogle didn't preside. He died early in '19, at age 89. Even so, the conference was one of the best that we have attended. Lots of good info, lots of good memories about Mr. Bogle. He died wealthy by most standards, but he didn't die a billionaire. He structured the world's largest mutual fund company so that its investors were (and are) also its owners, not him.

(This, in contrast to the Johnson family which started Fidelity Investments. Fidelity is a perfectly fine mutual fund company. But the Johnsons are billionaires several times over, since THEY are the owners of Fidelity, not the people who invest with them. Makes a difference.)

Jack Bogle had a clear-eyed view of investing. The core of it was: be diversified; keep costs as low as possible. Beyond that? ...

I have realized over the years that many individual investors regard the financial markets as enigmatic, occult, and driven by forces unseen. Mysterious though the markets may seem in the short run, in the long run it is the basic fundamentals of investing that determine the returns on financial assets.

For stocks, returns are driven by earnings and dividends; for bonds and money market instruments, by interest coupons over specified periods. It is the reality of underlying financial forces, not the illusion of superficial emotions -- optimism and pessimism, hope and fear, greed and satisfaction -- that is at the heart of intelligent investing.

-- Bogle on Mutual Funds -- 1993

And this:

My judgment and my long experience have persuaded me that complex investment strategies are, finally, doomed to failure. Investment success, it turns out, lies in simplicity as basic as the virtues of thrift, independence of thought, financial discipline, realistic expectations, and common sense. The one great secret of investment success is that there IS NO SECRET.

-- Jack Bogle -- 1999

As regards simple investing, you can't get much simpler than Jack B.'s advice: "Don't try to find the needle in the haystack, just buy the haystack." (meaning, buy Total Market funds, rather than funds that have parts of the market.)

One of the pillars of Boglehead investing is The Three Fund Portfolio, which consists of ...

Total Stock Market Fund

Total International Stock Fund

Total Bond Fund

If you invest in the above, you cover the entire global stock market and the U.S. bond market. Up to you what ratio of each you want to invest in. But if three funds is too complicated, there's Target Date funds, that manage and rebalance investments automatically from your earning years to your retirement.

Jack Bogle, until the end of his life, had a simple prescription for investment success: 1) Invest early and consistently, 2) Stay Diversified and low cost*, and stay the course.

*There are a number of investment companies (beside Vanguard) that can do this: Schwab, Fidelity, T. Rowe Price. Any number of firms can create low cost, broadly diversifed portfolios.

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