5 Insights From John Bogle
5 Insights From John Bogle
The founder of the Vanguard Group, John Bogle served as chairman and chief executive officer until 1996 and senior chairman until 2000. His book 'Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor' was a bestseller and is regarded as a classic.
- On investing in U.S. stocks
In the long run, market returns are created by business returns. And I think American business and the American economy are going to be the strongest in the world. I think we have more innovation. I think we have better technology. And I know we have a better legal structure, better shareholder protections. Some foreign nations are fine, but not all.I've said if you want to hold non-U.S. stocks, go to 20%. Now people are saying 40%. You know, if you go from 20% to 40%, and foreign stocks out-perform by two percentage points per year—which would be astonishing—that's a 0.40 percentage point benefit. So my own view is it's not worth it.
Counsel for long-term investors in 2008 amidst market volatility and fear mongering…..
I think basically you should not be doing anything differently. I mean investment is a pretty simple thing.You've got to say, "I know I'm not smart enough to get out at the high. I know I'm not smart enough to get back into the low, so I'm just going to stay the course," as we would say at Vanguard, and hang on through all that.Importantly, if I'm trying to accumulate money for retirement, or to buy a home or to educate my children, what you want to do is keep investing and say, "How could I keep investing the day if the market goes down 600 points?" That's the greatest time in the world to invest, certainly better than doing it the day before it goes down 600 points.I think people have lost sight of the fact that a sharp market decline is--of course it's bad for sellers, but it's good for buyers. Since the stock market is the interaction of sellers and buyers, it's always good for somebody.
On the need for investors to stay focused on their own financial plan and not get distracted by market noise…..
The focus, that investors have, is always on what's done well. Our neighbour is doing better. He owned gold or he owned growth stocks, or value stocks did nothing. And the moment the temptation gets to its highest level, that's the moment when people start to think I've got to change now, and that's the worst time to do it. So I'm still a "stay the course" person. Own the stock market, own the bond market, as modified to meet your needs, and don't peek. One of the greatest rules for investing ever made…The stock market is a giant distraction to the business of investing. Stocks don't produce anything. They are means of owning companies who produce something. And so if people would just get their arms around investing and stop speculating, they would definitely accumulate much, much greater.
Bogle on compounding…….
For as long as I can remember, compound interest has been at the center of my own investment thinking. The opening words in the very first chapter of my very first book were: "The Magic of Compounding. 'The greatest mathematical discovery of all time' is how Albert Einstein described compound interest ... the value of $1,000 invested in stocks in 1872 would have grown to $27,710,000 in 1992 [when the book was published and the historical rate of return on stocks was 8.8%] ... the magic of compounding writ large."Since a comfortable retirement is the principal objective of nearly all U.S. families, in my book, "The Battle for the Soul of Capitalism," I use a 65-year time horizon, one that assumes a 45-year working career (to age 65) and a further 20 years of life (to age 85) based on today's actuarial tables: "$1,000 invested at the outset of the period, earning an assumed annual return of, say, 8% would have a final value of $148,780—the magic of compounding returns."The principles of sensible savings and investing are time-tested, perhaps even eternal. The way to wealth, it turns out, is to avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today's financial service system and rely on the magic of compounding returns. While the interests of the business are served by the aphorism "Don't just stand there. Do something!" the interests of investors are served by an approach that is its diametrical opposite: "Don't do something. Just stand there!"
The most important lessons in investing…..
Simplicity has a majesty. Time is your friend, impulse is your enemy. Cost matters. These things seem simple, and they are. But they're really quite profound when you think about the actual execution of an investment programme that will be successful over time. To which I'd add, once you've decided strictly on your asset allocation, stay the course. Your allocation can change over time as your needs change but it's not a good idea to try and let the market swing you around very much.The economics of investing are productive. The emotions of investing are counterproductive. And I think it's fair to say that emotions have destroyed an awful lot more investment programmes than economics have ever dreamed of destroying. It's not easy to do, we all know that. It requires a little discipline. One thing I recommend to people who seem to need to indulge these kind of things is to think about a funny money account and a serious money account. You know, this is a wonderful world we live in and you might as well have a little bit of fun. But my recommendation for everybody is not a penny more than 5% in the funny money account.