Guru Speak: What John Bogle, father of index mutual fund investing, famously said

johnbogleJohn Bogle was the founder and retired CEO of the Vanguard Group. He is known for his 1999 book Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor, which became a bestseller and is considered a classic. A proponent of mutual funds for individual investors to build long term wealth, Bogle (through Vanguard) was the first to introduce low cost Index funds for individuals. Here are some famous words:

1. Time is your friend; impulse is your enemy.

2. If you have trouble imaging a 20% loss in the stock market, you shouldn’t be in stocks.

3. When reward is at its pinnacle, risk is near at hand.

4. We now have an equity fund industry that’s [worth] $2 trillion, and if everyone wants their $2 trillion back tomorrow, they’re not going to get it.

5. Capitalism requires a structure and value system that people believe in and can depend on.

6. The scandal is not what’s illegal. It’s what’s legal.

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Book Synopsis: The Bogleheads’ Guide to Investing

For regular investors for whom investing is not a full-time activity, the Bogleheads’ Guide to Investing is a wonderful book that asks the right questions and provides clear answers. In a single book, the authors (who also started an online forum bogleheads.org based on the investing principles of John Bogle) have explained, in a step by step, clear and authoritative manner, what a normal individual investor and his/her household needs to know about investing, and what steps they need to follow to reach their goals. It becomes clear that the authors have experienced and followed it themselves in their lives and now are keen to spread the message in their sunset years.

bogleheadsWritten by experienced individuals, this is a one-stop book for anyone who does not want investing to be a chore, wants credible advice once and for all in a single package, so that they can get it done and focus on the other things in life. Almost like grandpa’s advice, it is worth its weight in gold for new investors to learn, and for experienced investors to unlearn!

A quick summary of the Bogleheads’ Guide to Investing is presented below:

1. Choose and Live a sound financial lifestyle: “Decide whether you want to be a borrower, consumer or keeper. Graduate from a paycheck mentality to the net worth mentality. Most people fail to go beyond this step.”

2. Start to save early and invest regularly: “For most people, the most difficult part of the process is acquiring the habit of saving. Clear that one hurdle and the rest is easy. Adding time to investing is like adding fertilizer to a garden. It makes everything grow.”

3. For most investors, mutual funds offer great diversity in a single investment: “I have found that when the market is going down and you buy funds wisely, at some point in the future you will be happy. You won’t get there by saying, ‘Now is the time to buy.’ “

4. Figure out approximately how much you might need for your retirement.

5. Indexing via low-cost mutual funds is a strategy that will, over time, most likely outperform the vast majority of strategies. If you decide to own actively managed mutual funds, choose managed funds with low expenses.

“How investing is different from most of life: Through education and experience, most of us come to learn and practice certain life principles that serve us well. But the complete opposite is true in investing. For example:

a. Don’t settle for average

b. Listen to your gut

c. If you don’t know how to do something, ask the expert

d. You get what you pay for

e. If there is a crisis, take action

f. The best predictor of success is past performance

Well, guess what? Applying these principles to investing is destined to leave you poorer.”

6. An asset allocation plan based on your personal circumstances, goals, time horizons, and need and willingness to take risk is the cornerstone for reaching your goals.

7. Costs matter, specially in the long run.  “The shortest route to top quartile performance is to be in the bottom quartile of expenses.”

8. Taxes are your biggest expense. Invest in the most tax-efficient way.

9. Rebalancing is important. Rebalancing controls risk and may reward you with higher returns. Stick with your chosen rebalancing strategy.

10. Market timing and performance chasing are poor investment strategies. They can cause investors to underperform the market and jeopardize financial goals.

“The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I do not even know anybody who knows anybody who has done it successfully and consistently.” – John Bogle

11. Tune out the noise and do not get distracted by day-to-day events.

“A fake fortune teller can be tolerated. But an authentic soothsayer should be shot at sight.”

“It’s in the best interest of Wall Street that the public believes that they can beat the market.”

“The simplicity of sound investing creates a real problem for the investment media.”

12. Protect your assets and life with adequate types and amounts of insurance. Insurance is for protection, it is not an investment. Don’t confuse the two.

13. You need to master your emotions if you want to be a successful investor. Letting your emotions dictate your investment decisions can be hazardous to your wealth.

14. Finally, Stay the Course!

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