Jack Bogle has just written an essay in the Financial Analysts Journal in which he effectively condenses what he’s learned from 65 years in the investing industry.
It’s mainly aimed at financial professionals, but it also includes a seven-point plan for investors. For regular TEBI readers, this is all familiar, basic stuff. But I find it extraordinary how many folks — including people like pension fund trustees and financial advisers who really should know better — simply do not get it.
If you know anyone who’d benefit from Bogle’s wisdom, please share these tips with them. Investing is nowhere near as complicated as so many financial professionals like to make out it is!
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. Even modest investments made in one’s early 20s are likely to grow to staggering amounts over the course of an investment lifetime.”
Impulse is your enemy. “Eliminate emotion from your investment program. Have rational expectations for future returns, and avoid changing those expectations in response to the ephemeral noise coming from Wall Street. Avoid acting on what may appear to be unique insights that are in fact shared by millions of others.”
Basic arithmetic works. “Net return is simply the gross return of your investment portfolio less the costs you incur. Keep your investment expenses low, for the tyranny of compounding costs can devastate the miracle of compounding returns.”
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. Remember the Biblical injunction, ‘So the last shall be first, and the first last.’”
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. ‘Stay the course’ is the most important piece of advice I can give you.”
If you have time, and especially if you’re a financial professional, I would highly recommend that you read the entire article:
You may also want to watch this video of the address Jack Bogle gave to the CFA Institute’s 70th annual conference in Philadelphia on Tuesday, which is followed by an interview between Bogle and Ted Aronson from AJO Partners: