John Bogle’s 10 Key Rules of Investing

Fees, returns, and why time is your friend:

1. Remember reversion to the mean. Selecting your fund from yesterday’s winners is fraught with peril. Over the long run, reversion to the market average is inevitable.

2. Time is your friend. Start early, stick to a plan and ignore the chatter of the day. Let the miracle of compound interest work for you.

3. Buy right and hold tight. Once you set your asset allocation, ignore moves in the market. Stick to the plan.

4. Have realistic expectations. Rates of return in the coming decade are likely to be lower than the last. A seven per cent annual return before costs and inflation for stocks and a 2.5 per cent return for bonds before costs and inflation is reasonable.

5. Forget the needle, buy the haystack. Don’t waste time buying individual stocks or stock funds. Cut your risk by purchasing broad-based index or exchange-traded funds.

6. Minimize the “croupier’s” take. Minimize fees by investing in low-cost, low turnover funds. This increases your return.

7. There’s no escaping risk. There’s no wealth without risk. If you don’t save, you’ll end up with nothing. And if you don’t invest for your retirement, your savings will be depleted by inflation.

8. Don’t fight the last war. What worked in the past is no predictor of what will work in future. The past is not prologue.

9. The hedgehog beats the fox. Foxes are sly and represent financial institutions that sell complicated products and charge high fees for advice. A hedgehog does one thing when threatened — he curls up into a spiny ball. Simple, but effective, like an index fund.

10. Stay the course. The secret to successful investing isn’t forecasting or good stock picking. It is about making a plan, sticking to it, eliminating unnecessary risks, and keeping your costs low.


John Bogle is the founder of Vanguard Investments
and widely regarded as the “Father of Index-Based Investing”
.

 


 

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