Jack Bogle is one of America's iconic investors and I'm a fan. He is well known for founding and growing the second largest mutual fund company in the world, The Vanguard Group with over $3 trillion in assets under management. Let's look at his investment philosophies.
You may be surprised to know that Bogle was actually fired from his first employer due to approving an “extremely unwise” merger that went south. Looking back, Bogle cites it as his biggest mistake. But sometimes mistakes lead to great opportunities:
“When I was 38, I became head of Wellington Management, and I did an extremely unwise merger. I got wrapped up in the excitement of the go-go era, and the go-go era ended. As a result of that stupid decision, I got fired. The great thing about that mistake, which was shameful and inexcusable and a reflection of immaturity and confidence beyond what the facts justified, was that I learned a lot. And if I had not been fired then, there would not have been a Vanguard.” – Jack Bogle
Investment Philosophies From Jack Bogle
At the age of 86, with over 60 years of accomplished investing experience, Bogle has seen more that most of us and has had many triumphs. Here are some highlights of his investment philosophies and savvy words of advice.
“Forget the needle, buy the haystack.”
It can be extremely difficult to find the next big hidden gem such as Google, Apple, or Twitter before it has run up in price.
Instead of searching endlessly for the next dynamite idea, Jack Bogle has advised investors to reduce risk and avoid long delays in making trading decisions by investing across the entire market or sector.
Don't Over Complicate Things. Go For Simplicity.
Investing doesn't have to be complicated even when there are endless opportunities. Jack Bogle has long suggested that individual investors focus on simplicity and not own too many funds.
Don’t Get Caught Up in the Hype
Standing your ground when everyone is headed one way can be emotionally challenging. Differentiating yourself from the herd is an essential Bogle philosophy.
Although you may see everyone chase a hot stock, he has pointed out over the years that hype has a tendency to fade and that in the long-term the market reverts to fundamental returns.
I'm a big fan of growth stocks for younger investors. However, sometimes, growth stocks get so expensive that they are very susceptible to big corrections.
Keep Those Fees To A Minimum
Every dollar counts when it comes to your investment portfolio, especially long-term. Jack Bogle has emphasized the importance of keeping investment related expenses and fees to a minimum. It’s critical to know what you're paying for because you won't be able to earn returns on money associated with fees.
Familiarize yourself with the fee structure, management costs, and expense ratios of your investments. Do your best to understand the frequency of turnover in the funds you are invested in. Turnover ultimately costs money too and you may be better off investing in a low turnover fund long-term.
Stop Making Impulse Buys
While it's impossible to win on every single trading decision you make, Bogle has advised individual investors to stay away from impulse buys. Hasty decisions have a tendency to stem from emotions instead of rational analysis.
Instead of buying stocks after a big run, Jack Bogle has recommended that investors do their homework and understand what they are purchasing in depth. Take enough time so you don't rush into an investment and later regret it.
Here's a dollar-cost average strategy I've come up with that's worth following. You should also come up with your own investment strategy and stick to it over the long-term.
Here are different investment strategies for different life stages to check out.
Index Investing As A Core
Jack Bogle started the first index mutual fund in 1975 and has argued the superiority of index funds over traditional actively managed mutual funds ever since.
Index investing has become more popular over time and has from roughly 3 to 28 percent of equity assets between 1992 and 2012. His support for index funds stems from their low-cost and simplistic nature, which tie into his other principles.
If you take a look at the performance between active investing and index investing, index investing outperforms most of the time. Given index investing is also heaper, index investing makes more sense.
However, for those of you looking to get rich quicker, actively investing a portion of your investments does make sense. After all, with index investing, you will never be able to buy the next multi-bagger stock. Here is my recommended split between active investing and index investing.
Staying The Course Long-Term Can Have Strong Upside-Surprise
As a long-term horizon investor, Jack Bogle has advised staying clear of the temptation to believe that the grass is greener on the other side. When temptations are the highest to stray from your own investment course are when you are too focused on what others are doing.
Instead of altering your methods and investment style to match others, practice blocking all of that out. Bogle has gone even further about controlling one's behavior, having said:
“Don't even peek at your account; don't open those 401(k) statements. If you don't look at your 401(k) statement–this sounds outrageous, but it's true–for 45 years … you start when you're 20 and you don't open a single statement for the next 45 years, when you open that statement the day you retire, you are going to go into a dead faint of amazement about how much money you've accumulated.”
While that advice may seem extreme for some investors, you may want to take a peek at your statements to make sure your investment strategy remains on course with your desired goals.
Bogle has also regularly recommended that investors should block out emotions from motivating their investment decisions. He has suggested relying on rational analysis instead and steering away from getting rich quick mentalities.
As discussed in his book “The Clash of the Cultures: Investment vs. Speculation,” Jack Bogle claimed that over the long-term a reasonable annual return may be 3.5% for bonds and 7.5% for equities.
In this low interest rate environment, I'd probably be even more conservative in terms of my expected investment returns.
Which Jack Bogle Investment Philosophy Do You Follow?
Here is a quick recap of Jack Bogle's primary investment philosophies:
- Don't worry about finding the next unicorn stock. Focus on the big picture.
- Keep things simple. Don't try to over complicate your investments.
- Forget about chasing the hype. Break out of the herd mentality.
- Focus on low-cost investments. Don't pay more fees than you need to.
- Use time to your advantage and avoid making hasty trading decisions.
- Hold low-cost index funds for the long-term.
- Stay the course and don't obsess about how you are performing versus others.
- Be realistic with your expectations and get over greed and fears.
Getting rich through investing takes time. If you stick with an investment philosophy or investment strategy long enough, chances are high you will become a millionaire.
Most of my investments are in passive index funds. However, for 20% of my investable assets, I'm actively investing in individual stocks. Further I'm a big believer of investing in real estate for diversification, income, and stability.
For example, I've personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
Invest In Private Growth Companies
Consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Track Your Net Worth Easily For Free
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