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.
Related: How To Reduce 401k Fees Through Portfolio Analysis
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.
Related: What You'd Have In Your 401k If You Maxed Out Every Year
Be Realistic.
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.
Related: How To Profit In A Rising Interest Rate Environment
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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I like Jack Bogle and his investment philosophy, but I’m not a huge fan of index funds, preferring to stick to individual stocks myself. Even low cost funds have fees. For free, I can manage my portfolio on its own.
Some people might say I’m reckless and crazy not just for having the vast majority of my net worth in stocks, but for planning to keep it that way even when I’m older. But I’m a conservative dividend growth investor, and I plan to live off my dividends rather than selling and hoping that the market is high when the time comes to do so. Traditional investors would say I’m not diversified, but I would counter that with a portfolio of 70+ high quality businesses across every conceivable major industry, sector, and economy, that I’m as diversified as they come. Sure an index fund offers instant diversification, but that’s not automatically a good thing. Even the best funds are filled with companies I would never buy individually (due to quality, value, or whatever other reason). If I wouldn’t want to invest in a company individually, why would I want to invest in it as part of a fund?
I still like Bogle’s words of wisdom and his investment philosophy, even though I’m more of a Warren Buffett guy myself.
Sincerely,
ARB–Angry Retail Banker
ARB,
I agree with you. I hold most of the dividend aristocrats that yield >3% along with other solid companies yielding 3 to 6%. Around 50 stocks, so if any one company goes broke, it’s only ~2% of the portfolio. No fees and almost no stocks yielding <1.7%.
Like you, I'm planning to live off the dividends. One additional bonus – qualified dividends in a taxable account is at taxed at 15% or less.
Vanguard is great. However, with prices being high right now it is hard to make my monthly contribution and I find myself hoarding cash.
Meg – I agree that the equity and bond markets are highly valued. I have 10 percent less in equities than my ideal, strategic allocation for equities. I have finally started to invest in real estate and now get the point of having additional cash flow streams. My only guidance would be to keep going with your regular program if you have more than a decade to retirement. In tax deferred accounts, you can always get a bit more protective.
Welcome to the club! One of my financial goals is to earn and save as much cash as possible in 2015! So far, I’m kinda failing b/c I keep on investing my excess cash somewhere like an addict.
MUST SAVE MORE!
Totally agree. I have one active fund, Vanguards Capital Opportunity Fund that I have had since 1998. They are as far from an index that a long only equity can get plus I am paying only 41 basis points. Hard to find active managers who aren’t benchmark huggers.
Some good advice, and very exciting to see how much more accessible the capital markets have become for the average investor in the past 20 years. Technology and education have come a long way to bringing the basics of investing to almost everyone.
Active management should always be focused on strategies that cannot be achieved through passive investing.
Nice article with sound investment advice. You did a great job pointing out his philosophy. Mr. Bogle is a great guy. I’ve had the privilege to hear his words of wisdom on several occasions and chatted with him and he’s so sharp!
I really like his “forget the needle, buy the haystack” quote. I tried buying single name stocks in the past and didn’t have any success. I lacked experience and the time necessary to pick good names and actively monitor them. I definitely like the haystack approach now. It works much better for me. And I pay much closer attention to fund fees now as well.
bogleheads.org has the best personal finance forum/message board that I have found online. It’s another one of my daily readers. Lots of bright people posting great information on that site.
While I believe the bulk of your equity and fixed investments should be in low cost index funds, I also believe in the John Templeton theory of investing in disasters. The ultimate contrarian play and it has worked well for me. I wouldn’t be comfortable with the strategy of the bulk of my assets weren’t broadly diversified in low cost index funds.
This is somewhat off-topic. But I always find it interesting how people will criticize backers of a financial product most people think are dubious by noting that they have a reason for supporting. I’m thinking of people who would criticize a whole life insurance salesman by saying of course you believe in whole life insurance – its how you make money (a valid disclosure item for sure, but it does not in and of itself make his advocacy for the product unwarranted). And yet when Bogle advocates for his approach, most people treat it as gospel. Bogle obviously has a personal preference for, and financial reason for advocating, his style of investing. In other words, he is conflicted. That doesn’t mean it is wrong. I just don’t see this criticism come up much with Bogle. I guess because most people accept it as true. But should we?
There is a difference between advocating an investment style/space, and having a self-serving agenda. Not going to spend time breaking down whole-life insurance and the commission-model, or the drag on return that administrative/marketing fees have on what the investor realizes. There are plenty of articles showing how investing in index mutual equity funds compares over time to a commission-based product like life-insurance marketed as an investment.
Vanguard is not-for-profit. Bogle has stated many times that he would have been orders-of-magnitude wealthier if he had incorporated Vanguard in the way that Fidelity, Schwab, T.Rowe Price, etc. did. But he didn’t. The profit goes back into the funds, and the funds are actually owned by the shareholders. Here’s more for those truly interested. obliviousinvestor.com/vanguard/
My point is that Bogle’s index-based investment strategy has a track-record of outperformance compared to all other equity investment styles, especially because the risk and costs are minimized. What do you think the Whole-life insurance product is invested in? …… Exactly.
Perhaps it’s because Bogle is not a mega billionaire, but worth under $100 million. He could be incredibly rich by taking more fees, but he doesn’t and isn’t.
Of course, nobody is crying for his wealth!
Maybe America has a bias towards old white guys who’ve been around for decades e.g. Buffett? Feels more like a grandfatherly figure.
Of course Bogle is biased, but it’s hard to argue with low fees.
This is from a NYT profile in 2012, “…Despite Vanguard’s size and success, Mr. Bogle is no billionaire. For comparison, Forbes lists the personal wealth of Edward C. Johnson 3rd, the chairman of Fidelity, as $5.8 billion. By contrast, Mr. Bogle says his own wealth is in the “low double-digit millions.” Most of it is in Vanguard and Wellington mutual funds in which he invested via payroll deduction during his long career.
During his peak earning years at Vanguard, he regularly gave half his salary to charities, including two alma maters — the Blair Academy, a prep school in Blairstown, N.J., and Princeton University. He was a scholarship student at both, holding down part-time jobs to help pay his way. At Princeton, in a senior thesis, he sketched the rough outlines of the cost-cutting, shareholder-serving company that would become Vanguard.
Mr. Bogle continues to make donations to several causes. “My only regret about money is that I don’t have more to give away,” he says.
And Sam, “…a bias towards old white guys who’ve been around for decades e.g. Buffett? Feels more like a grandfatherly figure.” Really? Like Boesky, Madoff, Keating, Milken, Corzine, etc?:-) The beauty of personal finance and numbers is that math works the same for everybody. Maybe I’m wrong, and Jack Ma and Carlos Slim can tell us how they do it differently.
In his book “The little book of common sense investing” Bogle explains very clearly why indexing will beat “active managing” on the long run. There are simply too many managers, analysts, commissions, and overhead costs in an actively managed fund to be paid before you earn a dollar.
S says,
A low level version of what you just said in action: I work in a bank, and I had a customer who just wanted a checking account. I was trying to cross-sell him a savings account with overdraft protection that would be linked to the checking. We went back and forth until the customer asked if I got commission for each account. I said no, only sales points towards my quota. The customer then insinuated that I was only trying to sell him a savings account just for the sales points.
I won’t pretend that I truly, deeply cared about this man’s financial well-being (I wouldn’t remember him ten minutes after he walked out that door). The sales points were most important to me. But I countered, and truthfully too, that he could potentially save hundreds of dollars worth of overdraft fees by having this safety net (which he had more than enough to meet the minimum balance requirements). Because, I told him, when he comes back to me with $140 in overdraft fees because something came out of his account that he forgot about and he’s in front of me asking for a refund, I’m bringing up the overdraft protection again. It’s on him to focus on what I’m getting out of it, or on what he’s getting out of it.
He still didn’t take the savings account and overdraft protection. So no fee refunds for him when the time comes.
It amazes me that people try to argue against a financial–or any type of product–in that manner. It’s no different than when a political debate devolves into ad hominem attacks. The person doesn’t understand the product enough to argue why it’s no good, so he/she attacks the seller.
Sincerely,
ARB–Angry Retail Banker
The guy was ahead of his time, that is for sure. Good to see the investing world has caught up to his simplified, low cost model. I definitely avoid actively managed funds for the most part, but still have a couple.
I would never advise someone to avoid looking at 401k statements though, there is too much of a chance for an error, fund replacement, contribution mistake, etc. I understand not checking daily, but you should at least take a look each quarter to make sure things are working as intended.
I agree. Take a peak at least once a year to make sure everything is aligned. However, I think he’s thinking about the greater good in that maybe most people just freak out and do something irrational after looking.
With the exception of my ESPP, all my funds are in Vanguard funds – 401Ks, IRAs, brokerage.
Warren Buffett: “My advice to the trustee [of my wife’s assets] could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”
Obviously Warren himself did not invest mainly in index funds, but this advice seems sound for those of us without the expertise or resources to research the market as thoroughly as the Oracle of Omaha. I in fact knew a very experienced investor, someone who had put 25 years into lovingly researching companies and building a wealthy portfolio, who admitted to me that he would have done just as well had he parked his money in a Vanguard index fund and left it there.
A key benefit of index investing, using index funds like Vanguard’s or Fidelity’s Spartan series, is the low fees. For my six Vanguard funds, I pay between .05% and .14% (not .4% as claimed above) in expense ratios. Because the funds are passively managed, I avoid all loads, turnover, and 12B-1 (marketing and operational) charges. Because the funds attempt to meet the index rather than beat it, I may from time to time lose out on a “hot” stock, but I also don’t worry about a lot of buying and selling that will cost me trading fees and capital gains taxes. I just set it and forget it, and once a year I rebalance to my intended allocation.
Works for me. I’m sure there will be plenty of hot shots and would-be hot shots who will tell me there are better ways for me to handle my money. But I’m reminded of an anecdote told about the great composer Igor Stravinsky, who had a ballet score commissioned for a Broadway revue and was telegraphed (this was 1944!) by the producer: “Your music great success STOP Could be sensational success if you would authorize our house orchestrator to retouch orchestration.” To which Stravinsky telegraphed back: “Satisfied with great success.”
Larry,
Agree with you, some people might tell you there are better ways to manage your money but in this case, I think ‘Done is better than perfect’.
And starting (and ending) with index fund investing is already better than most approaches (incl. doing nothing).
That quote from Buffett must have brought a ton of new individual investors to Vanguard!
Great post. This dude is chockfull of wisdom. I’ve read a few of his books and I love how consistently simple his approach is. People overthink investments and his admission that none of us are the world’s greatest stock picker will save many from the agony of trying.
I was not previously familiar with Bogle but I do agree with his investment strategy. I think that for the majority of investors, who don’t have tons of time to devote to researching what to invest in, investing in low cost index funds is the way to go. I also like his thoughts about not even opening 401K statements. Just put the money in and leave it. The longer you can wait, the better off you’ll be.
3.5-7% is too low a return in my opinion, particularly for full time investors that can’t recycle millions of dollars in investment activity every year. There should be some higher risk investments (+15%) hedged with the lower ‘day trader’ type returns. Real estate is the popular one that springs to mind. I’ve been flipping homes in trending markets in the USA and UK for nearly 10 years, and I wouldn’t invest if I didn’t look to make 15%+ on every deal. His advice overall, however, is definitely worth pinning on the fridge door.
With the 10-year yield under 2.5%, up to 7% in equities sounds about right e.g. 3X the risk free rate. Everything is relative.
If you don’t want to bother yourself with many “work” those rules are a good start. For me, I don’t feel that a lousy 7% per year is a good result. More return means more work to find the needle and run a profitable strategy.
Indexing is like taking the safe route. The risk the make less than the market is reduced, but the chance to make more, is reduced too.
At first you always stay safe to learn the basics. But the real money is earned after you learned your lessons and pick up speed. It’s the same with real estate.
For you, Sam, I understand that you focus here, because your race car is real estate. So you don’t waste time to learn the stock market, too. That is wise and fine. But for people that are only relying on the stock market should put more effort in training their skills.
Indexing is like cruise shipping. Lean back and relax but don’t expect to reach your goals fast. And it is never cheap. 0.4% on one million in retirement is 4,000 dollars a year for indexing. Thats a lot for somebody in retirement. Holding stocks is free.
If you are paying 40 basis points for indexing, then you are being ripped off. For my equities, 70 percent is in 2 index funds and I pay a combined 8 basis points.
I think stock market performance for the next decade will be 5 to 7 percent. The multiples are high especially for US stocks.
Definitely agree 40 basis points for indexing is WAY high. I’d rather get into an active Vanguard fund for close to 40 basis points. Also agree that stock market performance for the next decade will be 5 to 7 percent. This has been an incredible bull run over the past seven years but unfortunately it is running out of steam. Obviously no one knows what the future holds and one persons guess is just as good as the next but I think there is no way we continue on this same trajectory, market returns are going to revert to the fundamentals and average returns…
The expense ratio for VTSAX is 0.05%. With this an investor has a small piece of every public company in the USA. This fund alone should be the core of nearly every investors portfolio. It’s cheap, it’s diversified, and will give you your share of the market. It IS the market.
It’s not a stock picking, excessive trading, high risk strategy that might beat the market for a short time but that path is guaranteed to make the brokers on Wall Street rich, not you. I can understand using a small percentage of your wealth in high risk investments but one of Bogle’s points is to be realistic. Making 15% returns EVERY year is not.
Actually, I’ve been investing in the stock market for the past 20 years and had a 13 year career in institutional equities at a couple bulge bracket firms. Equities accounts for roughly ~25% of my net worth.
I’ve seen three major bull and bear market cycles and have dealt with tremendous amount of windfalls and losses before. I strongly believe that most people, if not everybody should just focus on a proper asset allocation. A turn will eventually come, and it won’t be pretty for those who are overly aggressive and think they can’t lose.
Your feedback is good, because it makes me realize I have the opportunity to write more about investing in stocks.
Feel free to share your investing experience. What were you doing during the financial crisis and how much wealth has investing in stocks brought you? Thanks.
Here are some posts you might find interesting:
The First Million May Be The Easiest
Don’t Stop Fortune Hunting
It is amazing what John Bogle has done for the investing world. All of my paper investments are in index funds (and Vanguard index funds at that). I think overall the trend will continue especially when you look at how easy investing has become over time. In 1975 opening an account and adding money to it was vastly different than it is now. With zero investing knowledge someone can open an IRA on Betterment and with a $100 investment can be diversified across virtually the entire US and global stock market via multiple index funds. Betterment, and firms like it, are making index investing so incredibly simple that a larger portion of the population will become investors, and more people will choose index investing.
For a number of reasons, ETFs can be very dangerous for your average investor and people should be cautious before simply jumping into them. I’ve even seen people on this site get enthusiastic about particular ETFs when they in fact have no idea how they function and would be facing the possibility of severe wealth destruction.
In general, retail investors have no business buying something that was dreamed up in Manhattan and didn’t exist 20 years ago.
Austin, can you share details on that? I’ve been investing in ETF’s for the past 7 years and have had no complain so far. The costs are low, and the returns in line with the market.
Specifically, I was talking about leveraged ETFs (which are subject to time decay) and commodity ETFs (which are subject to an inherent rollover penalty in certain environments).
But, in addition to that you are likely subject to higher fees. And, ask yourself how much of the pricing of the ETF arises from the value of its underlying assets and how much of it arises from the perceived value in the market at any given time. Also, how well does that ETF track whatever it’s supposed to track.
Additionally, it appears that Vanguard is worried enough about a liquidity crunch in the event of panic selling. Their thought is that the ETF cannot be more liquid than the underlying and they may have to simply buy shareholders out in a worst case scenario as opposed to selling the underlying (in a case where they may limited ability to do so). Interestingly, Stanford and UCLA determined that ETFs themselves are likely causing lowered liquidity of underlying assets as money flows into ETFs and not the underlying assets themselves. Of course, the probability of a worst case scenario is low but it does make you wonder.
I hope nobody gets into leveraged ETFs without knowing the risk.
The key is having an appropriate asset allocation of stocks and bonds to match your risk tolerance and financial goals.