Jack Bogle’s seven tips for successful investing
Investing is not a one-way ticket to riches. Both novice and expert investors have periods of good and poor performance. Success or failure will largely be driven by the markets, but how we behave also has a huge impact.
Jack Bogle, Vanguard’s founder, recently summarised his rules for successful investing1developed over his 65-year career. They’ve been tried and tested through different market conditions, and we’re reproducing them here so everyone can potentially benefit.
- Invest you must: The biggest risk investors face is not stock market volatility, but not investing in the first place. Investing – as opposed to simply saving – is necessary to generate a reasonable return.
- 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 can grow to staggering amounts over the course of an investment lifetime.
- Impulse is your enemy. Eliminate emotion from your investment programme. 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 insightsthat 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 equities, 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 mean2. Strong performance by a mutual fund is highly likely to revert to the stock market norm – and often below it.
- Stay the course. Regardless of what happens in the markets, stick to your investment programme. Changing your strategy at the wrong time can be the single most devastating mistake you can make as an investor. Just ask investors who moved a significant portion of their portfolio to cash during the depths of the global financial crisis of 2007 – 2008, only to miss out on part or even all of the subsequent eight-year – and counting – bull market we have enjoyed ever since. ‘Stay the course’ is the most important piece of advice Mr Bogle can give.
Success in many areas of life comes down to following common-sense rules and investing is no different. But it comes with no guarantees as markets can fall as well as rise. However, incorporating these rules into your investment plan could increase your chance of achieving investment success.
More about Mr Bogle
John C (“Jack”) Bogle founded Vanguard in 1975 on a simple but revolutionary idea – that investment funds should be managed in the sole interest of their clients.
What sets Vanguard apart – and lets us put investors first around the world – is the ownership structure of Vanguard in the United States. This aligns our interests with those of our clients. Because Vanguard is not publicly traded, we can extend the benefits of that structure to our clients
The result is that Vanguard has reduced the cost of investing for investors around the world over the last four decades. Put simply, this means you keep more of your investment return.
1 Financial Analysts Journal, Volume 73, Issue 2, 2017.
2 Mean reversion is the theory that prices and returns eventually move back towards their long-term average.