Seven investment tips by John Bogle

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US-American entrepreneur and writer John Bogle became famous as the very first founder of a tracker fund. Just recently, the bestselling author condensed the most important rules for successful investing in seven short tips in an article for the CFA Institute. Conclusion: Rationality beats emotionality.

Seven investment tips by John Bogle Learn from the best. This goes for most parts of life, and for investing as well. John C. Bogle can rightly call himself one of the best. In 1999, he was chosen to be one of the four “Giants of the 20th Century”, alongside with Warren Buffett, George Soros and Peter Lynch. The “Father of the tracker funds” is the founder of the investment company “The Vanguard Group”, which he was president of for several years. Today, this investment company is the world’s second largest fund manager, administering a total of three trillion US-Dollars. The remarkable about the Vanguard Group is its shareholder structure. Vanguard’s shareholders are the Vanguard funds, respectively their investors.

Bogle now condensed his 65 years’ worth of investment experience in just a few investment rules. The following tips originated from an article that Bogle recently wrote for the CFA Institute.

 

1. 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.

 

2. 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.

 

3. 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.

 

4. 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.

 

5. 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.

 

6. 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” (Matthew 20:16, King James Bible).

 

7. 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. (Just ask investors who moved a significant portion of their portfolio to cash during the depths of the financial crisis, only to miss out on part or even all of the subsequent eight-year—and counting—bull market that we have enjoyed ever since.) “Stay the course” is the most important piece of advice I can give you.
 
The full article by John Bogle can be read in the CFA Financial Analyst Journal.

Image source: Vanguard