John Bogle Offers His Advices For Investors


John Bogle spoke, or wrote, again. The founder and former chief executive of The Vanguard Group, has a piece on The Wall Street Journal today, offering his advices for investors after observing what happened on both the Wall Street and the main street last year.

In the article, Six Lessons for Investors, Mr. Bogle, who has become a critic of the fund industry, reinforces the idea that he has long advocated: Owning the entire stock market! Following are the six lessons that every investor should learn:

  1. Beware of market forecasts, even by experts: Though not every analyst on the Street is wrong when trying to forecast the market, you should “ignore the forecasts of inevitably bullish strategists.”
  2. Never underrate the importance of asset allocation: Investors should have not only common stocks in their portfolio, but also an adequate allocation to bonds, which have done very well in 2008. But how much? How about “a bond percentage that equals your age.”
  3. Mutual funds with superior performance records often falter: Oh, haven’t we seen that already in 2008? Legg Mason Value Trust -55%, Fidelity Magellan Fund -49%, Dodge and Cox Stock -43%, and CGM Focus -48%. That’s exactly why “chasing past performance is all too often a loser’s game.”
  4. Owning the market remains the strategy of choice: If your goal is to get market returns, not attempt to beat them, then you should own low-cost index funds because “active management strategies as a group lose because they are expensive. Passive indexing strategies win because they are cheap.”
  5. Look before you leap into alternative asset classes: Did investing in foreign markets let you down in 2008? By looking at the number, the answer is yes because the MCSI World Index plunged 42% in 2008 comparing to the S&P 500 Index’s 38%. “When the investment grass looks greener on the other side of the fence, look twice before you leap.”
  6. Beware of financial innovation: Mr. Bogle doesn’t like exchange-traded funds (ETFs), which he once called “a dream come true for entrepreneurs, stock brokers, and fund manager.” The innovations will benefit financial companies more than investors.

Did you learn these lessons from your own experience of investing?

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  • Chitika


  1. Posted January 12, 2009 at 9:05 am | Permalink

    Why not ETFs? Is there any specific reason other than financial innovation?

  2. pfreviews
    Posted January 12, 2009 at 3:34 pm | Permalink

    @Manshu: According to Bogle, ETFs are bad for small investors because they can trade ETFs whenever they are pleased and since trading ETFs incurs commissions, which are for the brokers to collect, plus the costs of the funds, brokers love to push ETFs to investors, not as individual stocks, but as funds. In fact, ETFs are no difference than other Wall Street innovations, which all benefit brokers and financial companies more than investors.

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