Does it feel like you’re constantly bombarded by ads trying to sell you the next great stock? Or how about the CNBC hosts ranting about their “best guess” where the price of IBM will go tomorrow? If you’re like me, I can’t stand the constant bantering of those talk shows. Even worse is Jim Cramer. If you want to see AD on steroids, watch his show, you’re sure to get a headache. All of these so-called “experts” have sold Americans the lie that says that anyone can be successful at stock picking and timing the market. As sad as it is, most Americans buy into this philosophy. I’m not saying that everyone will lose if they try their hand at stock picking. If you happen to have a lot of time on your hands, your chances are higher. But for people who work full time, active investing is not a wise choice.
In comes the Boglehead investing strategy! The Boglehead mentality throws everything you learned from the media out the door. Let’s go over a little background first. Bogleheads is a term coined by investors in honor of John Bogle, the revolutionary behind the Vanguard Group and the rejection of stock picking and mutual funds. I could go into depth on this investing philosophy, but I’ll keep it short and sweet.
As a Boglehead, I look at my investments from a holistic approach and reject the notion that I can beat the market by picking my own stocks. Instead, I diversify my money across multiple asset classes through index funds and ETFs. Assets classes include US stocks, international stocks, bonds, and market sector specific funds. Allocation percentages is easy to calculate. I like to use a rule of thumb of your age for bond percentage. Take me as an example. I’m 23 years old, so I have roughly 20% of my assets in bonds currently. As I get older, this percentage will increase. The reason for this is to shield my money as I get older. Placing all your eggs in one basket is a risky way to invest. I hold money in US stocks, international stocks, emerging markets, and of course bonds.
Another beauty of being a Boglehead, is a stress free financial life. My investments are broad and diversified, therefore simple to track. I only invest in a couple index funds, so I never need to worry about tracking the ups and downs of the market. To be honest, I rarely check the stock market! Since I invest a portion of my income every week, my money is dollar cost averaged over the highs and lows. I don’t believe in the buy and sell philosophy. I believe you should ALWAYS be buying no matter where the market is headed, BUY BUY BUY.
I’m so glad I learned this investing philosophy at a young age. Thinking long-term is a winning strategy and performance chasing is a losing strategy. Diversify your money, avoid high costs, and ignore the market swings.
In conclusion, I’ll leave you with some wisdom from the mouth of John Bogle himself, “stay the course!”
Comment below if you’re a fellow Boglehead or just totally disagree with this investing strategy!
Hi Jon:
Great article! Nice to see you (and hopefully many other young investors) get started on the road to financial freedom at a young age. With the power of compounding on your side, you’ll probably be financially independent long before many of your “live for today” contemporaries.
Keep up the good work!
Best regards,
Mel Lindauer, Forbes columnist and co-author, The Bogleheads’ Guide to Investing and The Bogleheads’ Guide to Retirement Planning.
You’ve got it.
You will get lots of fine-tuning comments and I predict you will indeed get some flack from those who totally disagree with this investing strategy.
And I’m afraid I would have to say that this investing style does not necessarily mean a “stress free financial life.” I did not literally lose sleep during 2008-9, nor did I sell stocks or change my asset allocation, but my wife and I definitely felt some stress.
And it is not exactly a “winning” strategy, but it is a “successful” strategy. Charles D. Ellis has said investing, like tennis at all but the highest professional levels, is “a loser’s game,” meaning that mistakes hurt you more than brilliant maneuvers help you. Or as John C. Bogle put it, “Successful investing involves doing just a few things right and avoiding serious mistakes.”
That quotation is from Bogle’s “The Twelve PIllars of Wisdom” at http://www.vanguard.com/bogle_site/april272001.html I’m not sure what you’ve already read, but you haven’t read that essay you might like it.
@Mel Lindauer- Wow, what an honor for you to comment on my blog! I have been a huge fan of yours for quite some time now. Thanks for the encouragement Mel. I’ll be posting quite a few Boglehead related articles in the future. I feel like it’s my duty to get the word out about this investment philosophy.
@Fellow Boglehead- I’m glad you liked the article. I’ll be going more in depth soon, this was just an intro to my passions for Boglehead investing. I totally understand what you;re saying about it not being stress free. I probably say that now because I’m young and haven’t experienced any significant lows yet. To be honest, big dips get me excited to buy more! As for winning, I definitely realize that I won’t be getting 20% returns. I’m not willing to take the risks associated with such performance chasing and am happy with 8% gains over the long term. But, for any long term investor, I really do believe the Boglehead mentality is a “winning” investment strategy. Yes, I’m a proponent of Bogle’s 12 pillars of wisdom! John Bogle is a huge idol of mine and look forward to learning even more about his guiding principles. I’ll be doing a little write-up on that soon. Thanks for the comment Fellow Boglehead!
Great article! In a future article, you might want to explain Vanguard’s unique, non-profit corporate structure and how that keeps your expense ratios low, allowing you to keep more of your investment return. There are a few imitators out there but only Vanguard is run at cost and is entirely owned by its investors. It is great to be able to get started so young with both a great firm and a wonderful investment philosophy.
@NVboglehead- Will do! That would be a great topic to cover in a later post. No one beats Vanguard. Also, I’m a huge fan of Vanguard’s ability to offer unlimited ETF trading. Stay tuned for that article, tanks for reading!
I’m 19 and started when I was 18. I currently invest @ vanguard.
I’m a boglehead sort of.
Right on!
So wait, you don’t like mutual funds? That is the main recommendation from Dave Ramsey, who seems to have a fair bit of knowledge and common sense about him.
Correct, mutual funds are terrible. I would avoid any investment advice from Dave Ramsey. he is great for getting out of debt. But stay far far away from his recommendations for where to put your money. He even tells people not to buy gold and silver! You can’t get much more ignorant than that.
You know it Justine!