Taking a page or two from John C. Bogle

The following blog will be a transcript out of the last chapter of this book. It will serve as a guide to all investors, beginners and advanced; even to those who aren’t interested in actively investing themselves.

Chapter 20: Investment Advice That Meets The Test of Time

Deep down, I remain absolutely confident that the vast majority of American families would be well served by owning their equity holdings in a Standard & Poor’s 500 Index fund (or a total stock market index fund) and holding their bonds in a total bond market index fund. (Investors in high tax-brackets, however, would instead own a very low-cost quasi-index portfolio of high-grade intermediate-term municipal bonds.) To repeat, while such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite.

Hear Warren Buffett: “Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.” (Don’t forget that an index fund with minimal fees is also , for most investors, the best way to own bonds.)

For all of the inevitable uncertainty amid the eternally dense fog surrounding the world of investing, there remains much that we do know.

As you seek investment success, realise that we can never know what returns stocks and bonds will deliver in the years ahead, nor the future returns that might be achieved by alternatives to the index portfolio. But take to heart. For all the inevitable uncertainty amid the eternally dense fog surrounding the world of investing, there remains much that we do know. Just consider these common-sense realities:

We know that we must start to invest at the earliest possible moment, and continue to put money away regularly from then on.

We know that investing entails risk. But we also know that not investing dooms us to financial failure.

We know the sources of the returns in the stock and bond markets, and that’s the beginning of wisdom.

We know that the risk of selecting individual securities, as well as the risk of selecting both fund managers and investment styles, can be eliminated by the total diversification offered by the traditional index fund. Only market risk remains.

We know that costs matter, overpoweringly in the long run, and we know that we must minimise them.

We know that taxes matter and that they, too, must be minimised.

We know that neither beating the market nor successfully timing the market can be generalised without self-contradiction. What may work for the few cannot work for the many.

Finally, we know what we don’t know. We can never be certain how our world will look tomorrow, and we know far less about how it will look a decade hence. But with intelligent asset-allocation and sensible investment choices, we can be prepared for the inevitable bumps along the road, and should glide right through them.

Our task remains: earning our fair share of whatever returns our business enterprises are generous enough to provide in the years to come. That, to me, is the definition of investment success. The traditional index fund is the only investment that guarantees the achievement of that goal. Don’t count yourself among the losers whose investment returns will fall well short of the returns realised in the stock market.

I find many of the principles in this book to be most helpful for people just starting their investment journey. As always, do your own research before making any investment decisions, have fun and stay wild.


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