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John (Jack) Bogle, founder of Vanguard, one of the largest investment management firms in the world, was known for his practical personal finance advice for everyday investors.
As the creator of the index fund in the 1970s, Bogle was a strong advocate of low-cost index investing and warned against what he considered speculative investments, such as gold and bitcoin. Bogle, who died in 2019, still has a legion of fans known as Bogleheads who promote and adhere to his investment philosophy.
The principles that Bogle articulated decades ago remain relevant today. These are just three of his timeless principles.
1. Invest Mostly In Index Funds
Bogle was a proponent of making investing easy, encouraging people to keep anywhere from 50% to 100% of their portfolios in index funds.
“Successful investing is all about common sense … Simple arithmetic suggests, and history confirms, that the winning strategy is to own all of the nation’s publicly held businesses at very low cost, ” Bogle wrote in his 2007 book, The Little Book of Common Sense Investing. “The best way to implement this strategy is indeed simple: Buying a fund that holds this market portfolio and holding it forever. Such a fund is called an index fund.”
With an index fund, investors buy a basket of stocks that mimic the performance of an index, like the S&P 500, which represents the biggest publicly traded companies in the U.S. One of the primary advantages of index funds is diversification. Today, that’s easy enough to do through your 401(k) or exchange-traded funds (ETFs), whose shares trade on the stock exchanges.
By investing in a variety of stocks at once, you can decrease the impact that the bad performance of any individual company or sector has on your portfolio.
2. Choose Funds With Low Fees
Bogle advised people to opt for index funds with low expense ratios, which are annual fees charged for the management and operation of the fund.
“While cost differentials may look trivial when expressed on an annual basis, compounded over the years they make the difference between investment success and failure,” Bogle wrote.
Fast Fact
Warren Buffett, another legendary investor, described Bogle as a “hero” to investors. “If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle,” Buffett wrote in his 2016 letter to shareholders.
3. Have a ‘Funny Money’ Account
While Bogle recommended that people invest most of their money in index funds—which he called the “serious money” account—he also suggested that people who love to trade stocks can do so if they keep it limited.
For that, he suggested creating a “funny money” account that you could use with up to 5% of the value of your portfolio.
Bogle recommends investing in individual stocks, select ETFs, and actively managed funds with your “funny money” account. However, he warned people away from using it for commodities and hedge funds.
After a few years, if that account isn’t doing as well as your “serious money” account, Bogle suggested looking into whether it’s worth the cost.
If your “serious money” account offers greater returns, “you can then decide whether all that fun was adequate compensation for the potential wealth you’ve relinquished,” Bogle wrote.
