Thank You John C. Bogle for the Bogglingly Significant Legacy to Retirement Planning

John Bogle died on Wednesday. He was the founder of the Vanguard Mutual Fund group. However, his real legacy is not in how he built a $4.9 trillion investment company but rather how he led a new way of thinking about retirement investing.

Want to be a successful investor?
Just buy the haystack (and thank John Bogle for the tip)…

His lessons are really only beginning to gain a foothold among the general population. If you aren’t aware of who he is or what he stood for, read on for some advice in his own words.

Index Funds. Index Funds. Index Funds…

“Don’t look for the needle in the haystack. Just buy the haystack.”

If you think successful long-term investing is about picking just the right stock, think again. Bogle’s genius was not from knowing which stock to buy, but rather about knowing that some stocks will gain and some will lose but the overall market will gain over the long term.

Bogle is the father of the index fund, an investment in an entire market, not individual sectors or companies. An index fund is the haystack. Just buy the haystack!

Watch Costs

“The grim irony of investing, then, is that we investors as a group not only don’t get what we pay for, we get precisely what we don’t pay for. So if we pay for nothing, we get everything.”

“Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course. And they won’t be foolish enough to think that they can consistently outsmart the market.”

“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.”

Most people have no idea what costs are associated with their investment accounts. However, high (and often hidden) fees can take a big bite out of your returns. If you are paying two percent in fees on an account that earns an eight percent return, you are only actually pocketing a six percent return!

Here are just some of the fees commonly changed to investment accounts:

  • Management fees: Typically, .25% of your account balance for a robo advisor or 1-2% by a financial advisor with assets under management
  • Annual fees: Usually between $50 to $100 a year
  • Administration fees: Often paid on a 401(k), administration fees range considerably.
  • Trading fees: These days you are usually charged between $5-$10 per trade, and many companies now offer limited commission-free trading

If you are worried about fees, you should try to investigate what you are currently paying. It can also be worth your while to consolidate your accounts. The fewer accounts you have, the less you will pay in annual charges.

Don’t Gamble, Invest

“Ask yourself: Am I an investor, or am I a speculator? An investor is a person who owns business and holds it forever and enjoys the returns that U.S. businesses, and to some extent global businesses, have earned since the beginning of time. Speculation is betting on price. Speculation has no place in the portfolio or the kit of the typical investor.”

Bogle wanted people to participate in the success of business, not bet for (or against) short-term gains.

Keep Emotions Out of Your Money

“Time is your friend; 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.”

I think we can all agree that emotional decision making is fraught with failure. Bogle understood that people often make emotional decisions about money, and that those impassioned choices can weaken a portfolio.

When the stock market is falling, it can be almost impossible to resist the temptation to sell. When the stock market is rising, combating the drive to buy into that exuberance is difficult.

Bogle argues that it is better to control emotions and avoid reacting to these short-term gains and losses — focus on your long-term goals.

Just Make Your Investments Good Enough

“The greatest enemy of a good plan is the dream of a perfect plan.” “Stick to the good plan.”
“Owning the stock market over the long term is a winner’s game, but attempting to beat the market is a loser’s game.”
“Gunning for average is your best shot at finishing above average.”

Investing poorly can leave you penniless. Investing well can improve your net worth. Investing averagely (putting your money in the overall market for the long run) will also improve your net worth.

Investments: Just One Part of Your Retirement Plan

The beauty of Bogle’s common-sense wisdom is that we can all benefit from his advice. These are not ideas for billionaires.

However, depending on your wealth, investments might be a very small or significant aspect of your retirement plan. When you stop working, how much you need to spend, your home equity, taxes and other factors may contribute more to your financial well-being than investment returns.

Be sure to keep your overall plan updated with the NewRetirement Retirement Planner.

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