I’m a Boglehead, and I’m not afraid to admit it.
What’s a Boglehead? A Boglehead is an investor who’s philosophy goes against market timing, performance chasing, expensive mutual funds, and putting one’s eggs in a single basket.
The ultimate goal of a Boglehead is to mitigate risk, invest wisely, make a solid return and eventually retire early. It’s as simple as that.
So basically, in simple terms, invest for the future…not for short term profits.
Doesn’t sound all that thrilling? Maybe not, but the rewards are very satisfying.
If you aspire to be a Boglehead, it does take some knowledge and perseverance.
At the core, a Boglehead lives by 12 main principles. These principles are known within the investment world as the “12 Pillars of Wisdom.” These pillars were created by John Bogle, a visionary and founder of the Vanguard group. There are people out there that slam this type of investment philosophy. But I let the numbers speak for themselves.
If you follow these 12 pillars of Boglehead wisdom, you WILL make above average returns and beat 75% of mutual funds.
Here are the 12 pillars and my take on each of them.
12 Pillars of Boglehead Wisdom
1. INVESTING IS NOT NEARLY AS DIFFICULT AS IT LOOKS
No one, I repeat, no one should hire a professional investor. Markets are extremely efficient and they will try their hardest to convince you that they know things that you don’t. It’s really not that complicated. Focus on the basics and you will make good returns, if not better than the pros.
2. WHEN ALL ELSE FAILS, FALL BACK ON SIMPLICITY
Do not readjust your holding constantly. (I know, it’s hard!) Hold just a few funds and call it a day. Let me tell you something. It’s amazing to only have to check my account once a month and see it grow. Now that’s freedom.
3. TIME MARCHES ON
Whip out your calculator and you will see that time is always on your side if you start investing now. The sooner you start, the bigger that nest-egg will be at retirement.
4. NOTHING VENTURED, NOTHING GAINED
Sometimes it’s worth it to rebalance and take responsible risks for a percentage or two higher. Long term, this could mean the difference between $10k and $100k.
5. DIVERSIFY, DIVERSIFY, DIVERSIFY
Spread your assets across as many industries as possible. This way, if an industry is down one year, it will barely make a dent in your portfolio.
6. THE ETERNAL TRIANGLE
This triangle is comprised of risk, return and cost. Unless you have justification for high expense mutual funds, keep costs low and choose low-cost index funds. It’s the Boglehead way.
7. THE POWERFUL MAGNETISM OF THE MEAN
Sooner or later, the highs and lows arrive at the mean. The market might have large swings in either direction in your lifetime, but if you shoot for the market average, you’re set for retirement.
8. DO NOT OVERESTIMATE YOUR ABILITY TO PICK SUPERIOR EQUITY MUTUAL FUNDS, NOR UNDERESTIMATE YOUR ABILITY TO PICK SUPERIOR BOND AND MONEY MARKET FUNDS
I don’t care about a mutual fund’s past performance. Past history is no sign of the future for financial markets. However, when it comes to picking bond or money market funds, take your time, do your research, and pick low costs over past performance and you will be one successful Boglehead investor.
9. YOU MAY HAVE A STABLE PRINCIPAL VALUE OR A STABLE INCOME STREAM, BUT YOU MAY NOT HAVE BOTH
At the end of the day, you need to make your own choices for the type of volatility you accept. It’s up to you how you want to diversify your money. Keep it simple, fellow Boglehead!
10. BEWARE OF “FIGHTING THE LAST WAR”
Trends never last. They come and go. If a mutual fund has had a long streak of success, that’s your sign that it’s time to get out. Ignore the warnings about the future. Ignore the warnings from the past. Don’t get stuck in the “fighting the last war” mentality.
11. YOU RARELY, IF EVER, KNOW SOMETHING THE MARKET DOES NOT
Everything you hear, see on TV, emotions in life, and worries about the future are already priced into the market. You may think you know something, but you really don’t.
12. THINK LONG TERM
Who cares about what the stock prices do in a single day? If you are a long term investor, your horizon is 10, 20, maybe 40 years out from retirement. Ignore the noise on CNBC, stay the course, and invest regardless of what the markets are doing.
Playing it Safe is a Good Bet
Well, there you have it folks. The 12 pillars of Boglehead wisdom is quite possibly the best kept secret within the investment world. Kick stock chasing to the curb. Think long term, turn off the television and invest for your family’s future. Why take more risk than you have to? Bogleheads, unite!