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Wise Advice From Mr. Bogle: Set it and Forget it
By JLP | May 26, 2008
From today’s Houston Chronicle comes this advice from John Bogle:
John Bogle, founder of the nation’s second largest mutual fund company, dismisses many of products hawked these days by financial companies as largely self-serving. His advice for investors seems to square with one popular marketing pitch: Set it and forget it.
The phrase serves as a delightfully short to-do list for those who don’t want to juggle many investment decisions. And the idea of making an investment decision and sticking with it has helped the retired chief executive of the Vanguard Group and creator of the index mutual fund accumulate a healthy savings account of his own and to look past many of Wall Street’s gyrations.
Bogle said investors too often chase returns rather than adopt a long-term investment strategy that prizes broad diversity and low fees.
I think chasing returns and timing the market (due to chasing returns?) are the two biggest investing mistakes people make.
It’s not easy to walk the straight and narrow when it comes to investing. Especially when your brother-in-law and postal delivery man are making money hand-over-fist day trading internet stocks. It’s also not easy to stick to the course when the world seems to be falling apart (like right now). Here’s what I tell myself during the bad times:
1. They’re usually short run and I’m a long-run investor. In other words, the bad times usually end up looking like bumps in the road over the long run.
2. If things get really bad, not having money is going to be the least of my worries.
Topics: Index Funds, Investing | 10 Comments »
May 26th, 2008 at 9:56 pm
I don’t know how people make money “day” trading. The fees are nothing anymore with electronic trading. But the taxes will kill you, especially if you are in a higher bracket. You have to wait a full 365 to qualify for the long term rate of 15%. Now holding a stock for 1 year isn’t exactly long term in my book, but its not day trading either. I’ve bought stocks in good sound companies that made funadamental changes that frightened me and I sold under a year, but again not day trading cause I wasn’t planning on making a quick sale, companies can change and they did.
I suppose you could get lucky and pick a stock that doubled in less than a year. In that case I’d sell and pay the short term capital gains – I’m no fool, day trader or not. But again its “luck” when that happens. I do a lot of research before I buy anything – stock, bond, index fund, etc. – and I just don’t get lucky enough to double my money in less than a year. That’s why I consider making money in day trading pure luck. I just can’t seem to do it with knowledge and research, so in my book it’s akin to gambling. It’s fine if you think you have an edge, but it just isn’t for me.
May 27th, 2008 at 1:56 pm
Mr. Bogle’s philosophy fits well with my own. Thanks for the link.
May 27th, 2008 at 1:59 pm
Set It, Forget It, and Make it Automatic
When my Grandmother passed away 10 years ago I received 24 shares in a savings and loan as part of the estate, every 3 months I got a $5 dividend check that was just spent. After a few years I contacted the transfer agent and just had the dividends rolled over. Now I have 37.7396 shares of this stock.
Granted I’m not a millionaire but I have not missed those dividend checks and what may I have in 10, 15, or 20 years?
In the past few years I have also discovered (direct stock purchase plans) which has enabled me to gain positions in companies like.
BAC 45.0297 shares total cost in fees $10.00
PEP 14.9859 shares total cost in fees $10.00
XOM 15.4472 shares total cost in fees ZERO
I have my checking account drafted every month to buy stocks directly $50 at a shot to invest in companies of my choice and the ones I’m investing in now pay the fees so all of my money goes straight to stock.
I have even set up a web page with over 150 companies on it that offer DSPP and it is FREE so you can do your own Research.
May 27th, 2008 at 2:01 pm
Set It, Forget It, and Make it Automatic
When my Grandmother passed away 10 years ago I received 24 shares in a savings and loan as part of the estate, every 3 months I got a $5 dividend check that was just spent. After a few years I contacted the transfer agent and just had the dividends rolled over. Now I have 37.7396 shares of this stock.
Granted I’m not a millionaire but I have not missed those dividend checks and what may I have in 10, 15, or 20 years?
In the past few years I have also discovered (direct stock purchase plans) which has enabled me to gain positions in companies like.
BAC 45.0297 shares total cost in fees $10.00
PEP 14.9859 shares total cost in fees $10.00
XOM 15.4472 shares total cost in fees ZERO
I have my checking account drafted every month to buy stocks directly $50 at a shot to invest in companies of my choice and the ones I’m investing in now pay the fees so all of my money goes straight to stock.
May 27th, 2008 at 6:00 pm
I love phrases like these. A phrase is a principle and not a laundry list of rules you have to rigorously follow. All a principle requires is common sense and wise judgment; though that combo *does* seem to be seen less and less these days. Good advice, and thanks for the link.
May 28th, 2008 at 4:05 am
“Set and Forget” is wise, but a tad simplistic. Even with index funds, there comes a time when you might want to lock in some portion (say, 50%) in CDs. To a degree, that’s market-timing, but it deals with risk tolerance. I always said that if I got to a point where I could guarantee a return of 5% or more, while withdrawing 4% or less, I would pull the trigger. I did so, as to half my nest egg, in August of 2006. I start to cash in those CDs next year. The ladder lasts until 2019, when I start to tap my Vanguard balanced stuff. I’s say, “set and monitor” might be more appropriate.
Yours,
Bozo
May 28th, 2008 at 10:32 am
Aaah, Bozo, you are talking about the CD (or Bond) laddering principle brilliantly covered by Paul Grangaard in his book, The Grangaard Strategy.
It’s a retirement / wealth preservation startegy … very different to wealth-building, though.
BTW: in your (retirement scenario) case, by pulling the stocks out you are not so much ‘market-timing’ as much as locking in your profits, because you were planning to sell down some of your stocks to provide cash for retirement living expenses in a few years, anyway. Right?
May 28th, 2008 at 1:05 pm
I agree with Bogle that investors should not chase performance. I do not at all agree with the him that investors should “set it and forget it.” I think that’s dangerous advice. I take valuations into account when setting my stock allocation. I go with a higher stock allocation when prices are good and a lower stock allocation when prices are too high (as they are today).
Rob
May 29th, 2008 at 3:29 pm
To: AJC
Yup, you got it. When you get to a certain point, you cash stuff in to fund your retirement. If you don’t, well, you’re playing with fire. I was fortunate enough to save 20%+ of my gross from 1983 to 2006 (when I retired) in a tax-deferred account (401K, then a SEP-IRA). My wife also saves about the same, as she is still employed.
I know by cashing out half in 2004 I missed some appreciation in stocks, but I was able to sleep better knowing it was there when I would need it.
Anyway, I kept the other half “working” as it were in domestic and foreign stocks, and a modicum of bonds and cash.
Good luck to all,
Yours,
Bozo
June 23rd, 2008 at 5:03 pm
re: Mr. Bennett’s comments, above, Bennett has been promoting his special brand of Financial planning for some time.
I suggest before anyone use his ‘planner’ or follow his advice, they should do some due diligence.
Google “Rob Bennett + Purcellville” or just go to these links:
One of his sites:
http://s162532268.onlinehome.us/Sewer/viewforum.php?f=1
A site that tracks and comments on his activities. He frequently participates as “Hocus”:
http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl