Seven investing lessons from Vanguard’s founder

By Vanguard

Investing strategy

How Jack Bogle helped millions to build their wealth

This year is a milestone year for Vanguard, both in Australia and globally.

It marks the 30th anniversary of Vanguard launching its operations in Australia, and the 50th anniversary of Vanguard launching the world’s first index fund – the precursor to what is now a multi-trillion-dollar global industry encompassing managed index funds and exchange-traded funds (ETFs).

This month also marks the sixth anniversary of the passing of Vanguard’s legendary founder, Jack Bogle, who is still widely regarded as one of the investment world’s most powerful and influential people.

His mission was simple. To take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.

 

The man who reinvented investing

Bogle reinvented a sector long dominated by actively managed funds that charged investors high fees for portfolios built through stock-picking and market timing.

To this day, a high percentage of actively managed funds underperform their benchmarks.

Bogle aimed to open investing to the masses in a way never done previously by using investor funds to buy weighted stakes in all the stocks and bonds contained within an index and packaging those into low-cost fund products.

Bogle had a number of guiding rules for investors to help them accumulate and protect their wealth over the long term. He spoke about these principles often and below is a collection of quotations he delivered over time derived from various presentations and interviews.

 

1. Always select low-cost funds

“In investing, you get what you don’t pay for. 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.” ¹

 

2. Do not overrate past fund performance

“The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently.” ²

 

3. Use past performance to determine consistency and risk

“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.” ³

 

4. Beware of stars (as in, star mutual fund managers)

“Talent is hard to identify and talent is hard to tell from luck. There’s an awful lot of luck in this business. Past performance is not helpful in judging future performance.” ⁴

 

5. Distinguish investing from speculating

“Ask yourself: ‘Am I an investor, or am I a speculator?’ An investor is a person who owns a business and holds it forever and enjoys the returns that US 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.” ⁵

 

6. Don’t own too many funds

“Complicating the investment process merely clutters the mind, too often bringing emotion into a financial plan that cries out for rationality.” ⁶

 

7. Buy your fund portfolio – and hold it

“Wise investors won’t try to outsmart the market. They’ll buy index funds for the long term, and they’ll diversify.” ⁷

 

^Footnotes:

1. ^{“In Investing, You Get What You Don’t Pay For,” keynote address, The World Money Show, Orlando, FL, February 2, 2005.}
2. ^{“Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor” (Hoboken, NJ: John Wiley & Sons, updated 10th Anniversary ed., 2010).}
3. ^{“Balancing Professional Values and Business Values,” *Financial Analysts Journal* 73, no. 2 (April 2017).}
4. ^{John C. Bogle, remarks on luck vs. talent and the limits of past performance (interview), Business Insider, January 24, 2017.}
5. ^{John C. Bogle, “Ask yourself: Am I an investor, or am I a speculator?” recurring formulation across Bogle’s books and speeches.}
6. ^{“Investing with Simplicity,” keynote address, The Washington Post Personal Finance Conference, Washington, DC, January 30, 1999.}
7. ^{John C. Bogle, long‑term index investing and diversification (“stay the course”), widely quoted.}