Saturday, March 31, 2012

Timeless Investing Advice

John Bogle's investing advice is timeless contains solid advice about how individuals should invest for the long term.

In brief, the article extols the virtues of non-professional investors buying low cost index funds such as the S&P 500, advice with which I agree.

I've taken the liberty to break the article down into seven simple steps. Here goes.

(1) ... "With relics of American investing history framing them, some respected icons of the nation’s financial system told investors that a secure future comes from following what has worked in the past.

Their message: Straightforward, long-term investments will turn out far better than the flavor-of-the-day/week/month."

(2) ... "While much of the (investing) event was spent talking about the need for the financial-services business to act in the best interests of customers — something it all too frequently fails to do — an underlying theme was that investing should be easier than most people make it.

Caught up in the 24-hour news cycle, with talking heads tweeting stock tips and blurting out their feelings about what is happening “now’ — as if they have special insight about the current moment — consumers are too involved in the day-to-day and not nearly focused enough on the right thing.

“Too many people spend their time trying to figure out the hot stock to buy rather than spending their time trying to get their asset allocation right,” said Gus Sauter, Vanguard’s chief investment officer. “Stocks, bonds and cash … take care of that decision and the rest should go right.”"

(3) ... "The problem is that consumers always want what’s new and hot and what promises the best results, and in the financial-services world, that typically means something that manages — for awhile, at least — to buck the odds and look great, justifying the higher costs."

(4) ... "'The investor gets what he doesn’t pay for,” meaning that every dollar that doesn’t go to pay for expenses winds up with the shareholder."

(5) ... "While they advocated that average investors keep it simple, low-cost and long-term, they failed to acknowledge that the industry is heading in the opposite direction — and most consumers are going with it. . . .

It’s why money gushes out of funds where a downturn in performance leads to a lower star rating from industry research firm Morningstar Inc., but floods into funds that have gained an extra star to get an above-average rating.

The move is based on past performance — there’s no denying which fund you would want to own if you could go back in time to build a portfolio — and supported by numbers, even if there is plenty of evidence to show that investors typically move into hot issues just before they cool and bail out of beaten-down securities just before they rebound.

(6) ... “The simple thing is to set up an asset allocation, rebalance regularly, revisit your allocation decision occasionally and stick with it.”

(7) ... "Chances are that approach will work in any long-term scenario the market dishes out, but it doesn’t mean that average investors or the financial-services companies they rely on won’t try to come up with something better that is mostly more complicated, more costly and less likely to work over a lifetime."

Now you have all the investing secrets you'll ever need. Just remember to heed them.

If you do, get ready for a successful, relatively stress free, low cost and easy way to achieve long term financial security.

Thanks. Bob.

1 comment:

  1. There are so very many options to consider from mutual funds to stocks to annuities... Each investor has to look into each of those. You can learn about all these options at as well as how each one works. I would advise people to start with something small and then working on diversifying over time.