The 10 Smartest Things Said About Investing by Vanguard Founder Jack Bogle

John C. (Jack) Bogle died January 18, 2019 at the age of 89.  Bogle created the first widely available index fund and relentlessly worked to lower investment costs, eventually forcing other mutual fund companies to follow his lead.  

It is not an exaggeration to say that Bogle did more for individual investors than anyone who ever lived.  No less an authority than Warren Buffett stated in his 2016 annual report:

“If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle.  For decades, Jack has urged investors to invest in ultra-low-cost index funds.  In his crusade…Jack was frequently mocked by the investment management industry.  Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned.  He is a hero to them and to me.”

Speaking of Bogle’s creation of the first retail index fund Nobel-winning economist Paul Samuelson stated:

“I rank this Bogle invention along with the invention of the wheel, alphabet, Gutenberg printing, and wine and cheese; a mutual fund that never made Bogle rich but elevated the long-term rewards of mutual fund owners.  Something new under the sun.”

High praise indeed!

I have read many of Bogle’s books and have always been impressed not only with the quality of his investment advice, but with his writing.  He is great at turning a memorable phrase that teaches an important concept in an unforgettable way.  So in honor of the passing of “St. Jack” here are the 10 smartest things Bogle said about investing:

The Cost Matters Hypothesis

Bogle was widely ridiculed when he started the first retail index fund in 1976.  Some went as far as to call it “Bogle’s Folly” – but he was certain the concept would work.  Even though the fund got off to a rough start Bogle never lost faith.  He later explained why: 

“…we didn’t rely on the EMH [Efficient Market Hypothesis] as the basis for our conviction.  After all, sometimes the markets are highly efficient, sometimes wildly inefficient, and it’s not easy to know the difference.  Rather, we relied on a theory that is not only more compelling, but unarguably universal.  The CMH – the Cost Matters Hypothesis – is all that is needed to explain why indexing must and will work….Whether or not the markets are efficient, the explanatory power of the CMH holds.”

Prior to launching the first index fund Bogle had calculated the return of mutual funds against the return of the S&P 500.  He found the average fund trailed the S&P index by about 2 percent per year, which was almost the exact amount the average fund charged in expenses.  He reasoned that by trying to match, not beat, the market, and by keeping costs low, he could outperform most actively managed funds.  Time has proved him right.

You Get What You Don’t Pay For

“…in mutual funds, performance comes and goes, but expenses go on forever.  So I reiterate, that, in the mutual fund industry, you not only don’t get what you pay for, you get precisely what you don’t pay for.  Therefore, if you pay nothing you get everything (i.e., the stock market’s gross return).”

Bogle offered an example of $10,000 dollars invested in a fund for 50 years.  If the market returned 8 percent, and there weren’t any costs, the $10,000 would grow to $459,000.  However, if the fund had costs of 2 percent the $10,000 would only grow to $174,000.  While 2 percent might not seem like a lot, it can add up to hundreds of thousands of dollars over an investing lifetime. 

Investing vs. Gambling

“I look at indexing as being simple and, sad to say, boring.  Be bored by the process but elated by the outcome.  In Vegas, it’s the opposite.  You’re elated by the process, by the moment, but you’re bored by the outcome because you know exactly what it will be.  The more you bet, the more you lose.  Investing shouldn’t give you a rush.” 

Investing in index funds might be boring day to day but the results over a lifetime are extremely exciting.  It might not be entertaining but it is definitely rewarding.    

Don’t Do Something – Just Stand There

“The way to wealth, I repeat one final time, is not only to capitalize on the magic of long-term compounding of returns, but to avoid the long-term compounding of costs.  Avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today’s financial services system.  While the interests of Wall Street’s businesses are well served by the aphorism ‘Don’t just stand there – do something!’ the interests of Main Street’s investors are well served by an approach that is its diametrical opposite: ‘Don’t do something – just stand there!’”

Assuming you have an asset allocation representing a risk level you are comfortable with, and you are adequately diversified, the best thing to do in a crisis is probably nothing.  As Bogle is fond of saying, “Stay the course.”

Buy the Haystack

“The simple fact is that selecting a mutual fund that will outpace the stock market over the long term is, using Cervantes’ wonderful observation, like ‘looking for a needle in a haystack.’ So I offer you Bogle’s corollary: ‘Don’t look for the needle in the haystack.  Just buy the haystack!’”

Trying to find a needle in a haystack is both expensive and time consuming.  Bogle did everyone a huge favor by allowing us to just buy the haystack. 

The Majesty of Simplicity

“The great paradox of this remarkable age is that the more complex the world around us becomes, the more simplicity we must seek in order to realize our financial goals.  Never underrate either the majesty of simplicity or its proven effectiveness as a long-term strategy for productive investing.  Simplicity, indeed, is the master key to financial success.”

It’s rare in life when the easy thing to do is the smart thing to do, but thanks to Bogle and index funds this is true with investing.  Life is complicated enough.  With index funds you can keep your investments simple and beat most of those spending far more time and effort than you are.

The Surest Route to Wealth

“Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth.”

Remember that until Bogle created the first retail index fund in 1976 this surest of all routes to wealth wasn’t available to most people.  The reason Bogle is celebrated as a hero in the investing world is because he pioneered the route and encouraged millions of others to follow.

The Tyranny of Costs

“Fund returns are devastated by costs, taxes, and inflation….The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.”

While we can’t do much about inflation, investing in index funds will help you win the battle against both taxes and costs. 

Perfection is Impossible

“Don’t forget the prophetic warning of Carl von Clausewitz, military theorist and Prussian General of the early nineteenth century, ‘The greatest enemy of a good plan is the dream of a perfect plan.’  Put your dreaming away, pull out your common sense, and stick to the good plan represented by the classic index fund.” 

You are not the next Warren Buffett and you are not going to get incredibly rich picking winning stocks.  The sooner you realize this the sooner you can get down to the business of getting rich slowly by investing consistently in index funds.  Sometimes a good plan is good enough.     

Six Simple Rules

Bogle summarized his investment philosophy in six simple rules that we would all be wise to remember:

• “Invest you must. The biggest risk is the long-term risk of not putting your money to work at a generous return, not the short-term – but nonetheless real – risk of price volatility.

• Time is your friend. Give yourself all the time you can.  Begin to invest in your 20s, even if it’s only a small amount, and never stop.  Even modest investments in tough times will help you sustain the pace and will become a habit.  Compound interest is a miracle. 

• Impulse is your enemy. Eliminate emotion from your investment program.  Have rationale expectations about future returns, and avoid changing those expectations as the seasons change.  Cold, dark winters will give way to bright, bountiful springs. 

• Basic arithmetic works.  Keep your investment expenses under control.  Your net return is simply the gross return of your investment portfolio, less the costs you incur (sales commissions, advisory fees, transactions costs).  Low costs make your task easier.  

• Stick to simplicity. Don’t complicate the process.  Basic investing is simple – a sensible asset allocation to stocks, bonds, and cash reserves; a selection of middle-of-the-road funds that emphasize high-grade securities; a careful balancing of risk, return, and (lest we forget) cost. 

• Stay the course. No matter what happens, stick to your program.  I’ve said “stay the course” a thousand times, and I mean it every time.  It is the most important single piece of investment wisdom I can give you.”  

It’s time to start building that statue.  Thank you St. Jack, and farewell! 

Additional Reading:

When It Comes to Investing, I’m a Boglehead

10 Investing Lessons from Dilbert Creator Scott Adams and Vanguard Founder John Bogle

The Majesty of Simplicity