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John Bogle, founder of Vanguard Funds, the dean of passive investing, is no ordinary expert on investing, and recently he updated his classic tome on investing, Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition
, and shared his thoughts on investing with the LA Times.
Here are some highlights:
"You should start when you get your first job and put money into your account every month," he said. "If you did that and didn't look until you started withdrawing money 40 or 50 years later, you wouldn't believe how rich you were."
"We are our own worst enemies," Bogle said. "We buy at the highs and sell at the lows."
"Who was talking about buying gold a decade ago? Nobody," said Bogle. At the time, the investment had been much maligned and long disappeared from most portfolios. Today the metal has had a decadelong run and soared to record highs. "Who is talking about buying gold now? Everybody."
Bogle thinks gold is now the wrong place to invest. Most investors should stick with the chocolate and vanilla of the investment world -- U.S. stocks and bonds, he said. And, frankly, he thinks stocks (which make some investors queasy because of the last decade of rotten returns) have about twice the potential of bonds, even though bonds have done beautifully in that time too.
He doesn't recommend that people load up on stocks, though, because stocks are volatile. And he knows that investors will peek at their portfolios and react to what they see -- even if what they're seeing is a temporary blip on the investment horizon.
"Stocks should do about twice as well as bonds over the coming decade," Bogle said. "But what good is that going to do you if, when stocks drop 50% as they are likely to do at some point, you say: I'm out of here?"
...Bonds, meanwhile, promise a set return on your investment via the bond's "coupon" or yield. If your promised return is 4.5%, the long-term return on that investment is likely to be 4.5%.
How does Bogle suggest you play this market? The same way you should have played it a decade ago -- or a decade from now. Invest your age in bonds, he suggests, and the rest in stocks.
As usual, he recommends index funds, saying that the odds favour them over actively managed funds.
Source: Old-fashioned investing advice still applies, March 28, 2010
