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While eye opening about the industry, I found some of his points & predictions pessimistic and extremely conservative. He has stated elsewhere about owning your age in bonds, and that he personally has 80% in bonds. While he certainly practices what he preaches, I find that way too conservative.
I don't want to just save & invest for retirement. I want to be truly financially independent when I retire, with the principal breaking even or still growing relative to inflation when I start retirement drawdowns. To do that, I am saving 20% of salary, but am trying to find right investment strategy.
I can see the benefits in indexing, particularly for taxable accounts, but age in bonds and total stock market index fund is too conservative and simplistic.
After doing some reading, I'm more of a Markowitz, Fama & French diversification within an asset class, biasing to mid, small, and value, vs. Bogle's 5-7% return. I will NEVER be financially independent with 5% return, even if I lived like a student while accumulating. Therefore that method of investing is unacceptably conservative to me.
I am trying to get asset allocation right. I am leaning towards indexing with smaller cap value tilt for taxable and low cost actively managed for tax advantaged.
Last edited by Htown2013; 08-17-2014 at 09:41 AM..
I don't want to just save & invest for retirement. I want to be truly financially independent when I retire, with the principal breaking even or still growing relative to inflation when I start retirement drawdowns. To do that, I am saving 20% of salary, but am trying to find right investment strategy.
Eventually (hopefully sooner rather than later), you'll come to realize it's better to NOT be heavily dependent on compounding to reach financial independence. The only sure fire way to do that is to increase your savings rate.
A 20% after tax savings rate means it will take you 37 years to reach financial independence (ignoring the effects of pensions, social security, inheritances & other windfalls, etc.). This assumes 5% real (after inflation) returns, which most likely means a 100% stock portfolio or close to it.
This article has a chart that indicates how long it takes to reach financial independence based on savings rate. I wish I had this chart when I was in my 20s:
I really wouldn't be too obsessed with finding the right investment strategy. All strategies are good at times and bad at times (and the bad times typically last several years). When your strategy is not working (which WILL happen), you'll be tempted to sell, usually at the worst possible time, and you'll be tempted to buy into some other strategy that has been working the last few years, only to find that it stops working as well as it did.
This happens over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over again. It's typical for investors to not even get the market's rate of return because of their buying and selling at inopportune times.
If you don't want to index or have money in bonds, fine. I personally think everyone should have at least a little bit in bonds (like say, 10 or 15%).
Here is a good example of a near perfectly diversified investment portfolio involving 10 different asset classes. Personally, I wouldn't want the complexity of 10 different funds to rebalance every year especially if we're talking taxable accounts. But it is a very valid and diversified strategy that has produced market beating results with less volatility:
Personally, I like good balanced funds that invest in a mix of stocks and bonds. These balanced funds (usually 65%-70% stocks & 30%-35% bonds/cash) have beaten the S&P 500 Stock Index over the last 20 years:
Vanguard Wellington
Oakmark Equity & Income
Dodge & Cox Balanced
Mairs & Power Balanced
Since bond yields are so low now, they may not be able to do that for the next 20 years, but they are all good funds with below average expenses.
If you really want to go 100% stock, I recommend one of these funds. Both have been around for more than 40 years and will typically beat the S&P 500 over 5 year periods. Over longer periods, they do even better:
Mairs & Power Growth
Dodge & Cox Stock
Also, consider Dodge & Cox Global Stock if you want exposure to non-U.S. based companies. It hasn't been around that long, but all of Dodge & Cox's funds have been long term winners with well below average expenses.
Last edited by mysticaltyger; 08-17-2014 at 08:15 PM..
I think it is safe to assume that Bogle is in a very different financial place than those of us who post here. He is wealthy by any reasonable measure. He does not need to take any risk at all with his money - he would be fine putting it in a safe deposit box knowing with some certainty it will lose 1% to 3% per year.
Have you ever run a marathon? When you cross the finish line, STOP RUNNING. I have to keep reminding myself that - I'm retired.
I have the image in my mind of something you might see in a sitcom -- a character has a little angel sitting on one shoulder and a little devil on the other, each giving the opposite advice to the protagonist.
In my case, I have to constantly remind myself I've crossed the finish line so I should stop running. That is, why should I take on a risk that I don't have to take - even if its expected value is quite high? My rational side says don't incur risk; but at the same time I have a life expectancy of another 30 years, so investing in, say, equities will be fine because I've got 30 more years and more assets than I need with a very healthy safety factor. I can easily survive another black-swan event without breaking a sweat.
So-- why incur a risk that I don't have to incur?
So when it comes to Bogle, he's a wealthy 84 year old man. Why should he incur risks that he doesn't need to incur to support his lifestyle & his chosen heirs?
I think it is safe to assume that Bogle is in a very different financial place than those of us who post here. He is wealthy by any reasonable measure. He does not need to take any risk at all with his money - he would be fine putting it in a safe deposit box knowing with some certainty it will lose 1% to 3% per year.
Exactly. I forgot to point that out. Several years ago, financial guru Suze Orman admitted she only had $1M of her approximately $25M net worth invested in the stock market. The rest of her liquid net worth was invested in municipal bonds. People called her out as a hypocrite...but I didn't think she was (even though she's not my favorite). If you have, say $20M in municipal bonds, that means you can earn about $600K in tax free interest every year (assuming 3% interest). Plus, she's still out there making even more money being on TV, selling books, etc; so she can keep adding to her already large stash.
The funny thing is, once you're rich, you have the luxury of being able to be either very conservative or very aggressive (unless you go really extreme and put all or most of your net worth in one stock or business venture). For the non-rich majority, we don't have that luxury. We have to take some degree of risk or we will never get rich (and possibly not even financially comfortable) in the first place (i.e. putting all or most of our savings in CDs or municipal bonds just won't give us the compounding we need).
This advice is not really meant for those with a lot of trading or finance experience. It's just a rule of thumb for those who need to just do it. It's to have money there when people need it and so they need to worry less about losing it. People get scared with risk. Especially those with little experience and are likely unsure about themselves are very sensitive to downside vulnerability.
Also given how many people don't invest thinking it is too complex this easy rule can at least get people in the water.
If you want better gains it is more complex. I think indexing provides a good stable growth which lets you absorb variations in larger individual stocks, and speculate in smaller stocks, that can make even greater gains. Mutual funds have been poor performers for me in comparison to indexes, with higher fees in addition. Not that they are all bad...or all good.
I think it is safe to assume that Bogle is in a very different financial place than those of us who post here. He is wealthy by any reasonable measure. He does not need to take any risk at all with his money - he would be fine putting it in a safe deposit box knowing with some certainty it will lose 1% to 3% per year.
Have you ever run a marathon? When you cross the finish line, STOP RUNNING. I have to keep reminding myself that - I'm retired.
I have the image in my mind of something you might see in a sitcom -- a character has a little angel sitting on one shoulder and a little devil on the other, each giving the opposite advice to the protagonist.
In my case, I have to constantly remind myself I've crossed the finish line so I should stop running. That is, why should I take on a risk that I don't have to take - even if its expected value is quite high? My rational side says don't incur risk; but at the same time I have a life expectancy of another 30 years, so investing in, say, equities will be fine because I've got 30 more years and more assets than I need with a very healthy safety factor. I can easily survive another black-swan event without breaking a sweat.
So-- why incur a risk that I don't have to incur?
So when it comes to Bogle, he's a wealthy 84 year old man. Why should he incur risks that he doesn't need to incur to support his lifestyle & his chosen heirs?
as they say why keep playing when you already won the game.
i am semi-retired and soon to be retired and i am still adjusting to find that balance between volatility and what i need to produce the income levels i want consistantly .
While eye opening about the industry, I found some of his points & predictions pessimistic and extremely conservative. He has stated elsewhere about owning your age in bonds, and that he personally has 80% in bonds. While he certainly practices what he preaches, I find that way too conservative.
John Bogle is 85 YEARS OLD. I do not think that his allocation is too conservative at his age.
Why don't you read some of his many books and you will find out what he actually recommends for YOUNGER people.
John Bogle is 85 YEARS OLD. I do not think that his allocation is too conservative at his age.
Why don't you read some of his many books and you will find out what he actually recommends for YOUNGER people.
Yup, they should try his primer on the Common Sense of mutual funds and progress from there. The best way to ruin a good plan is to try for a great one. Even if after reading you never buy one index fund you will at least have a more pragmatic approach to buying what you do. Vanguard is a lot more than just index funds. They are about low cost as much as anything and that should make investors happy.
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