John Bogle, the legendary inventor of indexed investing and founder of the Vanguard Group, sadly passed away at the age of 89. He was a tireless advocate of the ordinary investor. Bogle focused much of his attention on the development of low-cost and low-turnover funds that are passively managed and track indices. His work subsequently led to the development and extraordinary expansion of exchange traded funds (ETFs).
Bogle expounded several key messages for investors:
Start now. Regular investing is a virtuous habit best started as early as possible. Enjoy the magic of compounding returns. Even modest investments made in one’s early 20s are likely to grow to staggering amounts over the course of an investment lifetime. The biggest risk facing investors is not short-term volatility but, rather, the risk of not earning a sufficient return on capital as it accumulates longer-term.
Don’t pick stock, diversify. Basic investing is simple – a sensible allocation among stocks, bonds, and cash reserves. Best approach is a diversified selection of middle-of-the-road, high-grade securities with a careful balancing of risk, return and cost.
Keep your fees low. Net return is simply the gross return of your investment portfolio less the costs you incur. Keep your investment expenses low and at all costs avoid high management and brokerage fees for the tyranny of compounding costs can devastate the miracle of compounding returns.
Don’t be emotional. Have rational expectations for future returns and avoid changing those expectations in response to the ephemeral noise coming from Wall Street which often ends to a buy high, sell low scenario. Regardless of what happens in the markets, stick to your investment program. This is the most important of all. Changing your strategy at the wrong time can be the single most devastating mistake you can make as an investor. (Just ask investors who moved a significant portion of their portfolio to cash during the depths of the financial crisis only to miss out on part or even all of the subsequent eight-year bull market that we have enjoyed up until 2018).
It’s really all there: decades of investment experience and thought in six simple ideas. All of these are the foundations for the investment philosophy at Sarwa: a programme of long-term investment tailored to investor needs and objectives, eliminating emotion from the management of the portfolio and keeping expenses low though investment in ETF’s.