Investing Basics: Seven tips for the DIY investor
Entrepreneur and bestselling author John ‘Jack’ Bogle was a legend of US investing.
He became famous as the Father of Tracker Funds when he founded investment company Vanguard, which is now the world’s second largest fund manager with 4.9 trillion dollars under management.
Bogle believes that rationality beats emotion, and advises that, in investing, or life in general, you should always learn from the best.
In an article for the CFA Institute in 2017, he summarised the basic rules of investment in seven short tips.
- Invest you must
The biggest risk facing investors is not short-term volatility but, the risk of not earning a sufficient return on their capital as it accumulates.
- Time is your friend
Investing is a virtuous habit best started as early as possible. Enjoy the magic of compounding returns. Even modest investments in your early 20s can grow to staggering amounts over the course of an investment lifetime.
- Impulse is your enemy
Eliminate emotion. Have rational expectations for future returns, and avoid changing them in response to the ephemeral noise from Wall Street. Avoid acting on what may appear to be unique insights that are in fact shared by millions of others.
- Basic arithmetic works
Net return is simply the gross return of your investment portfolio less the costs you incur. Keep your investment expenses low, for the tyranny of compounding costs can devastate the miracle of compounding returns.
- Stick to simplicity
Basic investing is simple—a sensible allocation among stocks, bonds, and cash reserves. A diversified selection of middle-of-the-road, high-grade securities. A careful balancing of risk, return, and cost.
- Never forget reversion to the mean
A strong performance by a fund is highly likely to revert to the stock market norm—and often below it. As the bible says, so the last shall be first, and the first last. Matthew twenty sixteen
- Stay the course
The most important advice I can give you. Regardless of what happens in the markets, stick to your investment program. Changing strategy at the wrong time can be disastrous to an investor. Those who moved to cash during the depths of the financial crisis, missed out on a decade-long bull market.
Paying tribute after Bogle died in 2019, Warren Buffett said. John has done more for the entirety of American investors than anyone else I know.’
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