Bio: Jack Bogle
Jack Bogle created the world's first index fund for ordinary people. He founded the Vanguard Group, which now manages $3 trillion. "Buy a stock index fund and add bonds as you age," he famously said. Unfortunately Jack Bogle passed away in 2019, but left us with a legacy on investing advice and knowhow, his views on the market today are as true then as they are today.
- Buy a stock index fund and own your age in bonds.
Bogle believed individuals should invest through low-cost index funds. (He did create the first one after all.) With an index fund you're not paying fund managers to pick stocks for you. Instead, you basically "own all of corporate America," at least, on a micro scale. Over time, low-cost index mutual funds can outperform the vast majority of actively managed mutual funds. Picking winning stocks is very hard, and for most of us, it just costs too much to invest that way.
"Cost turns out to be everything," Bogle says. "It's just what I've always called the 'relentless rules of humble arithmetic.' "
"Simplicity underlies the best investment strategies. Basic arithmetic works. Keep your investment expenses under control," Bogle believed in saving as much as you could in fees. "Your net return is simply the gross return of your investment portfolio less the costs you incur. Low costs make your task easier."
As for balancing the risk and reward of your portfolio based on your age, "let's start with the concept that when we're young, have few assets, are willing to take risks, and seek capital accumulation, we should emphasize common stocks,"…"But as we age, our assets grow, we gradually become more risk averse, and increasingly seek income, we should emphasize bonds."
One option is to start with a bond position similar to your age — 20% (or less) in bonds in our 20’s, 80% bonds in our 80’s — and then make changes over time and based on your personal situation.
- Factor in Social Security
You could justify owning a larger percentage of your assets in stocks if you factor in that Social Security provides a stable revenue stream, very similar to bonds. Therefore, if you are paying Social Security with every paycheck, you could safely own more stock than the basic age rule would recommend.
How can FOLIO do the heavy lifting?
You can use a tool like FOLIO to help you with asset allocation and portfolio management. FOLIO saves you time, with live pricing and benchmarks to track how your asset allocation changes over time. You can easily use this reporting to then rebalance your portfolio the way you want, while also understanding the net worth and your financial situation. All of this is shown on our comprehensive dashboards.
If you’re looking to take control over your investments while also monitoring your net worth, then you need to give FOLIO a try.
Sources: Chris Arnold on npr.org