I’ve been meaning to do this particular post for a while. As a matter of fact, this is the main reason I’ve resurrected this website to begin with – I wanted to document this for my kids, and for whoever else it is valuable for.

I’ve found myself outlining this a few times, so why not put it on the internet? :-) Besides, it’s easy.

What is a “Boglehead”?

A Boglehead is someone who follows the investment advice and strategy of John C Bogle.

Boglehead investing is an investment philosophy inspired by John Bogle, emphasizing:

  • Low-cost index fund investing: Using broad-market index funds to achieve market returns at minimal cost.
  • Long-term perspective: Holding investments for many years to benefit from compound growth.
  • Diversification: Spreading investments across various asset classes to reduce risk.
  • Simplicity: Avoiding complex strategies, focusing on a straightforward, buy-and-hold approach.
  • Minimizing costs: Keeping fees, taxes, and expenses low to maximize net returns.

The philosophy advocates for passive investing over active management, aiming for steady, low-risk growth rather than trying to beat the market.

John Bogle’s Investment Philosophy

John Bogle’s investment philosophy, often referred to as the “Boglehead” philosophy, can be summarized through several key principles:

  • Index Fund Investing:
    • Bogle advocated for the use of low-cost, broadly diversified index funds that track the performance of a market index like the S&P 500. His belief was that these funds provide broad market exposure, reducing the risk associated with individual stock picking.
  • Low Costs Are Key:
    • He emphasized minimizing investment costs, including management fees, transaction costs, and tax implications. Bogle argued that costs significantly erode returns over time, so keeping them as low as possible is crucial for long-term wealth accumulation.
  • Buy and Hold:
    • Instead of trying to time the market or engage in frequent trading, Bogle’s strategy was to invest for the long term. This approach reduces transaction costs and capital gains taxes while allowing investors to benefit from compound interest.
  • Diversification:
    • By investing in broad market indices, investors naturally achieve diversification, spreading out risk across different sectors and companies. Bogle believed in not putting all your eggs in one basket but rather in the entire market.
  • Simplicity:
    • He was a proponent of simple investment strategies over complex ones. His philosophy discourages the use of complicated financial instruments or strategies, which often come with higher fees and risks.
  • Invest Regularly:
    • Dollar-cost averaging, or investing a fixed amount regularly, was another aspect of his philosophy. This strategy helps mitigate the impact of volatility and reduces the risk of investing a large sum at a market peak.
  • Avoid Market Timing:
    • Bogle warned against trying to predict market movements or reacting to short-term market fluctuations. He believed that markets are inherently unpredictable in the short term, and a long-term perspective is more beneficial.
  • Focus on Fundamentals:
    • His approach was rooted in fundamental investing principles rather than speculation. Bogle encouraged investors to focus on the underlying value and performance of their investments rather than market noise.
  • Investor Education:
    • He stressed the importance of investors educating themselves about the basics of investing, understanding what they’re investing in, and why they’re doing it.
  • Common Sense Over Cleverness:
    • Bogle often spoke of common sense investing, where straightforward, logical approaches outperform clever but risky strategies.

Bogle’s philosophy has influenced countless investors, leading to a shift towards passive investing and the widespread adoption of index funds as a core component of many investment portfolios. His work with Vanguard has made these investment principles accessible to everyday investors.

Why would I want to do it this way?

John Bogle famously said:

“Don’t look for the needle in the haystack. Just buy the haystack!”

The idea behind the whole philosophy is that it is very difficult to correctly pick winning stocks (finding the needle), while with the advent of index funds we can very easily buy the entire haystack.

The stocks in the stock market go up and down, are bought and sold, but the market as a whole has a tendency to grow over time. For every stock sold, someone is buying it – and of course the opposite is true as well.

Instead of playing that whole game… buy the haystack!

My General Investing Strategy

This whole Boglehead thing is mostly “set it and forget it”, though you can customize it to whatever you feel that you need. For my tax-advantaged accounts (IRAs/401k) I have my accounts set to automatically invest a set amount each payday into the particular funds mentioned below. Then I don’t even have to think about it!

First, before I go into any of this – you should maximize your tax-advantaged accounts totally before starting some kind of post-tax investment fund (excepting some emergency fund, which should be cash or some money market fund). Those tax-advantaged accounts would be your 401k, IRAs (Roth and/or Traditional), etc.

Once you can max those out, it’d be fine to start another investment account that is taxable.

Within the tax-advantaged accounts, you should be able to apply this same strategy or something very similar, depending on the options you have available. If you can’t find the exact funds I mention below, you should be able to find something similar, and you should almost certainly have access to some index funds and you can always compare the expense ratio to ensure it is reasonably low (< 0.30 %).

As a guideline, something like:

  • 70% US stocks
  • 20% International stocks
  • 10% Bonds

Funds

Here is what I invest in with my taxable investment account (I use Fidelity, but Scottrade/Robinhood/Vanguard/etc all have the same types of funds):

  • FDLXX / Fidelity Treasury Only Money Market Fund
    • I use this as a high-yield savings account!
    • I keep some amount of money in my local bank, and get a reasonable rate, but this Treasury only MM fund will almost always have a higher interest than through a bank or credit union – basically skipping the middle man!
  • VTI / Vanguard Total Stock Market Index Fund (US)
    • ALL US stocks, portioned by market cap (the bigger the company, the higher the percentage in the fund)
    • I invest 70% in VTI
  • VXUS / Vanguard Total International Stock Market Index Fund (non-US)
    • The US isn’t the entire world, so this fleshes out the rest of it – all of the world except the US stocks
    • I invest 30% in VXUS
  • Bonds
    • 0%
    • you may say, “what?! no bonds? what kind of boglehead are you?”
    • I invest in bonds through my tax-advantaged 401k ;-)

Alternate Funds

  • FDKLX / Fidelity Freedom Index 2060 Investor
    • These “target date funds” have slightly higher expense ratios, but they make your life easy
    • No need to calculate 30%/70% or whatever else, the fund automatically does that for you including some allocation in bonds
    • And speaking of bonds! As it gets closer to the target date of the fund, the allocation of bonds increases
    • The idea there being more financial stability with less risk as one gets closer to retirement
  • FSSNX / Fidelity Small Cap Index Fund
    • I optionally add a bit more risk with a small cap fund in one of my IRAs (< 10%)
  • FSKAX / Fidelity Total Market Index Fund
    • basically a Fidelity version of VTI

What about Crypto?

Most coins and things will be scams. So buyer beware.

I am a believer in Bitcoin and Eth, but I look at them kind of how I view gold (see below). One big difference being the value definitely isn’t consistent, especially in these early days.

However, it is still early days for crypto, and I expect BTC to continue growing. I hold some, and I plan to continue holding. I’ll buy more in small amounts, but it is not my primary focus for investing.

What about Gold?

Gold is great to have! However, it is not so much an investment as it is a store of value. Meaning, gold will stay pretty consistent but inflation and the value of the dollar will vary, hence the value of gold varies.

Still, while not an investment, it is good to have a store of value that is universally valuable.

Key Takeaways

Invest early. Invest often. Whatever you can afford to save. The sooner you start, the more you will have later – but the key is to not sell.

Even if you save and invest just a small amount, due to compounding gains you’ll still be much better off than never starting!

Some reading recommendations

These books encapsulate Bogle’s investment philosophy, his critique of the financial industry, and his insights into ethical investing and personal success.

  • “The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns”:
    • This book is famous for advocating the benefits of low-cost index fund investing over actively managed funds. Bogle explains why trying to beat the market is often futile and how investors can achieve better results with a simpler, less costly approach.
  • “Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor”:
    • Originally published in 1999 with a fully updated 10th Anniversary edition in 2009, this book offers a comprehensive look at mutual funds, including how to select them wisely, the importance of low costs, and the philosophy of long-term investment.
  • “Enough: True Measures of Money, Business, and Life”:
    • Written amidst the 2008 financial crisis, this book reflects on what constitutes “enough” in terms of money, business, and personal life. Bogle delves into themes of ethics, values, and the pursuit of success in a way that transcends mere financial advice.
  • “The Battle for the Soul of Capitalism”:
    • Published in 2005, this book criticizes the mutual fund industry for its practices and calls for a return to fiduciary responsibility. Bogle discusses the ethical dimensions of finance and how money managers should act in the best interest of their clients.
  • “Stay the Course: The Story of Vanguard and the Index Revolution”:
    • This book provides a historical overview of Vanguard’s journey and the impact of index funds on the investment world. It’s part memoir, part investment guide, focusing on Bogle’s experiences and lessons learned over his career.