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Investing like a

Boglehead

Jack Bogle

Founded Vanguard in 1974, now manages $3


trillion in assets

In his Princeton thesis, found that 75% of mutual


funds performed worse than the S&P500, almost all
did after subtracting management fees

Pioneered the no-load, low cost index fund,


Vanguard 500, now with $355B in assets

Bogleheads Principles
1. Live below your means

6. Dont time the market

2. Invest early and often

7. Keep costs low

3. Bear the right amount


of risk

8. Minimize taxes
9. Invest simply

4. Diversify
10. Stay the course
5. Use index funds

1. Live below your means

Pay off credit cards (~15% APR)

Pay off student loans?

Aim to save 10-20% of income

2. Invest early and often


Investing 100K over 10 years (10K/year) starting at

Starting Age

Amount at age 60

35

$570,265

30

$787,568

25

$1,071,477
8% return

3. Bear the right amount of risk

Stocks: Owning a small slice of a company and its


profits. Higher risk, higher reward.

Bonds: Owning an IOU from company to pay back


a loan on a pre-set schedule. Lower risk, lower
reward.

Asset allocation

The more risk you can handle, less bonds you need

When young, longer investing timeline, greater


ability to recover from large losses

When older, more to protect, less time to recover


from large losses

Allocation must be stomach-able at all times

Starting rule of thumb: Your age - 10 in bonds

4. Diversify

Buy the entire stock market (eg. Vanguard Total


Stock Market has 3,657 stocks)

Dont try (and fail at) trying to pick winners (even


most professionals suck at this)

Use index funds

Index funds track indices (eg. S&P 500)

Costs are low

Everything is automated (not paying for a $1MM/


year fund manager)

Little turnover (buying/selling of stock which are


taxable events)

6. Dont time the market

Past does not predict future performance

Youll probably buy high, sell low (ie. suck at it as


do most professionals)

Contribute regularly (automated is best) and ignore


the market

7. Keep costs low

Expense Ratio: Percentage paid annually (keep


low)

Load Fee: Purchase fee (AVOID!)

Redemption Fee: Sales fee (AVOID!)

1% compounds to 20%
Starting Age /
Expense Ratio

1.2%

0.2%

35

$1.15 MM

$1.34 MM

30

$1.70 MM

$2.06 MM

25

$2.47 MM

$3.11 MM

Total at age 60, contributing $17,500/year returning 8%

8. Minimize Taxes

Maximize the use of tax-advantaged accounts (401K and IRA


etc)

Place tax inefficient investments in tax-advantaged accounts

Bonds pay interest regularly, incur tax every time

Stock appreciate, incur tax on sale (and on dividends


distribution if applicable)

Index (low turnover) vs actively managed funds (high turnover)

Capital gains: short vs long term

401K and IRA

Retirement accounts, usually cant touch till ~age


60

Limit, per year: 401K = $17,500, IRA: $5,500

Fund choices

Traditional vs ROTH

Pay tax now (ROTH) vs later (Traditional)

Consider current vs retirement tax bracket

ROTH IRA advantages: Can withdrawal


contributions anytime tax and penalty free (great
for young people without significant savings/
emergency fund)

Beware: Income limits, future tax changes

9. Invest simply

Target Retirement (automatic re-balancing)

Simple 3 fund portfolio

Example: Vanguard Target Retirement 2055


(0.18% ER)

Total Stock Market (0.17%), Total International


Stock Market (0.14%), Total Bond Market (0.20%)

Re-asses asset allocation regularly!

10. Stay the course

Now what?

Invest (for retirement) in the following order

If no 401K match: IRA, 401K, after tax

If 401K match: 401K to maximize match, IRA,


401K, after tax

Index funds and/or target retirement account

Dont watch CNN, ignore your friends hot stock tip

Profit!

Learn More

http://www.bogleheads.org/ (forum & wiki)

Bogleheads Guide to Retirement (on Scribd!)

Bogleheads Guide to Investing

Learn about and how to minimize taxes :(