8 nuggets of investing wisdom from Vanguard’s founder

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8 nuggets of investing wisdom from Vanguard’s founder
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When he was 70, Jack Bogle was forced out of the company he’d founded.

There was a pesky little issue of mandatory retirement age and even though he’d started the Vanguard Group, Jack had to go.

Maybe ‘company’ isn’t the right word. For those who listen to Clark, you surely know the name Vanguard.

But do you know that Vanguard is a co-op for investing that’s owned by its shareholders? It’s similar to a credit union in structure where you own the place as a customer. That means there are no outside shareholders to appease, nor is it a for-profit ‘company’ in the traditional sense of the word.

Bogle is 87 these days and gave a wide-ranging interview to the Wall Street Journal that revealed what the man thinks as we enter what he calls an ‘extremely risky world’ for investors.

Jack’s take

The founder of Vanguard say investors should expect as little as 2% returns on their money — after expenses — for the next decade or so. And there’s not much you can do about it, except to keep saving.

‘If we’re going to have lower returns, well, the worst thing you can do is reach for more yield,’ Bogle says. ‘You just have to save more.’

In a world like that, you have to ask yourself these questions: Why would you even invest at all? Why not just stick your money under a mattress?

‘I know of no better way to guarantee you’ll have nothing at the end of the trail,’ Bogle says. ‘So we know we have to invest. And there’s no better way to invest than a diversified list of stocks and bonds at very low cost.’

Following are 8 nuggets of investing wisdom that typify the approach favored by those who invest for the long haul, like Bogle and Clark himself.

Put a small percentage of your money in gold or other precious metals

Worried about the direction things are headed in the world? Gold is the traditional safe haven people flock to when times get tough. Both Bogle and Clark agree there’s nothing wrong with putting 5% of your portfolio in gold as a hedge against inflation and political chaos.

You don’t necessarily have to invest overseas

Larger U.S. companies get a huge share of their sales outside the U.S. So unless you like dealing with variables like currency exchanges, Bogle says you don’t have to expressly spread your money out overseas because the domestic companies you invest in are already effectively doing it for you.

Pick up matching 401(k) contributions from your employer

If your employer offers to match your retirement savings, take advantage of the offer. That’s free money on the table for you to pick up!

The beauty of an employer match is that it’s the equivalent of an automatic pay raise. No need to ask your boss, get a good quarterly review or hope your company has a good year so there’s money for a raise!

Be sure you set up automatic withdrawals

Putting your finances on autopilot is downright dangerous when it comes to paying a utility company, a health club, a mortgage lender, a cable provider, a cell provider or any other business. But it’s absolute genius when it comes to investing.

Automatic withdrawals are a great thing when you’re contributing money to a retirement, investment or savings accounts each pay period. People don’t miss the money because they never see it, so it’s much easier to reach your financial goals this way.

Increase your savings rate gradually

Bumping up your savings rate doesn’t have to be a painful thing. Most people find it pretty comfortable to increase their savings rate by 1% every six months. So if you save nothing currently, start by saving 1% of your pay, then increase to 2% in six months. After five years, you’ll be saving 10% without even noticing it! And with automatic withdrawals, the money is gone before you ever see it.

Be dull and keep costs low

Clark has long said he’s dull as a person and as an investor. While we wouldn’t agree with him on the former, we can certainly agree on the latter. You should be doing basic meat-and-potatoes investing. Think low-cost index funds — nothing fancy. (Not sure what an index fund is? Read this!)

Low-cost index funds are, of course, core and key to what Bogle and Vanguard do!

Don’t forget about dollar cost averaging

By making regular contributions monthly in equal amounts, you are doing what’s called ‘dollar cost averaging.’ That’s just a fancy way of saying you’re not trying to time the market. In months that the stock market is going down in value, your money buys more shares. In months that the market is climbing, your money buys a smaller number of shares, but the shares you already own are worth more.

Dollar cost averaging is a way to pace your investing so that you’re buying shares when prices are low, high or in between. Over time, putting money in this way reduces the possibility you will panic and either sell or stop investing; it keeps you steady as you go. And staying in the game makes you more money in the long run.

The final word: Diversification

Diversification is the key. You have to spread your money out to lower your risk. A lot of people make the mistake of taking all their money and putting it into a stable fund or a guaranteed fund. Those options may sound like a sure thing, but they basically tread water.

Clark prefers that you have money in a total stock market index as a ‘go to’ kind of investment. That’s where you own little pieces of thousands of companies. If one sector takes a hit — say, technology stocks, as they did during the ‘dot com’ bust — your whole portfolio isn’t blown to smithereens because you’ve spread your money out across multiple industries.

Sure, diversifying is not as ‘sexy’ as putting all your money into a single company and letting it ride. But investments should be about long-term security, not the dazzle factor.

Read more: Clark’s investment guide

Big investments start with small steps

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Theo Thimou About the author:
Theo has co-written several books with Clark Howard, including the New York Times #1 bestseller Living Large in Lean Times. As a single widowed parent of two young children, he strives to bring unique savings tips to men and women like him who must face life without their spouses. He can be reached at [email protected]
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