In a recent interview with the Wall Street Journal, John Bogle, founder and former chairman of index-fund behemoth Vanguard Group, says that everything you need to know about money can be written up on a 3 x 5 index card.
In fact, he says, it can be summed up in three simple rules:
1. Own the entire stock market
Bogle says that “The S&P 500 is a great proxy for this.” The very first index fund, introduced by Vanguard in 1976, mimicked the S&P 500. It is called the Vanguard 500 Index Fund today, and other investment companies have their own versions.
“Instead of you buying an investment like an individual stock or a mutual fund where some brainiac tries to figure out what to buy, what to sell, how much of it to get… well, in an index fund it’s really simple; you just buy all the big companies in the country,” Clark says.
2. Do nothing
To Bogle, this means taking a passive approach to investing, as well — not trying to time the market or jumping from one stock to another.
Clark Howard shares this philosophy, as he likes to remind people when there is turbulence in the stock market.
“If you’re putting in money through a retirement plan at work and have a lengthy horizon until you have to use that money, just keep going along paycheck by paycheck with your investing,” Clark says. “That’s called dollar cost averaging, and it can make you a fortune over time.
3. Do it at very low costs
If you really want your money to grow, don’t waste it on management fees.
Again, Clark agrees!
“Over time, what seems like a tiny difference in management fees from fund to fund can make a huge difference in how much money you have to spend,” he says. “We’re talking a difference in the tens of thousands of dollars!”
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