“Time is your friend; impulse is your enemy.” – Jack Bogle
Vanguard Group founder John C. Bogle died on January 16th, 2019, and many in the media are celebrating his life and accomplishments. A true innovator, with an unsurpassed track record as an investment manager, Bogle put index funds on the map and started the trend of slashing fees, helping to put the ability to own a piece of the entire stock market within reach of any investor. Unlike many Wall Street billionaires in an era of increasing wealth inequality, Bogle was known for his relatively modest lifestyle.
In honor of his life and work, here are four investing tips inspired by Jack Bogle’s investing philosophy, a philosophy that we share:
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#1 – Dependability of performance through thick and thin
One of the most important factors in investing success is to avoid trying to time the market. Time in the market is what’s critical to long-term success. While there will always be periods of volatility, holding on to quality and reinvesting dividends when prices drop is one of the best ways to build wealth over a lifetime. Just be honest with yourself about how much risk you can realistically tolerate. According to Bogle, “The biggest risk facing investors is not short-term volatility but, rather, the risk of not earning a sufficient return on their capital as it accumulates.” This quote had a big influence on Emperor Investments’ co-founders deciding to create a pure stock, dividend robo advisor.
#2 – Resilience in the face of adversity
Diversify your investments according to your time horizon and risk tolerance, then trust the math. In other words, make a plan and then stick to it. One of the benefits of automated investing, or robo advising, is that using an algorithm to make decisions disregards emotions. As Bogle once said, “Impulse is your enemy.” One of the worst things any investor can do is make a decision based on financial media. Despite Wall Street pundits, no one can predict what the market will do next.
One of Bogle’s most famous quotes is this: “Regardless of what happens in the markets, stick to your investment program. Changing your strategy at the wrong time can be the single most devastating mistake you can make as an investor.” If you find yourself struggling with this, here are a few tips to help you change your behavior on the path to becoming a better investor.
#3 – Loyalty to investors
Born in 1929, Bogle grew up during the Great Depression, and was well-known for both his frugality and for putting the best interests of investors first. In fact, the shareholders of Vanguard funds are its collective owners. Especially in his later years, Bogle often criticized the mutual fund industry for common practices that resulted in higher fees and reduced performance for the average investor.
#4 – Keep fees low
One way to increase investment returns is to minimize the costs associated with managing those investments. Vanguard’s low-cost index funds were revolutionary when they were first introduced because they rejected the high fees typically associated with actively managed mutual funds. Whereas some ETFs are passive index funds, others are actively managed and therefore may charge a higher fee. Since Emperor builds portfolios themselves with a mix of individual stocks, there are no additional fund fees. However, if you are invested elsewhere (particularly with another robo advisor), it’s important that you check the fees on the ETFs in your investment portfolio.
Seldom has one person made such an impact on investing, and enhanced the retirements of millions at the same time. Bogle’s legacy will continue through the company he founded, the index funds he created, and the books he authored. One of his final pieces of advice for investors? “The market is often stupid, but you can’t focus on that. Focus on the underlying value of dividends and earnings.” And that’s advice we at Emperor take to heart.
Martha Brown Menard, PhD, is a research scientist, financial coach, and dividend income investor. She takes a smart beta approach to building her own portfolio, and likes seeing her income stream grow.