- "If a statue was ever
erected to honor the person who has done the most
for American investors, the hands down choice
should be Jack Bogle." That's what Buffet wrote
in his 2016 annual letter to investors for a
legendary person like Buffet to make that statement
really tells you something about the founder of Vanguard, John Bogle sometimes referred to as Jack. Since he's had such a positive influence on everyone watching
this as well as myself, I wanna share with you his 10
rules for investing success. Now, here's the thing,
before I share each of these with you, there's something
that everyone should know about him so you understand
why he's both adored and a disliked within
the investing community. He's one of those people who put his money where his mouth was. When he said that he
cared about making sure average investors like us
weren't getting ripped off he meant it and oh my gosh,
did it cost him a lot of money? Before I tell you how much
you have to understand how. You see, Jack structured
Vanguard in a very unique way to where unlike many other entrepreneurs, he didn't own a majority
stake in the company. Instead to align incentives in favor of the average investor,
he decided that the people who invested in Vanguard funds should be the owners, not him. So if you invest in
Vanguard funds right now or at any point in the future, then you are technically
an owner of the company. When a company normally
earns a profit, it's paid out to its shareholders, but
instead of paying us out by writing us a check, we are rewarded through Vanguard lowering fees whenever possible. To try to compete with Vanguard other fund companies
like Fidelity, BlackRock and Charles Schwab have been forced to lower the fees charged
within their funds, which I am sure they're
not too thrilled about. Think about that for a second. If Jack Bogle never did this,
then I can guarantee you that all of these for-profit
companies would be charging us an ungodly amount of money in fees, and there would be nothing
that we could do about it. It's been estimated that
Vanguard has saved investors as a whole $1 trillion in fees, but the real numbers are
probably higher than that when we account for those people being able to invest those savings which would earn a return. So how much did this decision
cost Jack Bogle personally? since he was so hyper-focused on saving the average person money, he passed away with a net worth
of only about $80 million. Well, I think we can all agree
that this is a lot of money. You have to understand it in
the context of the net worth for his peers within the industry. Larry Fink of BlackRock, $1.2 billion, Stephen Schwarzman of
Blackstone, $12 billion, and Abigail Johnson of Fidelity, which is smaller than
Vanguard, $12 billion. The title of this article
sums him up perfectly. "He should be a billionaire, but Jack Bogle chose
to make others richer." So as I go through his 10
rules for investing success, remember that these are all based on his 89 years of experience and in the best interest
of us as investors. The concept of reversion to
the mean refers to the tendency of stock market prices to
return to their historical, average or trend over time,
even though they might be up or down in the short term. His advice serves a few
practical purposes for us. First, it warns us against chasing after high performing funds
based on recent returns. I see this all the time nowadays where people invest
based on past performance when they're supposed to be
investing for the future. Second, it encourages us to anticipate and accept fluctuations in performance as a part of the natural
course of investing, which helps us avoid knee-jerk reactions to the short-term volatility. This is easier said than done because when the stock
market takes a nose dive and you see your portfolio
losing money on paper, it feels like the end of the world, and on the other hand, when the market has seen
significant growth for a few years, it's easy to assume that it
will continue indefinitely. Grasping the idea of reversion to the mean is really important for
setting realistic expectations. It's like a simple reminder not
to read too much into things that stick out or short term
changes since they might not be good predictors of what's going
to happen in the long run. Speaking of that, Jack encourages us to have realistic
expectations about the future. Here's what he means. For the past few rolling decades, we can see that average annual returns of the S&P 500 have been more than 10%. While I'm happy for all
of us who have been able to benefit from it, we need to make sure that we don't automatically assume that it's going to continue forever. Because on the other hand, if we go back a few 10-year rolling
periods, then we can see that the average annual
returns were all below 10%. I hope every single one
of you watching this ends up getting those higher returns, but there's no guarantee because we cannot predict the future,. It would be smarter to
expect a more realistic, lower average annual return like 7% and be pleasantly surprised to
end up with something higher. Compared to expecting a higher return and only ending up with something like 7%. The first allows us to retire with enough money while
the second leaves us with not enough money to retire because our high expectations
didn't meet reality. I'm going to warn you right now that there's a lot of clowns out there running around the internet basing all of their investing projections on higher average annual
returns, like 10 plus percent. These people should be
arrested and thrown in jail because in my opinion, this is one of the most
irresponsible things that these content creators can do because they clearly do not
have your best interest in mind when they spew this type of garbage. If you ever see someone doing this, think consider it any enormous red flag and you should question their integrity. Jack Bogle's next rule
captures two essential truths in the investing world
that will either make or break your financial future. Time is your friend refers to the miracle of compound interest. It's the idea that a
hundred dollars investment at a 7% return will compound into $107
after the first year. Then that $107 at a 7% return
will compound into $114 and that $114 will compound into $122, and as time goes on, it
grows faster and faster, but not just because you invested that initial a hundred dollars because the interest you continue to earn starts earning its own interest. It's like a snowball effect
where growth doesn't stop. Well, at least until
you decide to stop it, which is why Charlie Munger is known for saying "The first rule of compounding is to never interrupt it." The second part of the rule
addresses the human tendency to react emotionally by
trying to time the market through selling at a market high, then buying back in when
the market has bottomed out. As most experienced investors know, this is nearly impossible
to do successfully and consistently. Yes, it's possible to get lucky and succeed at this once peck even twice. But for someone to confidently think that they can successfully
do it multiple times over a lifetime shows how
truly brain dead they are. Remember that there's a massive difference between possible and probable. Just ask all of the poor people who play the lottery every single week, don't mistake luck for skill because what looks like
skill in the short term reveals itself as luck over the long term. But to avoid those impulsive decisions, gel has a solution in
these next two rules. The first is to buy right and hold tight. He's mainly referring to how
your investments are allocated towards stocks and bonds, which will determine how
your money will grow. Stock-based funds are
designed to grow your money and bonds are for conserving your money. Mix them both together and you
have your asset allocation. I'm not gonna go into a
lot of detail on this one since I've already made
a whole video on it, which I'll link up down
in the description below. The main point is to pick an allocation based on your risk
tolerance and time horizon. Here's a quick chart from Vanguard showing how different
allocations performed during high and low
extreme periods of time. So if you are someone who invests
in a 100% stock-based fund and can't handle a large drop like that, then you might wanna consider investing some money into bonds. If you are someone who isn't
sure how much to put into each, then Vanguard has a free questionnaire that you can use to help figure it out. Once you decide that, then hold tight and don't change it until you need to based on personal circumstances and not because of what
the stock market is doing in the short term. What's next rule is so straightforward that you'll never have to pay
attention to what's going on with the stock market
on a day-to-day basis. Too many people waste countless
hours gathering information on different stocks and funds to try to figure out which ones
to buy, hold onto and sell. It's like trying to find
a needle in a haystack of the thousands of options that exist. So instead of trying to find
that needle in a haystack, you are better off just
buying the whole darn thing through only purchasing
broad-based traditional index funds or their ETF equivalent. By choosing to buy a fund that holds every single stock out there, you only have to worry about one thing. Are publicly traded companies as a whole growing or attempting to grow? Well, I don't know, is water wet? The whole point of these businesses is to innovate and grow, so the answer is always going to be yes. This investment strategy seeks to benefit from the entire market's growth rather than from the uncertain
and inconsistent gains. When picking individual funds or stocks. By following his buy
the whole haystack rule, you automatically follow this next rule. Beware of fighting the last war. This role offers a cautionary reminder to investors about the dangers of investing in certain funds
based on recent market events, performance or trends. The principle is deeply rooted
in the broader understanding of market cycles and
these psychological biases that often lead investors
down the wrong path. By focusing too much on
recent past performance, investors risk making
decisions that aren't aligned with the evolving market environment, and as we all know, things
that might have been true 10, 20 or 30 years ago aren't true today, and what's true today
won't necessarily be true 10, 20 or 30 years into the future. Trust me, I get why we do it from a psychological perspective. Our brains don't understand
how to handle the fact that we are all just flying
blind when it comes to knowing what to invest in for the unknown future. To cope with that reality and
figure out what to invest in our brain creates a mental shortcut that looks at past performance to decide which funds to invest for the future. If you follow the previous rule and by the whole haystack, you'll avoid the trap of
chasing past performance. If there's one of Bogle's
rules that he's most known for and a disliked for, it's
this one minimize costs. Jack was known for not
shutting up about lowering fees for investors, which caused his peers in the investing industry to avoid him since it meant less money in their pockets and more money in the
pockets of normal investors. It got to the point where
they stopped inviting him to certain conferences, but he didn't care because he knew how important it was to keep costs low for investors. Costs eat into your returns. There's no way around it, but they're difficult
to wrap your head around since the amount that's
charged is shown in the form of a percentage and to
not a dollar amount, I know half a percent fee
doesn't seem like a lot, but when we convert the amount to dollars, it isn't mind-blowing. I've broken down the true
cost of different fees in many of my videos, so I'm not going to go
into a ton of detail, but here's just a small taste of how much different high fees will cost over a 40-year time horizon
versus a low cost fund. Hundreds of thousands of
your dollars just disappear because these scumbag funds
feel the need to overcharge you. What's even more insidious
about this whole thing is that you don't see
these fees being withdrawn from your investment account
since they're paid out from all of the assets in the fund. If there's one thing
that's seriously me off more than anything, it's when financial professionals put less educated people into
a bunch of high fee funds without them understanding the true cost. Yeah no shit, he's really nice to you and sends you a Christmas card every year. You're paying for his kids
to go to private school, his million dollar home, that
a hundred thousand dollars car and his wife's face full of Botox. This is a powerful
reminder of the importance of being conscious of
costs when investing. Scrutinize and minimize the expenses associated with your investments because the industry will
take advantage of you and bleed you dry if you are not careful. But regardless of how you
invest, at the end of the day, there is no escaping risk. There are two types of risk,
the ones you can control, such as what you invest
in, when you invest, and even choosing not to invest, and the ones that are
completely out of your control, such as what the Federal Reserve is doing, government regulation, a
change in industry conditions, and a change in the
overall market conditions. We cannot escape it. This is a feature and not a bug. Heck, even safe money in
a savings account is risky since it gets eaten away due to the irresponsible
spending of the government. I know some of you are
government shills out there. You just love that they spend money all they're so good at spending
money in the right places. No, they're not. The majority of the money
that they spend is wasted. All we can do is make
informed to decisions that balance risk and return
and use diversification and asset allocation as fundamental tools for managing that risk. If you haven't been able to tell by now, Jack was all about choosing
simplicity over complexity. Financial institutions promote
complexity with investing because the more complex
that they make it, the more that you need to
pay them to do it for you. They'll say, oh, you're not smart enough. This investing stuff is just too complex for the average person. Here. Here. Let Daddy Finance handle it for you. But in reality, it's really
not difficult at all. Buy low cost broad-based
traditional index funds or their ETF equivalent. Diversify across the world and
choose an asset allocation. Then all you have to worry
about is shoving money into the account. Investing Jack Bogle's
way is not difficult, and you don't have to be
some math finance whiz to be successful at it. I remember looking at a friend's portfolio and his advisor, no joke, had
him in 20 different funds. I laughed because of how complex it was for literally no reason
he could have swapped out those 20 funds with two funds and fired
that freaking advisor. But remember, complexity is job security. For these bozos, they
wanna make it as complex as possible, so you need them. In a world that just
wants to make everything more and more complex, we
have to fight for simplicity. The book "Essentialism"
phrases it perfectly. "One strategic choice eliminates
a universe of other options and maps out a course for the next 5, 10, or even 20 years of your life." Bogle's next rule is
perhaps the most symbolic of his overall investment philosophy. Now, I will quote Jack on this
one since he said it best. When you consider the previous nine rules, you realize what they are not about. They're not about magic, not about forecasting the unforecastable, not about betting against the long and impossible odds, not about
learning some great secret of successful investing. These rules are about elementary math, about fundamental and
unarguable principles. Yes, investing is simple,
but it is not easy. For it requires discipline,
patience, steadfastness, and the most uncommon of
all gifts: common sense. This discipline is best summed up by the most important principle
of all investment wisdom. Stay the course. As much as Jack Bogle loved
traditional index funds, he actually hated the ETF version since he thought that
they'd cause investors to trade more often than they should, it took him about 14 years to accept them. Once he realized that some investors like
myself can use them responsibly to buy and hold. Check out my top five ETFs in
this video to your left next. Hit that thumbs up button before you go. Done.
