Investment tips from John Bogle, founder of the Vanguard Mutual Fund

John Bogle

I have another surprise; John Bogle also agreed to speak to me about the stock market.


John Bogle is the founder and chairman of Vanguard Group, which he founded in 1974, and is also the author of ten books, including The Little Book of Common Sense Investing and The Common Sense on Mutual Funds. He is a strong advocate of long-term investment in mutual funds linked to indices.


Themes: When did you first get the idea of buying stock stocks?


Bogle: It goes back to 1951 when I was at Princeton University. I wrote a graduation thesis on the field of mutual funds, and I have examined several funds and studied their data. I concluded from my research - which I admit was somewhat superficial - that it is difficult, if not impossible, for mutual funds to consistently outperform market indicators. Hence it started for me.


Themes: How did you establish the first index fund in Vanguard?


Pogel: When Vanguard was founded in 1974, we were in an ideal position to form the world's first index fund. I was inspired by an article published in 1974 in the Journal of Portfolio Management written by economist Paul Samuelson, who was one of the greatest economists of the twentieth century. Paul has challenged anyone who finds “compelling evidence” that active managers can defeat the market, and has called for the creation of a fund for indices. In 1975, my first big business decision in Vanguard was to establish the first index-related mutual fund in the world. Dr. Samuelson is my biggest supporter. He commented on this by writing a four-page article in Newsweek, in which he said that God had heeded his calls, and it was important for me to receive this support.


The Axes: Did the field of mutual funds follow in your footsteps?


Bogle, not at first. There was a poster on Wall Street that read "Non-US Indicator Funds" that the pool of mutual funds did not understand why anyone wanted to be of a mid-level. In addition to that most of the workers in the field were not seeking to reduce the cost to the investors, but rather their goal was to increase the returns of the mutual fund management companies by collecting assets and increasing fees. Indicator funds did not begin to grow until the 1990s.


Themes: Why do you like linking boxes to indicators?


Pogel: Index funds eliminate expenses from the system and ensure that investors receive their fair share of the stock market returns. This is simple, but it may be important for some people


The Axes: What do you think of the indexed ETFs?


Bogle: I don't know whether or not you agree. If you were to buy an ETF like VTI (Vanguard Total stock market ETF) or SPY (SPDR S&P 500) then there is no reason why you should not make a long-term investment. The cost of maintaining an ETF and what has been called a traditional index fund is almost the same.


The difference is that with an ETF you can trade all day long, which you cannot do with a traditional ETF; And so we must ask ourselves this question: is this an opportunity or a curse? I say it's a curse - the idea of trading "all day, in real-time" is ridiculous.


Themes: What do you think about ETFs?


Bugel: Basically, ETFs that have a broad base is OK as long as you don't trade them, but they are traded a lot by institutions in the first place, but institutions have a different nature; They usually speculate on market changes and want temporary market exposure. In my opinion, ETFs are the greatest marketing innovation for mutual funds in this century, but I doubt whether they are a good investment innovation or not. Unfortunately, those working in the field of marketing do not care whether the ETFs are good for investors or not


The Axes: Are there other problems with ETFs?


Pogel: One of the problems is that people can switch from focusing on broad-based ETFs to speculative MFIs with three times more debt. I call this the crazy minority. There is a lot of risks, and they are not diversified funds. These non-diversified ETFs have speculative properties that I do not like any of them.


Themes: You strongly believe in long-term investment. What if you see a bear market coming? Should you keep the shares?


Pogel: Yes, first, your stocks should be well-diversified and the allocation of your assets should be correct. 60% stocks and 40% bonds is a good percentage to start with. If you see signs of a falling market, you should leave the market at a peak, and return when it reaches its lowest level, but I do not know anyone who can tell you exactly when the market will come, and I certainly cannot tell you when it will end, and so on You must definitely be right. The chances of this happening are very small, which means that you must stick to the long-term investment plan. It is good advice to tell me when to get rid of stocks before the bear market, but can you tell me when it's time to return? I think investors should stay on track, whether the market is falling or not. Do not try to be smarter than the market.


Themes: What do you suggest?


Bogle: Don't be overly concerned with the daily fluctuations in the stock market. If you have a diversified portfolio with low costs, stay on track. Yes, you would be right if you got out of the market when it was high and return when it reached its lowest level, but I don't know someone who actually did this, and I don't know someone who knows someone else did it.


The Axes: Why should a person start with indicator boxes?


Pogel: If you graduate from college and can put two hundred dollars in an index fund, which is the only smart choice, you will learn how the market works, you will learn what happens when prices rise and fall, and you will learn the wisdom of a long-term investment strategy. Do not try to link yourself to the current market situation, but stick to a disciplined long-term investment strategy. Invest what you can save every month, and don't worry about what the market is doing. Did not matter. When the market suffers a drop of ۵۰%, people panic and are considering going out; Their emotions lead them in the wrong direction. Do not fall into that trap, but just keep investing every month without worrying about real-time price quotes, just look at the quarterly data, and over the life of the investment, you will be greatly satisfied with your returns. And you will see that you have succeeded far more than most other people who have left their emotions in possession of them.


The Axes: Should I sell at one time?


Bogle: Gradually, as you enter your thirties and forties and have more money on the stage, you should start diversifying some of your assets into equity index funds. You want to gradually change your asset allocation by reducing the position of your stocks and strengthening the position of your bonds. Throughout history, equity index funds generally bring in higher profits than bond index funds, but this is not always the case.


Themes: Should Investors Buy and Hold Individual Shares?


 Pogel: If you are one of those rare and lucky people who know how to choose the winning stocks, then you should definitely buy good stocks and forget the index funds. But I do not know how to do that history is very clear in the matter that what we think are good stocks in many cases turns out to be disastrous shares, look at it this way: people love adventure, and investors are no exception to the methodology on Wall Street is the same in Las Vegas. You are betting on the red, and others are betting on the black, but in the long run, only the bookmaker wins. Wall Street is the middle card dealer who doesn't care what you do as long as you do something.


Themes: What about investors who think they can defeat the market?


Bogle: First, you must establish a long-term investment portfolio with an appropriate mix of equity and bond index funds. This is your serious money account, this is the money you need to retire, and it must be from 90 to 95% of your investable assets. It is very boring to watch, but important when you are ready to retire, take the other% god of your assets and use them as "comic money". I recommend creating a separate account for a comic owner, and you can trade that account as you like. Some people have a risk instinct, and in this account, you can trade individual stocks. Five years later, review your returns and see if you have already beaten the market. Did you do that? I think the probability that you will achieve this is not zero, but rather 1 or 2%.


The Axes: Why isn't everyone buying index boxes?


Bogle: The idea of index funds is somehow counterintuitive, which is the idea that no one can consistently outperform indicators. If a seller tells you that you should not believe the nonsense of index funds and that his fund is better, it may be difficult to resist, but it does not tell you that many active fund companies change managers a lot. When all the additional expenses incurred by all funds managed by active managers are included, what are the odds that the managers of all these assets will outperform the market? I am not saying zero, but maybe 0.0001%. But asset managers are great marketers, and they only focus on funds that beat the market.


Themes, what is your last tip for stock investors?


Bogle: In the long run, the return on investment is driven by the economy, not by passion. The value of companies increases over time through dividend payments and earnings growth. In the very long run, the stock market returns are equal to the companies ’returns. In the short term, the outcome is difficult to predict. Hold long-term investment, and enjoy the returns that American companies will profit and will continue to earn.

Finally, if you are interested in Vanguard you can check this good article: Vanguard Fund, Does it worth it?
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