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I just finished reading "The Bogleheads' Guide to Investing", which opened my eyes up to how investing _really_ works -- turns out it's much simpler than I thou

I just finished reading "The Bogleheads' Guide to Investing", which opened my eyes up to how investing _really_ works -- turns out it's much simpler than I thought, which was an exciting realization to have. I'm sad to see him go.

azhenley 8y ago
I hadn't heard of that book but I've now added it to my list. Can you summarize the biggest thing you learned from it?
- lukewrites 8y ago
  Hold a two- (or three-) fund portfolio of low cost index funds; invest in it regularly and stay the course. It's OK to invest in individual stocks, but do it for fun, not as (or with) your retirement savings. I like Bogle's "Little Book of Common Sense Investing"[0] a little more than the Bogleheads Guide, but they're both good :) [0] https://www.powells.com/book/-9781119404507 https://www.powells.com/book/-9781119404507
  - MarlonPro 8y ago
    Google "VTSAX". I originally had 3 funds but now holding just one - VTSAX. But of course, that will change as I get closer to retirement (still far :-))
    - perryh2 8y ago
      The 3 fund portfolio is better, which also includes international stocks and bonds. https://www.bogleheads.org/wiki/Three-fund_portfolio#Vanguard_funds https://www.bogleheads.org/wiki/Three-fund_portfolio#Vanguar...
      - sokoloff 8y ago
        Maybe, depending on the definition of better. The single VTSAX fund has substantially outperformed the three-fund mix. In my case, I believe we're in a rising rate environment, therefore I'd rather not hold bonds; I'm realistically investing for my kids' consumption rather than our own (we have the basics well-covered already); VTSAX holds companies that have substantial outside the US exposure and most of my future expenses are tightly tied to the fortunes of the US economy. If your timeline is > 35 years, you're in the US, and intending to stay in the US, I could argue that pure VTSAX is better. Any of them are better than a "professional" financial advisor, IMO.
      - jedberg 8y ago
        Not so far. VTSAX and VTI are basically the same thing. If you put $10,000 in in 2012, and just invested in the S&P500, you'd have $23,046. If you just did VTI (Vanguard Total Stock Market), you'd have $22,754 (and VTSAX would be $22,731). If you did the recommended 3 stock portfolio (VTI 42%, VXUS 18%, and BND 40%) you'd have $16,668. So while they all made money, the three stock portfolio made the least money. Unfortunately the Vanguard ETFs don't go back before the last recession, otherwise it would be interesting to see how the numbers invert, or if they do.
    - woodlumhoodlum 8y ago
      It has one of the LOWEST fees and has great returns I put my full 401k into VTSAX, as I have other diversified savings elsewhere.
      - MarlonPro 8y ago
        My 401K is on a different fund only because VTSAX is not one of the options (but it's on an index fund tracking S&P 500). My IRA is fully on VTSAX. If I have an option, I'll put all my investments on VTSAX - I'm rooting for the US economy!
  - cjcenizal 8y ago
    ^ This! Also, the most valuable part of investing is asset allocation, i.e. how you split your money up between stocks and bonds (and optionally real estate). Take your age, and put that percentage of your money into bonds (if you're 30, put 30% of your money in bonds). Bonds are safer and you want to conserve your money as you age. Make sure the bond maturity dates aren't later than you're going to need them. Reallocate your assets every 18 months so that your diversification continues to match your age. Read fund prospectuses to learn about the fees and expenses they incur -- this is boring, but the lower the fees and expenses the better your portfolio will perform.
    - peferron 8y ago
      Regarding "your age in bonds", it's worth noting that Vanguard's all-in-one retirement funds don't follow this advice at all. For example, the Target Retirement 2050 fund has 10% bonds [1], while I would expect most people buying this fund to be 30+. [1] https://investor.vanguard.com/mutual-funds/profile/VFIFX https://investor.vanguard.com/mutual-funds/profile/VFIFX
      - loeg 8y ago
        I'd suggest ramping up bonds shortly before retirement (and then ramping them back down again afterwards, which the vanguard funds do not do -- mostly because they cannot tell if you have actually retired on your target date).[1] [1]: https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/ https://earlyretirementnow.com/2017/09/13/the-ultimate-guide...
      - JKCalhoun 8y ago
        There's the "100 minus your age rule", the "110 minus your age" rule... Linear, simple, all easy to remember — not necessarily "tuned".
    - mruts 8y ago
      Unless you are borrowing at the risk free rate (levering your bonds), I don’t think this is the best advice, unless you are open to holding junk bonds. Your Sharpe ratio is largely irrelevant [(returns - risk free rate) / std dev]. What you want is to optimize your Sortino ratio [loss / std dev]. Or, put another way, it’s more preferable that you make 100% returns one year, and lose 25% the next than to make 25% each year. The bonds are going to really drag on your returns and since bonds don’t seem correlated with equities anymore, they might not even be an equity hedge. Risk parity portfolios are designed to solve this problem through leverage.
  - jedberg 8y ago
    I just back tested this to 2012. If you put $10,000 in in 2012, and just invested in the S&P500, you'd have $23,046. If you just did VTI (Vanguard Total Stock Market), you'd have $22,754. If you do 60% domestic and 40% international (VTI and VXUS) you'd have $19,325. If you did the recommended 3 stock portfolio (VTI 42%, VXUS 18%, and BND 40%) you'd have $16,668. So while they all made money, the three portfolio made the least money. Unfortunately the Vanguard ETFs don't go back before the last recession, otherwise it would be interesting to see how the numbers invert.
    - ng12 8y ago
      The last few years are an outlier -- the US had a historic bull run and international stocks underperformed significantly. The point of the 3-fund is that it's a solid strategy no matter what the market looks like.
      - jedberg 8y ago
        Yeah if I can find the data I'd back test further, but I suspect you'd be right.
        tonfa 8y ago
        https://www.portfoliovisualizer.com/backtest-asset-class-allocation https://www.portfoliovisualizer.com/backtest-asset-class-all... You can backtest it there. BTW 100% stock will likely beat the stock+fund, but at the cost of higher volatility (which can be an issue if you need the money eg during retirement)
        ericd 8y ago
        I really like this site for backtesting different mixes: https://portfoliocharts.com/portfolios/ https://portfoliocharts.com/portfolios/
    - Spooky23 8y ago
      A big part of that is that the average punter knows nothing, and that approach is likely to avoid losses. When people go all VTI, they tend to freak out when the market goes down, sell near the bottom and forget about it, only to buy it again after the value goes up.
- JKCalhoun 8y ago
  Paying someone (a fund manager) a percentage of your investment every year to "pick the winning stocks" with your money is more often than not a money-loser. Looking at mutual funds over a period of years showed that very few of them even out-performed the market. Almost all of those that did out-perform the market actually still lost out when the fund manager's percentage was figured in. Fidelity Magellan Fund managed by Peter Lynch is one of the few exceptions where the fund not only outperformed the market but still did so after the fees. (But then that is why you have heard of Fidelity Magellan Fund and Peter Lynch.) Furthermore, as everyone jumped on Fidelity Magellan Fund it became too big and moved the market when it moved — and not in a beneficial way for the fund investors. tl;dr: a monkey throwing a dart (assuming he charges a fee below 1%) will outperform most of the Wallstreet fund managers. Put your money in an index fund, let the algorithm spread your money/risk out and wait a few decades.
Y7ZCQtNo39 8y ago
It's simple, but requires a great deal of time to take advantage of compound interest. It's simple, but it requires dedication: you must say the course. Invest early, invest often, and invest for the long term. It is a happy realization, though, to recognize how simple it really is.
- RickJWagner 8y ago
  "Stay the course"... a key phrase. You must be a fellow Boglehead! (Bogleheads have a handful of short phrases that describe the simple foundations of Bogle's investment philosophy. As you say, it's simple but takes time.)
- JKCalhoun 8y ago
  Index funds, dollar averaging. I call it "get rich slow."
  - eru 8y ago
    Dollar averaging does not actually give you any benefits in an efficient market. (But if your money trickles in monthly, you might as well buy monthly if there are extra transaction fees.)
JKCalhoun 8y ago
I too am a Boglehead.

azhenley 8y ago

I hadn't heard of that book but I've now added it to my list. Can you summarize the biggest thing you learned from it?

lukewrites 8y ago
Hold a two- (or three-) fund portfolio of low cost index funds; invest in it regularly and stay the course. It's OK to invest in individual stocks, but do it for fun, not as (or with) your retirement savings. I like Bogle's "Little Book of Common Sense Investing"[0] a little more than the Bogleheads Guide, but they're both good :) [0] https://www.powells.com/book/-9781119404507 https://www.powells.com/book/-9781119404507
- MarlonPro 8y ago
  Google "VTSAX". I originally had 3 funds but now holding just one - VTSAX. But of course, that will change as I get closer to retirement (still far :-))
  - perryh2 8y ago
    The 3 fund portfolio is better, which also includes international stocks and bonds. https://www.bogleheads.org/wiki/Three-fund_portfolio#Vanguard_funds https://www.bogleheads.org/wiki/Three-fund_portfolio#Vanguar...
    - sokoloff 8y ago
      Maybe, depending on the definition of better. The single VTSAX fund has substantially outperformed the three-fund mix. In my case, I believe we're in a rising rate environment, therefore I'd rather not hold bonds; I'm realistically investing for my kids' consumption rather than our own (we have the basics well-covered already); VTSAX holds companies that have substantial outside the US exposure and most of my future expenses are tightly tied to the fortunes of the US economy. If your timeline is > 35 years, you're in the US, and intending to stay in the US, I could argue that pure VTSAX is better. Any of them are better than a "professional" financial advisor, IMO.
    - jedberg 8y ago
      Not so far. VTSAX and VTI are basically the same thing. If you put $10,000 in in 2012, and just invested in the S&P500, you'd have $23,046. If you just did VTI (Vanguard Total Stock Market), you'd have $22,754 (and VTSAX would be $22,731). If you did the recommended 3 stock portfolio (VTI 42%, VXUS 18%, and BND 40%) you'd have $16,668. So while they all made money, the three stock portfolio made the least money. Unfortunately the Vanguard ETFs don't go back before the last recession, otherwise it would be interesting to see how the numbers invert, or if they do.
  - woodlumhoodlum 8y ago
    It has one of the LOWEST fees and has great returns I put my full 401k into VTSAX, as I have other diversified savings elsewhere.
    - MarlonPro 8y ago
      My 401K is on a different fund only because VTSAX is not one of the options (but it's on an index fund tracking S&P 500). My IRA is fully on VTSAX. If I have an option, I'll put all my investments on VTSAX - I'm rooting for the US economy!
- cjcenizal 8y ago
  ^ This! Also, the most valuable part of investing is asset allocation, i.e. how you split your money up between stocks and bonds (and optionally real estate). Take your age, and put that percentage of your money into bonds (if you're 30, put 30% of your money in bonds). Bonds are safer and you want to conserve your money as you age. Make sure the bond maturity dates aren't later than you're going to need them. Reallocate your assets every 18 months so that your diversification continues to match your age. Read fund prospectuses to learn about the fees and expenses they incur -- this is boring, but the lower the fees and expenses the better your portfolio will perform.
  - peferron 8y ago
    Regarding "your age in bonds", it's worth noting that Vanguard's all-in-one retirement funds don't follow this advice at all. For example, the Target Retirement 2050 fund has 10% bonds [1], while I would expect most people buying this fund to be 30+. [1] https://investor.vanguard.com/mutual-funds/profile/VFIFX https://investor.vanguard.com/mutual-funds/profile/VFIFX
    - loeg 8y ago
      I'd suggest ramping up bonds shortly before retirement (and then ramping them back down again afterwards, which the vanguard funds do not do -- mostly because they cannot tell if you have actually retired on your target date).[1] [1]: https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/ https://earlyretirementnow.com/2017/09/13/the-ultimate-guide...
    - JKCalhoun 8y ago
      There's the "100 minus your age rule", the "110 minus your age" rule... Linear, simple, all easy to remember — not necessarily "tuned".
  - mruts 8y ago
    Unless you are borrowing at the risk free rate (levering your bonds), I don’t think this is the best advice, unless you are open to holding junk bonds. Your Sharpe ratio is largely irrelevant [(returns - risk free rate) / std dev]. What you want is to optimize your Sortino ratio [loss / std dev]. Or, put another way, it’s more preferable that you make 100% returns one year, and lose 25% the next than to make 25% each year. The bonds are going to really drag on your returns and since bonds don’t seem correlated with equities anymore, they might not even be an equity hedge. Risk parity portfolios are designed to solve this problem through leverage.
- jedberg 8y ago
  I just back tested this to 2012. If you put $10,000 in in 2012, and just invested in the S&P500, you'd have $23,046. If you just did VTI (Vanguard Total Stock Market), you'd have $22,754. If you do 60% domestic and 40% international (VTI and VXUS) you'd have $19,325. If you did the recommended 3 stock portfolio (VTI 42%, VXUS 18%, and BND 40%) you'd have $16,668. So while they all made money, the three portfolio made the least money. Unfortunately the Vanguard ETFs don't go back before the last recession, otherwise it would be interesting to see how the numbers invert.
  - ng12 8y ago
    The last few years are an outlier -- the US had a historic bull run and international stocks underperformed significantly. The point of the 3-fund is that it's a solid strategy no matter what the market looks like.
    - jedberg 8y ago
      Yeah if I can find the data I'd back test further, but I suspect you'd be right.
      - tonfa 8y ago
        https://www.portfoliovisualizer.com/backtest-asset-class-allocation https://www.portfoliovisualizer.com/backtest-asset-class-all... You can backtest it there. BTW 100% stock will likely beat the stock+fund, but at the cost of higher volatility (which can be an issue if you need the money eg during retirement)
      - ericd 8y ago
        I really like this site for backtesting different mixes: https://portfoliocharts.com/portfolios/ https://portfoliocharts.com/portfolios/
  - Spooky23 8y ago
    A big part of that is that the average punter knows nothing, and that approach is likely to avoid losses. When people go all VTI, they tend to freak out when the market goes down, sell near the bottom and forget about it, only to buy it again after the value goes up.
JKCalhoun 8y ago
Paying someone (a fund manager) a percentage of your investment every year to "pick the winning stocks" with your money is more often than not a money-loser. Looking at mutual funds over a period of years showed that very few of them even out-performed the market. Almost all of those that did out-perform the market actually still lost out when the fund manager's percentage was figured in. Fidelity Magellan Fund managed by Peter Lynch is one of the few exceptions where the fund not only outperformed the market but still did so after the fees. (But then that is why you have heard of Fidelity Magellan Fund and Peter Lynch.) Furthermore, as everyone jumped on Fidelity Magellan Fund it became too big and moved the market when it moved — and not in a beneficial way for the fund investors. tl;dr: a monkey throwing a dart (assuming he charges a fee below 1%) will outperform most of the Wallstreet fund managers. Put your money in an index fund, let the algorithm spread your money/risk out and wait a few decades.

Y7ZCQtNo39 8y ago

It's simple, but requires a great deal of time to take advantage of compound interest. It's simple, but it requires dedication: you must say the course. Invest early, invest often, and invest for the long term. It is a happy realization, though, to recognize how simple it really is.

RickJWagner 8y ago
"Stay the course"... a key phrase. You must be a fellow Boglehead! (Bogleheads have a handful of short phrases that describe the simple foundations of Bogle's investment philosophy. As you say, it's simple but takes time.)
JKCalhoun 8y ago
Index funds, dollar averaging. I call it "get rich slow."
- eru 8y ago
  Dollar averaging does not actually give you any benefits in an efficient market. (But if your money trickles in monthly, you might as well buy monthly if there are extra transaction fees.)

JKCalhoun 8y ago

I too am a Boglehead.