John Bogle’s Seven Boring Rules: How to Earn More than Wolves of Wall Street
According to Morgan Stanley, retail investors, who began their journey in the market at the beginning of 2020, have already lost all their earned profits. In this situation, it’s time to remember the legendary investor John Bogle with his simple and rather boring investment rules, following which will bring much more money than many self-styled “Wolves of Wall Street” have.
Seven simple tips from John Bogle
Everything returns to the mean.
Despite the massive advocacy of the institution of financial advisors, the markets cannot rise all the time. And if over the past 13 years, from 2009 to 2021 (inclusive), the American stock market has shown an average return of 14.7% per year, and over the past 5 years, from 2017 to 2021 – 19.7%, then do not expect that in the next five years it will be 25%. Over the past 100 years, the average annual return on the US stock market has been 10.5%, including dividends.
Expectations should be realistic and even a little conservative, because pleasant surprises are always better than annoying surprises.
Therefore, if someone offers you to invest in long-term instruments with a return of more than 10.5% per year, question such proposals and analyze them in detail.
A high return implies a high risk, and this combination is only beneficial for your Expert Advisor, who receives a percentage of the profits you earn. Earn more by taking a risk, and the adviser will receive more, and if you lose, then the consultants will not compensate him for other people’s losses anyway.
Focus on 10.5% – this is a very good return, which will allow you to double your capital every seven years. And there are few alternatives – so far the world has not yet come up with anything more profitable in the long run than the US stock market. What to invest in?
Buy quality and keep.
A good slogan is easy to say, but difficult to implement, because finding and choosing “quality” requires qualifications and resources. Unfortunately, statistics show that the ability of retail (and not only) investors to choose “the right ones” from thousands of companies is not so high.
Therefore, if the analysis of financial statements, reading annual reports and studying the situation on the markets does not excite you, does not give you pleasure, or does not have time for all this, there is an alternative.
“Buy a haystack, not a needle.”
“If you buy an index (invest in an index fund – ed.) of the US stock market, you will grow with America,” Bogle said.
Don’t believe in America, buy a global index fund, if you like Europe or China more, it’s up to you. The modern financial world offers thousands of investment funds tied to a variety of indices for every taste.
Instead of betting on one or more companies that you usually buy on someone else’s advice, often without even knowing what exactly these companies do and what their strategy and business model is, invest in ” basket” of companies, reducing risk through diversification.
Inaction is king.
Sounds a little contradictory, but it’s the purest truth. The less activity, the more money you will have left. After all, you have to pay for each trade, and the more often you buy and sell, the more your broker will earn, not you. So buy and keep.
Time is on your side: start investing as soon as you have the first free money.
With an average expected market return of 10.5%, if you start at age 20 and have the opportunity to invest $1,200 annually (saving, for example, $100 a month), then by the 50th anniversary you will have almost $240,000 in your account. And if you continue to do this until the age of 65, when they are already retiring, you will have more than a million.
There is no alternative to investing.
Even if your dollars lie under the mattress for 30 years, safe and sound, and inflation is at the level of the US central bank’s target of 2%, and not 8.5%, as it is now, then their purchasing power will almost halve in 30 years. With inflation at the long-term average of 3.24%, there is no more than a third of purchasing power left.