Bogleheads

[pkcrafter]

PILLAR 5

The Vanguard Diehards forum has a well-earned reputation as one of the best investment resources on the internet because of its long history of attracting and helping newer, inexperienced investors. The seeds of success have grown from the fundamental teachings of our mentor, Jack Bogle. I feel our mission has been, and continues to be, to pass along the wisdom of Mr. Bogle.

In recent years, the forum has also attracted more knowledgeable investors who enjoy discussing sophisticated ways to reduce risk and/or increase investing returns. This is interesting and educational for knowledgeable and experienced investors. However, our advanced discussions are sometimes confusing and possibly even overwhelming for newbies and less-experienced investors. As a result of these more sophisticated conversations (about which experts often disagree), it is not unusual to see new investors with a few thousand dollars trying to start with complicated slice-and-dice portfolios.

I discussed this problem with Mel and Taylor with the idea that the best way to help new and less sophisticated investors would be to post a series of conversations that will bring us back to Jack Bogle's common sense, easy-to-understand ways to invest successfully. Mel and Taylor agreed and suggested I review each of Jack's "12 Pillars of Wisdom."

The 12 Pillars were originally published in 1994 as an Epilogue in Mr. Bogle's first book, Bogle on Mutual Funds. I will post a series of conversations featuring each of Mr. Bogle's "Twelve Pillars of Wisdom" for the benefit of our new and less-experienced investors. Replies are encouraged, but please keep on topic.

Pillar 5. Diversify, Diversify, Diversify.

By owning a broadly diversified portfolio of stocks and bonds, specific security risk is eliminated. Only market risk remains. This risk is reflected in the volatility of your portfolio and should take care of itself over time as returns are compounded.

Link to Pillar 4

http://www.diehards.org/forum/viewtopic.php?t=4686


Paul
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[ddb]

I must admit that I'm not quite sure of the meaning of the bolded portion of pillar 5.

"This risk is reflected in the volatility of your portfolio and should take care of itself over time as returns are compounded."

What should "take care of itself"? What does that mean?

[G12]

....also that specific security risk is reduced instead of eliminated, one could still have numerous securities impacted when held in a diversified portfolio. As my DW recently said upon learning her IRA was down 7%, "It is not in individual stocks, it can't go down like that." She failed to understand that we look at all our assets globally and diversify accordingly with the results being she is 100% equity in the one account. I am still concerned about her if something happens to me, she does not want to handle finances or investing at all.

[Taylor Larimore]

[ddb]

From "Bogle on Mutual Funds":

[bob90245]

[unclemick]

Hmmm - one nephew, age 22, one copy of Bogle on Mutual Funds - my 'long lecture' - don't read books, buy the TSP closest to 500Index and dollar cost average as much as you can. circa 1994/5

Later circa 96 - not listening to my own advice switched from a 60/40 mish mash of Vanguard funds to Lifestrategy moderate for ten years or so. Now Target Retirement as of 2006.

heh heh heh - I'm not Japanese and I'll let Bernstein's pal Angus Maddison do the international worrying/write the informative books.