Back to Basics with Jack Bogle - Pillar 4

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
Posts: 13600
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA

Back to Basics with Jack Bogle - Pillar 4

Post by pkcrafter » Sat Aug 04, 2007 1:47 pm


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 4. Nothing Ventured, Nothing Gained.

It pays to take reasonable interim risks in the search for higher long-term rates of return. The magic of compounding accelerates sharply with even modest increases in annual rate of return. While an investment of $10,000 earning an annual return of +10% grows to a value of $108,000 over 25 years, at +12% the final value is $170,000. The difference of $62,000 is more than six times the initial investment itself.
Please note that Mr. Bogle wrote the 12 Pillars in 1994 and that is the reason for the returns used in the example above. Of course, conditions are very different today, which should translate into a bit of insight about the stock market.

Also note that Pillar 4 is not about compounding, it's about taking risk for the long term. Pillar 4 holds true today just as it did when Mr. Bogle wrote it. An immediate lesson we can learn from Pillar 4 and today's market is the short term can mislead or confuse the correct course for the long term.

Ref: Link to last post - Pillar 3 ... ght=pillar

When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

User avatar
White Coat Investor
Posts: 14213
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Post by White Coat Investor » Wed Aug 15, 2007 11:45 am

No comments? I guess everyone here is already a believer in "Invest We Must."

An important principle here is that we must not only invest, but must invest in risky assets when we consider all that we're up against. A 5% total return on a bond fund may be 4.5% after expense, 3% after taxes, and 0% after inflation. A 8% stock return becomes 7.5% after expenses, and 6.4% after taxes but still compounds at 3.4% after inflation.

Also, in considering Mr. Bogle's example, it becomes clear than an extra 1% of volatility means little, but an extra 1% in long-term return is priceless.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Post Reply