BACK TO BASICS WITH JACK BOGLE - PILLAR 6

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pkcrafter
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BACK TO BASICS WITH JACK BOGLE - PILLAR 6

Post by pkcrafter » Wed Aug 15, 2007 8:38 am

Jack Bogle's Pillar 6.

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 6. The Eternal Triangle.

Never forget that risk, return, and cost are the three sides of the eternal triangle of investing. Remember also that the cost penalty may sharply erode the risk premium to which an investor is entitled. You should understand unequivocally that investing in a fund with a relatively high expense ratio-more than 0.50% per year for a money market fund, 0.75% for a bond fund, 1.00% for a regular equity fund-bears careful examination. Unless you are confident that the higher costs you incur are justified by higher expected returns, select your investments from among the lower-cost no-load funds.
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Reference: Pillar 5

http://www.diehards.org/forum/viewtopic ... ght=pillar




Paul
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.

mwgr5
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Post by mwgr5 » Wed Aug 15, 2007 8:54 am

This is a critical point. Costs can have dramatic impact over the long run. I think most bogleheads view this point as common sense or a "no brainer." However, as Bogle was saying, many new investors do not understand the impact of costs. There are probably more investors with high expense front load funds then there are bogleheads. The importance of limiting expesnses cannot be stressed enough.

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White Coat Investor
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Post by White Coat Investor » Wed Aug 15, 2007 10:47 am

I missed pillars 4 and 5 while out of town, anyone have a link?
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

mwgr5
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Post by mwgr5 » Wed Aug 15, 2007 10:49 am


unclemick
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Post by unclemick » Sat Aug 18, 2007 10:28 am

mwgr5 wrote:This is a critical point. Costs can have dramatic impact over the long run. I think most bogleheads view this point as common sense or a "no brainer." However, as Bogle was saying, many new investors do not understand the impact of costs. There are probably more investors with high expense front load funds then there are bogleheads. The importance of limiting expesnses cannot be stressed enough.
I can look back (to say 1977) - as an en-ga-neer remember that I instantly grasped the logic and could run the numbers - BUT I still would chase performance with 'side' money with 'expenses' lost in the wash of expected(emhasis on expected) performance of the active fund/investment I was dabbling with at the time. Turnover - and the next great fund allowed convienient memory loss of the numbers.

Sooo - meanwhile back at the ranch - low cost 401k and good old 500Index -Bogle's first one) did the heavy lifting(80-90% of retirement ) while I was busy chasing performance.

At 14th year of retirement - the 15% (not required for retirement) of Norwegian widow stocks are lagniappe and Vanguard's .21% expense Target in trad IRA allow me to smile at my hobby(stocks I mean).

heh heh heh - reality and illusion. :wink: Life is good. If anything Bogle's influence has helped minimize turnover in hobby stocks - which has helped cost wise - CMH I salute you!

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