January 7, 2014
Investment Focus: Follow 5 Simple Rules
Vanguard Group Inc. founder John Bogle offers some simple rules for investment success. We have condensed his list of 10 to the following five:
- Remember reversion to the mean. If a company’s stock or the overall market has had unusually strong performance, it’s unlikely to continue at that pace.
- Forget the needle and buy the haystack. Invest in a diversified portfolio and eliminate individual company and stock risk. The odds of finding the next Apple are low.
- Have realistic expectations. Investment returns – and not speculative, risky plays – are the bread and butter of smart investing.
- Patience is your friend, impulse is your enemy. Buying and selling increases your odds of making a mistake. So buy a diversified portfolio and hold on to it to improve your odds of being rewarded.
- Minimize the croupier’s take. Look for funds with low fees, such as index funds. Funds with high fees can significantly reduce your investment returns. This advice could sound like a plug for Vanguard, but it has solid support in the academic literature.