In this article, I’m going to be giving you my top takeaways from the little book of common sense investing by John C Bogle.
Getting your financial life in order can dramatically improve the rest of your life. Because although I believe money isn’t everything in this life, having it sure does make life easier.
And this book provides the 20% of investment advice that gives you 80% of the results. In a way, it teaches you the first principles of investing.
1. “To Build A Well Diversified Portfolio, you might stash 70 percent of your stock portfolio into a (total stock market) index fund and the remaining 30 percent in an international index fund”
Throughout the book, John C Bogle emphasizes that you should invest in low-cost funds, specifically index funds. The reason for this is that although the stock market fluctuates up and down, the general trend is up.
And if you’re willing to invest in index funds such as:
- S&P 500.
- Vanguard FTSE Global all cap index.
- HSBC Ftse 250 index.
- Any other index fund.
Over time your interest will compound and over decades your compound interest will be remarkable.
Why this normally works is because when you invest in index funds you’re essentially investing in the top businesses. E.g the S&P 500 includes the top 500 businesses in America. And all these businesses are trying to make a profit.
For example, the S&P 500 has returned a historic annualized average return of roughly 10.5% from 1957 through 2021.
Just to clarify, for some years the S&P 500 would have provided no interest. Other times it would provide significantly higher than 10% interest. The aforementioned figure is the average.
2. “The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course”
The 20% in investing that yields 80% of the results are just consistently investing in low-cost index funds for years.
This way you’ll earn decent returns over the long haul. Especially as opposed to leaving all your money in the bank where it’ll actually lose its value due to inflation.
The problem with Bogle’s simple strategy? It sounds too easy. And the results won’t happen overnight.
For example, John Provides a diagram of how much $1 would be worth if invested from 1900 to 2015. The return averaged 9.5% per year and following 116 years of compound interest, the measly dollar was worth $43,650 in 2015!
“Over time, the aggregate gains made by… shareholders must of necessity match the business gains of the company”.
– John C Bogle.
If you invest in low-cost index funds then the money you invest over time will grow with the companies that the index fund is made up of. It’s a win-win situation. You help the economy grow by investing in the companies. The companies grow so that the value of the fund increases, resulting in the value of your investment going up over time.
3. “Managed mutual funds are astonishingly tax-inefficient. To avoid financial devastation Select a very low-cost index fund that simply holds the stock market portfolio. Select funds with rock-bottom costs, minimal portfolio turnover, and no sales loads.”
John constantly emphasizes the point of buying low-cost funds. This is because the extra cost of paying someone to manage mutual funds will most likely decrease the return of interest.
This in turn will decrease the amount of compound interest you receive over decades. Ultimately you lose a large number of your returns if the initial costs are too high.
4. “The greatest enemies of the equity investor are expenses and emotions”
The first step is to invest in low-cost index funds. That way you’re not overpaying in expenses. Secondly, once you’ve invested in these funds you want to invest for the long term.
Your investments will go up and down but the general average return over decades should be a healthy one. And compound interest can only occur if you hold and invest for years.
Don’t sell in the bad times because your investments will rise again soon. And over the long haul, this simple investment strategy should provide astonishing returns.
5. “To achieve satisfactory investment results is easier than most people realise”
The advice so far in this article is just the juiciest bits from the book, that if applied correctly will help you earn a healthy return from your investments in the long run.
But I do urge you to read the full book to learn a bit more about John and the whys behind his simple investment philosophy.
Disclaimer: I am not a financial advisor and these are my best tips from the book. I recommend reading the book before making any decisions.
How Much Should You Invest?
Make thy gold multiply.– George S Clayson
A good rule of thumb for investing/saving is to invest at least 10% of your income. Obviously more will provide you with more returns in the long run.
Summary On The Little Book of Common Sense Investing By John C Bogle
After reading this book I couldn’t believe how simple it was to invest money and pretty much guarantee a return on your investments. Investing which is sometimes seen to be a complex topic is broken down in a simple way in this book. Of course, this is just the basics of investing. But if applied the correct way you can make a lot of money over the long haul using John C Bogle’s investment strategy.