Jack Bogle's Rules For a Good Life

quoted from:
Market Moralist
by Art Carey, Inquirer Staff Writer
Sunday Oct. 19, 2008
http://www.philly.com/philly/news/homepage/
31242114.html?viewAll=y
Jack Bogle founded Vanguard Group Inc., famous for the low administrative cost of its mutual funds.

Jack Bogle's Rules For a Good Life

Rule No. 1: Get out of bed in the morning. If you don't do that, not very much is going to happen.
Once you get out of bed, try to have a good day.
Try to be a better parent.
Try to be a better husband.
Try to be a better colleague.
Try to help those around you.
Try to teach people.
Try to learn.
Try to do something completely off the wall.
Be conscious of the world around you, and try to make it a tiny bit better today.
If you do that, when you go to bed you'll get a good night's sleep.

Rule No. 2: Repeat Rule No. 1 the next day.

Jack Bogle's Five Rules of Investing

In times that try investors' souls, it's best not to let your emotions overwhelm your reason. Just as in bull markets we tend to think that stocks will keep on rising, so in bear markets we tend to think stocks will keep on falling. Neither, of course, can possibly be true. Never forget that "this, too, will pass away."

Whether times are good or bad, here are five proven principles that investors should follow:

1. Balance opportunity and risk. Allocate your assets between stocks and bonds consistent with your wealth, your tolerance for risk, and your age. (Your percentage allocation to bonds should equal your age.)

2. Diversify. Diversify. Diversify. Owning a very large number of individual stocks and bonds has always been a good idea. But in today's environment of financial failures, global competition and technological innovation, maximum diversification is essential. (Hint: owning a total stock-market index fund and a total bond-market index fund is a sound strategy.)

3. Focus on the long term. That is, be an investor who owns businesses, not a speculator who bets on stocks. In the short run, as Benjamin Graham has pointed out, the stock market is a voting machine, but in the long run it is a weighing machine.

4. Minimize the costs of investing. The beauty of indexing is not only that the diversification it offers is priceless, but that it is price-less. The management fees and expenses, sales loads, and hidden portfolio transaction costs of the typical actively managed mutual fund come to about 2 percent per year. Over, say, a 50-year investment lifetime, these costs will consume about 75 percent of your capital. The miracle of compounding returns can be overwhelmed by the tyranny of compounding costs.

5. Stay the course. The temptations to get out of the market (usually when it's gone way down) and to pile in (usually when it's setting new highs) are overwhelming, and clearly counterproductive. Do your best to follow these proven principles through the inevitable swings in the economy and in our financial markets, and do your best not to peek at your portfolio. When you build it over your career, and see what it's worth when it comes time to draw down some of it when you retire, you'll be amazed at how much wealth you've accumulated.