How to work less and make more money!
My wife Kate has no interest in financial services.
On the plus side, it keeps me from being a finance bore (at home)!
As founder of The Vanguard Group and inventor of the index fund, of course I know who Jack Bogle is!
The question is – how did she!?!
His wisdom reaches far and wide – it was in an article she’d read about not raising spoiled brats!
He condensed his 7 best investment tips into another article – Balancing Professional Values and Business Values.
Over the last 8 years, the typical UK bank savings account has attracted an average of 2.08% interest per year.
In that same time (starting 2009) UK inflation rates have averaged 2.22% per year.
In other words, the average saver has been losing money for the last 8 years.
In contrast, if you adjust the S&P500 for inflation, and account for dividends, it’s returned investors an annual average of 7.0% - every year since 1950.
The moral of the story…?
If you want to grow your wealth, you must invest.
#2 Time is your friend.
But, if they earned the average return of the global stock index (9.67%) they’d have grown their wealth to more than £1.1 million today.
Because you'll never be younger than you are right now, start investing today.
#3 Impulse is your enemy.
Most investors – especially men – fall victim to their emotions.
Over the last 20 years U.S. stocks averaged a 10.35% annual return - but the average investor in U.S. stocks only made 3.66%.
But irrational behaviour did most of the damage.
Buying high, selling low, trying to time the market and other dumb stunts cost investors 5.19% per year.
In other words, investors pay a high price when they act on their emotions.
The more you pay in investment fees, the less you get to keep.
But they can eat away at your future.
Consider the example of two expats, Sam and Stuart. Both are 35 years old, and each has saved £100,000 which they decide to invest.
Over the next 30 years the universe is kind, and each achieves a gross return of 8% a year.
Sam does it by investing in the Index Account; it costs him 1.75% a year in fees.
Stuart does it by owning the typical expat portfolio; it costs him 4.91% a year in fees.
By the age of 65, Sam has seen his nest egg grow from £100,000 to approximately £592,501.
As for poor Stuart, his £100,000 has only grown to £222,207.
They both achieved the same rate of return, but they paid different fees. The outcome? Sam has an additional £370,294 for his retirement.
Investing isn’t speculating, and needn’t be complicated.
It can be as simple as investing every month without fail, in a well-diversified, low cost portfolio – and staying invested no matter what.
There's genius in such simplicity, and money to be made because of a financial concept called ‘pound (or dollar) cost averaging’.
That’s when an investor invests an equal amount every month or quarter without fail. The investor buys fewer units when prices are high, and far more when prices fall, and by adopting this practice, investors may even beat the returns of the funds in their portfolio.
Author Andrew Hallam explains exactly how in his article How to take less risk and earn better returns.
#6 Never forget reversion to the mean.
Investment research company Morningstar helps investors choose which funds to invest in, by giving each fund a star rating.
They base their ratings on how well a given fund has performed.
In terms of Morningstar’s ratings, one star means a fund is an underperforming stinker, and five stars means a fund is a head turning out-performer!
In 1999 Morningstar gave 248 funds a five-star rating.
A decade later, because of the inevitability of reversion to the mean, only four funds maintained their five-star rank.
Trying to beat the market is a fool’s game; only by investing in index funds can investors ensure they’re always among the top performers.
During the financial crisis of 2008-2009, the S&P500 lost approximately 50% of its value.
Many investors couldn’t stand the heat and fled the market.
However, the recession ended in 2009, the S&P500 bounced back, and investors who’d fled paid a high price for their retreat.
To date, since the market bottomed out in March 2009, the S&P500 has rebounded 266%.
If you take the above advice to heart, I guarantee you’ll be able to work less and make more money.