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312 of 328 people found the following review helpful
5.0 out of 5 stars not just for beginners, October 25, 2007
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This review is from: The Bogleheads' Guide to Investing (Paperback)
I read this book quickly shortly after I got it, and I was blown away. Many reviewers pick this as a book for "beginners", but I don't agree with that.

My background: I have read (and own) dozens of investment books. I have subscribed to many newsletters (including Morningstar's, which is decent but unnecessary after you read this book). I have owned many individual stocks and for the last 2-3 years before I got the Boglehead religion I was lucky and beat the market averages buying individual stocks (although for most of my life I've lagged far below the market). I opened my first brokerage account in 1990, and I've been self-directed ever since. I've had 400%+ years as well as -70% years. I've even been in the top 100 virtual mutual funds on Marketocracy (out of 70,000), and I've written custom software to analyze the daily performance of the top 1500 stocks.

Having said all that, I wish that I had followed the investment principles laid out in this book from the very beginning. I would have a lot more money than I do now.

Before reading this book, I already had all my retirement money in Vanguard index funds. So you would think, end of story, you're already a believer. NOT SO! While I started out using the Target Retirement funds, which allocates your money properly for your age, I slowly deviated from those funds into the higher risk emerging markets index fund, because that fund was doing so well. It's easy to read this book and say, "oh that makes sense", stay the course for a year or so, then get seduced by the hot performance of a particular sector and lose your way. For these principles to work, you really have to apply them relentlessly, and I think that it takes either someone with an iron discipline or someone who's acquired "experience" in the market (i.e., losses that hurt) to recognize the wisdom of this book and follow it.

Years ago, I read John Bogle's book on index funds, and I agreed with the logic of what he was saying. Then I proceeded to ignore it for most of my investing career before I really "got" what he was saying.

Perhaps, if you're a beginner, you'll follow this book and avoid the pain and losses. The principles are easy enough to understand. In fact, if you want to save the price of the book, simply go to Vanguard, pick your retirement date, buy a "Target Retirement" fund for that date, and you're done. That's pretty much what the book tells you to do.

BUT, you'll need the book (and, in my opinion, the "experience" of following the 99% of the misleading advice out there) to really understand why this is the real way to go. You almost have to read this book every year as an antidote to the temptation that assaults you nonstop from Wall Street and CNBC and all the financial magazines.

If you're a beginning investor, this is it. This book is the mother lode. You can stop looking. Unfortunately, it may take you 10-15 years and many large losses to realize this (as I had to do), but take it from me (some random anonymous person on the Internet), this is the REAL DEAL.

Knowing what I do now, if at age 21 I'd had my choice of $2,000,000 or the wisdom to understand the concepts in this book, I'd choose wisdom. Here are two examples from this book to illustrate why. On page 13 of this book Jack Bogle relates a letter that he received in early 2005 about someone who's been investing with Vanguard for about 30 years, and whose portfolio had grown to over $1.25 million, but he'd never made more than $25,000 in any year in his life. Although they knew nothing about his specific investing history (maybe he just got lucky? we don't know), this figure is attainable investing $600 a month in a Vanguard stock index fund over 30 years.

On the other hand, according to an NBC News report related on page 180 of the book, more than 70 percent of lottery winners exhaust their fortunes within 3 years.

So, clearly, doing the right thing is going to have a huge impact on how much money you end up with.

Even the most experienced investors will benefit from this book (and in fact, may benefit more) by simplifying their portfolio. The chapters on asset allocation and taxes are extremely insightful, even to non-beginners.

After reading this book, I immediately re-balanced my Vanguard portfolio to better fit my age group, and to lower the risk that I was taking.

Even as an "experienced" investor already in Vanguard index funds, I learned something actionable that I was immediately able to apply. If you consider yourself an "experienced" investor, you will also benefit from reading this book. I highly recommend it. My ENTIRE retirement portfolio is in Vanguard index funds, allocated in the recommended amounts, so this is not an idle recommendation.

Read it and live it.

(Just so you know, I have never visited the Boglehead web site, and I have never corresponded with any of the authors. I'm just an uninterested third party who's a big fan of this book).
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Tracked by 5 customers

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Showing 1-10 of 17 posts in this discussion
Initial post: Mar 5, 2008 5:25:25 PM PST
mostserene1 says:
Well, good review, but I would take the 2 million. Wisdom is overrated.

In reply to an earlier post on Jun 10, 2008 8:36:36 AM PDT
You'll need some wisdom to keep the $2 million, as the experience of lottery winners have shown. Most of them don't keep their money for very long. On the other hand, wisdom and patient saving (even with as little as $25,000/year income as an extreme example related in the Bogleheads book shows) will get you to that $2 million (and perhaps more) without having to win the lottery.

My friend who's a financial advisor has seen people blow through net worths of $5 million and $10 million leaving very little to show for it. I personally know someone who's trying to sell his under-construction 25,000 sq ft house (only the foundation and wood frame has been built) for $5 million because he no longer has the money to complete the construction (it's on a nice big private lake, though).

Without wisdom, a windfall of $2 million (especially at the tender age of 21) will last you a few good years. With wisdom and discipline, $2 million will provide you a comfortable (not extravagant) income for the rest of your life. How many people do you know with $2 million in the bank would stick with the "safe" withdrawal rate of 4% a year ($80,000)? Very few. And even at the withdrawal rate, you still need to manage that money correctly: a good return without taking outsized risk.

Seriously. Go for the wisdom.

But the best thing would be to have both money and wisdom, wouldn't it? :)

In reply to an earlier post on Jul 31, 2009 3:28:54 PM PDT
Steve T. says:
Thanks for taking the time to review the book and giving your insight based on your experience. I feel like getting this book now.

Posted on May 10, 2010 10:43:07 AM PDT
[Customers don't think this post adds to the discussion. Show post anyway. Show all unhelpful posts.]

In reply to an earlier post on Jul 12, 2010 4:15:11 PM PDT
M. Barnard says:
Do some research and find out how often a fund manager consistently beats the market within a 10-year span. Other than Warren Buffet, you will be hard-pressed to find anyone. The truth is that on a risk-adjusted basis, an overwhelming majority (in the ballpark of 80%) of fund managers under-perform the market.

Instead of an actively managed fund with front-load costs and high fees, I'd rather go with the "average" index funds with ~0.15% fees and watch my money grow. I am 21 years old and putting around 20% of my income into a roth ira in a vanguard index fund. Over the next 45 years, the index fund with ~0.15% fees will outperform any of the actively-managed funds I could be getting into right now.

Posted on Mar 4, 2011 9:23:18 PM PST
abc123 says:
It does not take rocket science to invest. The more calm you are, the more successful you will be. Build a diversified portfolio, adjust allocation yearly as you are aging. I would take the two million over the wisdom. Because I know I will do just fine. Bogleheads are group of average people, but they invest calmly and discipline. Days that market drops few hundred points, they do not care.

Posted on Apr 20, 2011 4:54:33 AM PDT
Alexey B. says:
It sounds plausible as a strategy, but only for an index that is guaranteed to go up in the long term no matter what the circumstances. This proved not to be the case for Nikkei (still 80% down from 1989) and many more prominent indexes. Even given the extraordinary abilities of American companies the future return is NOT guaranteed in any way, both in short term and in long term. Actually, if you have ALL your money in one fund you still take considerable risk.

Posted on May 26, 2011 8:38:08 AM PDT
Last edited by the author on May 26, 2011 8:38:43 AM PDT
D. Wu says:
In theory index funds are a good idea, but they still charge too high fees. Vanguard's target date index fund charges 0.19% annual expense ratio, which translates to a whopping $1900 per year, or $19,000 in 10 years, for an investment portfolio of 1 million dollars. Even the lowest expense index funds like VTI still charge 0.07%, which is still $700 per year. Why not simply buy and hold 20 companies or so, using a discount broker, or via direct stock purchase? Buying and holding just 20-30 of the biggest companies in the S&P 500 will closely track the index without the annual expenses.

In reply to an earlier post on Jun 3, 2011 7:41:39 AM PDT
Reed Moore says:
You should read the book before you try investing in only 20-30 stocks.

In reply to an earlier post on Jun 22, 2011 8:56:29 AM PDT
I suppose it depends on your objectives. I consider a 100% exposure to equities unnecessarily risky, much less 100% invested in just the S&P 500, with a buy and hold strategy. You are simply hoping that the large-cap value sector will do well.

However, if you start moving money around, your costs will go up, defeating the point of your ultra-low cost strategy. You also have to match regular rebalances of the index. Finally, if your portfolio is less than $1 million, but you're still paying the discount broker $8-$10 a trade, you quickly get above 0.2% a year.

Next, you need to carefully consider WHICH 20-30 stocks out of the 500 that you buy. In the recent past, financials were weighted heavily in the index, and your portfolio would have shown a much higher beta than the overall index.

Finally, if you're using a discount broker, the dividends will start piling up as cash in your account. If you're using direct purchase, you can opt to have your dividends reinvested, but if you're stilling on $1 million in your portfolio, I'm guessing that you have something better to do with your time than manage 20-30 separate accounts, constantly balancing your money among your stocks to mirror the index.

Whether you buy the Bogleheads book or not, please know that asset allocation is an important indicator of your performance. Buying and holding the S&P500, especially buying and holding just 30 stocks, is not proper asset allocation, and will affect your performance. This gets more important as you get older. You need exposure to bonds, and now some international exposure is also recommended. A fee of 0.2% will quickly be returned to you in superior flexibility, during those times when you think a slight overweight in bonds or equities or foreign stocks is warranted, given the state of the economy.
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