For the rest of this century, global investing, including allocations to emerging markets, seems essential for a truly diversified portfolio. Economic power is becoming increasingly dispersed. I’d also invest outside the United States. Consider that since the start of 1976 (when Vanguard began marketing the first index fund), the S&P 500, including dividends, has returned more than 18,000 percent. How much and what kinds of each - the fancy name for this is asset allocation - are critical and individual questions.Īn investor in her 20s, who could well be in the work force until 2072, might want to put 100 percent of her investment money into a broad stock market index fund and just add to it year after year. While the past provides no guarantees for the future, it suggests a course of action: holding stock index funds for their higher returns and bond funds for reliability and for offsetting the ups and downs of the stock portfolio. Bogle warned that the costs of stock trading and investment fees can easily ruin your prospects for a comfortable retirement. Investors need to watch out for themselves, unfortunately. That’s because the math shows that it’s not only profits that compound over time. A seemingly small annual difference of 2.2 percentage points in costs can cut roughly 40 percent of your retirement savings over 40 years, he calculated. Unless you think over longer time spans, you may not appreciate the harm being inflicted by excessive investment fees. The article pointed out the peril inherent in Wall Street marketing - including annual forecasts - that focuses attention on short-term returns. Why is a year merely a blip in time, from an investing standpoint? He explained why in “The Arithmetic of ‘All-In’ Investment Expenses,” a carefully researched 2014 article in the Financial Analysts Journal. They can’t beat the best-performing stocks and bonds over the course of one year, he said, but they will prevail over the long haul for investors who can avoid the kind of short-term thinking that Wall Street’s annual investment cycle promotes. Such funds are inherently cheap to run, he said, because they merely mirror the market and keep trading costs to a minimum. Bogle (Jack, as I always called him) was the apostle of low-cost, diversified stock and bond mutual fund investing, mainly through index funds, which he invented in their first commercially viable form. He died in 2019 at the age of 89, and said to the very end that investors should think at least 10 years ahead and preferably much longer. Bogle, the founder of Vanguard, is compelling. “I view a company like Home Depot as a trade,” he said, and will move in and out of such stocks opportunistically.īut for most people - who lack the skill or inclination to be successful traders or stock pickers - the simple advice of John C. There was a sea change.” He was an early investor in tech stocks like Google (now Alphabet) and Apple and has held them as strategic investments. “For example, a few decades back, the word ‘Google’ became a verb. “I look for secular changes in the world,” he said. Birinyi recommends a far more disciplined approach, making long-term investments when they seem compelling and tactical trades when prices tell him to buy or sell.
Short-term trading has certainly been in vogue during the pandemic, with the surge of interest in meme stocks, like GameStop, Hertz and AMC Entertainment, in episodes of social media-generated frenzy that weren’t based on deep convictions about the stocks’ underlying value.
It makes sense to think in periods much shorter than one year if you’re a trader, he said, and much longer than that if you’re an investor.
What’s a family to do? There’s no one-size-fits-all answer, but you have options. College Savings: As the stock and bond markets wobble, 529 plans are taking a tumble.Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home.Discordant Views: Some investors just don’t see how the Federal Reserve can lower inflation without risking high unemployment.But much of the damage is already behind us. A Bad Year for Bonds : This has been the most devastating time for bonds since at least 1926 - and maybe in centuries.Our Coverage of the Investment World The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.
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