Vanguard Legend Jack Bogle’s Advice Could Save You Thousands
Investors over the age of 50 may want to get advice from Vanguard founder Jack Bogle as they work to achieve their long-term financial goals.
Investing is a cornerstone of retirement planning, and following a few simple strategies can help you save thousands of dollars. Here are three pieces of advice from Bogle’s playbook that can serve as a game-changer for your nest egg.
1. Reduce your expenses
One of the easiest ways to save money on your investments is to rebalance your finances and switch your money to low-cost exchange-traded funds (ETFs). Vanguard has helped popularize index funds that track key benchmarks like the S&P 500. Some of these funds have expense ratios as low as 0.10%, meaning you pay less than $10 for every $10,000 you invest in an ETF.
On the other hand, actively managed mutual funds often have high expense ratios – and that can eat into your income. A 1% expense ratio means you have to pay $100 a year for every $10,000 you have in the fund.
The savings from a 0.10% fee compared to a 1% fee can add up to thousands of dollars each year for someone with a $250,000 portfolio. It’s the difference between paying $250 a year and $2,500 a year. If you stretch that out to 10 years, the difference between paying $2,500 versus $25,000. Your fees will increase as the value of the fund gains, so your savings potential increases over time.
Bogle has led a shift in low-cost financing to counter what he calls the “tyranny of bundled costs.”
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2. Stay the course
Bogle also advocated buying and holding assets instead of chasing trends. Not all investors can find every single stock and spend hours researching stocks every week. Index funds and ETFs make it easy to achieve the desired level of allocation across sectors.
The founder of Vanguard also cautioned against chasing hot sectors or investing with top managers. While some popular investments continue to be high, incremental investments can also crash hard, as investors have seen in many electric vehicle stocks after the pandemic. These stocks rallied at the close, but many of those same picks — Nikola Motors, Workhorse, Lucid and Rivian — fell from their pandemic ratings.
Using automated investing and rebalancing your portfolio each year can save you a lot of time while reaping the same benefits that active managers see. In fact, research shows that many managers do not do well with index funds despite all the time they put into evaluating investment opportunities.
As the saying goes, time in the market beats time in the market.
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3. Help every extra dollar
Your 50s are an important decade to build your retirement savings. Maximizing your retirement plans and spending will put you in a better position as your golden years approach. Higher contributions and lower payments can accelerate compounding in your last ten years of work.
Bogle’s investment approach does not involve major changes or monitoring of financial markets and individual assets. Instead, it involves passive investing and focusing on low-income funds.
This approach can dramatically change the results in your 60s and 70s if you commit to investing in your 50s. It’s never too late to save for retirement and end up with flexibility when it’s time to leave your job.
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