Monday, November 2, 2009

Bogle's 12 Pillars

This morning I was doing a little reading on the fantastic Bogleheads forum and came across something I had not read in years -- Jack Bogle's 12 Pillars of Wisdom (as it applies to investing). This was written in 2001, but certainly this system has been the mantra of "Bogleheads" for the last few decades. What is amazing is that despite its simplicity and its incredible effectiveness, very few investors follow these 12 rules. For the complete list and commentary, visit Vanguard's site here:

Pillar 1. Investing Is Not Nearly as Difficult as It Looks.
Pillar 2. When All Else Fails, Fall Back on Simplicity.
Pillar 3. Time Marches On. (Compoud Interest)
Pillar 4. Nothing Ventured, Nothing Gained.
Pillar 5. Diversify, Diversify, Diversify.
Pillar 6. The Eternal Triangle. (Risk, Return, and Cost)
Pillar 7. The Powerful Magnetism of the Mean
Pillar 8. Do Not Overestimate Your Ability to Pick Superior Equity Mutual Funds, nor Underestimate Your Ability to Pick Superior Bond and Money Market Funds.
Pillar 9. You May Have a Stable Principal Value or a Stable Income Stream, But You May Not Have Both.
Pillar 10. Beware of "Fighting the Last War." (Making decisions based on recent history.)
Pillar 11. You Rarely, If Ever, Know Something The Market Does Not.
Pillar 12. Think Long-Term.

Similarly, the Bogleheads Wiki has boiled down the essential beliefs into 5 brief statements:
1. Save a lot
2. Asset Allocation (Holding Bonds) Is Essential
3. Buy Low Cost Index Funds Covering the Whole Stock Market
4. Tax Efficiency Matters
5. Stay the Course