The Small Investor Book Club Reviews Bogleheads’ Guide to Investing

 A couple of months ago I started The Small Investor Book Club, where we would read a book together and offer our thoughts in a later post.  For our second book I asked folks to read The Bogleheads’ Guide to Investing.  I’ve always been a big fan of Jeffery Bogle, founder of Vanguard funds, and this was a great book expressing his philosophy.

The Bogleheads’ Guide to Investing


Really, there were a lot of great ideas in this book and I would recommend anyone who wants to get involved in investing give it a read.  In fact, there were so many great ideas that I’ll spend a few posts going over the high points.

For those who don’t know, Jeffery Bogle was the founder of Vanguard funds and a strong believer in index funds.  Index funds are mutual funds that try to buy stocks to track certain segments of the market, rather than trying to pick stocks and beat the market.  A central idea in The Bogleheads’ Guide is that you cannot beat the market (or at least it is so unlikely that it is effectively impossible), so you would be better off just buying index funds and trying to match the markets.

The  The Bogleheads’ Guide to Investing is not written by Bogle (except for the foreword), but instead by a group of Boiggleheads – people who follow the Bogle philosophy to investing and regularly share ideas on the Boglehead forum, an online chat area.  You can find a link to this forum on the sidebar of this blog.  Central ideas that they present are:

  1.  Start early and Invest regularly.
  2. Keep costs low, and index funds are a good way to do that.
  3. Figure out how much you’ll allocate to different segments of the market (bonds, stocks, international, etc…).
  4. Stick to your plan through good markets and bad.
  5. Ignore the noise from the commentators, on-air analysts, and other “investing porn.”
  6. Periodically rebalance your accounts to match your plan, and adjust your plan as you age.

Looking at the first point, they show the effects of compounding.  Starting with a quote from Meg Green, a certified financial planner in Florida, “Adding time to investing is like adding fertilizer to a garden: It makes everything grow,” they go on to show why you should start investing early and the effect of compounding on your returns.  One example is a Vanguard investor who invested regularly since the mid-1970’s and amassed a portfolio worth over $1.25M, but never made an income of more than $25,000 per year!  (kind of shoots holes in the idea that you need to make a big income to become wealthy.)

They then provide a table showing how much you would need to save by a certain age to amass $1M by the time you were 65, assuming you earn 8% annualized per year.  At age 15, you only need $21 thousand.  At age 45, you would need $214 thousand.  At age 55, it is $463 thousand.

One neat thing about such a table is that you can use it to determine where you should be at different ages.  For example, I think that to retire comfortably today, you really need about $2M.  Looking at the table, which is the amount needed to have $1M at retirement age, you can just double the amounts to know how much you’ll need to have at a given age to have $2M at retirement.  So if you’re 45 and don’t have about $450 thousand or more in assets invested in things that go up in value, not including your home, you need to get to work.  If you’re just starting out today, you’ll need about $4M when you’re ready to retire due to inflation, so hopefully you’ll have about $900 thousand invested by the time you’re 45.  You would also know that you’re on the right track if you amass a couple hundred thousand dollars by the time you’re 30, but that would be difficult for most people, between having a lower-income, needing to buy a house, and paying off student loans.

The rest of the chapter talks about ways that you can save and find extra income for investing when you’re young and don’t make a lot.  (Really, it is unfortunate that we make the least amount of money when it is the most important time to invest.)   The SmallIvy Book of Investing (see sidebar or The SmallIvy Books page from the link above) goes into this topic in much greater detail if you want still more ideas.

We’ll go through some of these other points in future posts.  If you haven’t done so already, be sure to buy a copy of The Bogleheads’ Guide to Investing and share your thoughts.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Comments appreciated! What are your thoughts? Questions?

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