Bogle's Index Fund Strategy Simplifies Investment Plans for Lasting Success

Top Stories World's Healthiest Country Are You Saving Enough? 8 European Villages For An Affordable Retirement Buffett's Warning About AI Table of Contents Expand Table of Contents 1. Invest Mostly In Index Funds 2. Choose Funds With Low Fees 3. Have a 'Funny Money' Account "Successful investing is all about common sense ... Simple arithmetic suggests, and history confirms, that the winning strategy is to own all of the nation’s publicly held businesses at very low cost, " Bogle wrote. Jacob Wackerhausen / Getty Images Close Key Takeaways Jack Bogle said people are best served by keeping investing simple and sticking primarily with low-cost index funds. He warned investors to watch out for even minor fee differences, since they can compound into massive costs over time. John (Jack) Bogle, founder of Vanguard, one of the largest investment management firms in the world, was known for his practical personal finance advice for everyday investors. As the creator of the index fund in the 1970s, Bogle was a strong advocate of low-cost index investing and warned against what he considered speculative investments, such as gold and bitcoin. Bogle, who died in 2019, still has a legion of fans known as Bogleheads who promote and adhere to his investment philosophy. The principles that Bogle articulated decades ago remain relevant today. These are just three of his timeless principles. 1. Invest Mostly In Index Funds Bogle was a proponent of making investing easy, encouraging people to keep anywhere from 50% to 100% of their portfolios in index funds. "Successful investing is all about common sense ... Simple arithmetic suggests, and history confirms, that the winning strategy is to own all of the nation’s publicly held businesses at very low cost, " Bogle wrote in his 2007 book, The Little Book of Common Sense Investing. "The best way to implement this strategy is indeed simple: Buying a fund that holds this market portfolio and holding it forever. Such a fund is called an index fund." With an index fund, investors buy a basket of stocks that mimic the performance of an index, like the S&P 500, which represents the biggest publicly traded companies in the U.S. One of the primary advantages of index funds is diversification. Today, that's easy enough to do through your 401(k) or exchange-traded funds (ETFs), whose shares trade on the stock exchanges. By investing in a variety of stocks at once, you can decrease the impact that the bad performance of any individual company or sector has on your portfolio. Related Education Invest $50 Monthly in an S&P 500 ETF: Potential 20-Year Gains Russell Midcap Index Explained: A Guide for Investors 2. Choose Funds With Low Fees Bogle advised people to opt for index funds with low expense ratios, which are annual fees charged for the management and operation of the fund. "While cost differentials may look trivial when expressed on an annual basis, compounded over the years they make the difference between investment success and failure," Bogle wrote. Fast Fact Warren Buffett, another legendary investor, described Bogle as a "hero" to investors. "If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle," Buffett wrote in his 2016 letter to shareholders. 3. Have a 'Funny Money' Account While Bogle recommended that people invest most of their money in index funds—which he called the "serious money" account—he also suggested that people who love to trade stocks can do so if they keep it limited. For that, he suggested creating a "funny money" account that you could use with up to 5% of the value of your portfolio. Bogle recommends investing in individual stocks, select ETFs, and actively managed funds with your "funny money" account. However, he warned people away from using it for commodities and hedge funds. After a few years, if that account isn't doing as well as your "serious money" account, Bogle suggested looking into whether it's worth the cost. If your "serious money" account offers greater returns, "you can then decide whether all that fun was adequate compensation for the potential wealth you’ve relinquished," Bogle wrote. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Vanguard. "Vanguard Announces The Passing Of Founder John C. Bogle." Vanguard. "Vanguard's History." Bloomberg. "Vanguard Founder Jack Bogle Says ‘Avoid Bitcoin Like the Plague’" CNN Business. "Bogle: 'Gold is Not an Investment at All!'" New York Times. "John C. Bogle, Founder of Financial Giant Vanguard, Is Dead at 89." John Bogle. "The Little Book of Common Sense Investing," Page 202. John Bogle. "The Little Book of Common Sense Investing," Page xi. John Bogle. "The Little Book of Common Sense Investing," Page xxvii. John Bogle. "The Little Book of Common Sense Investing," Page 129. Berkshire Hathaway. "2016 Letter to Shareholders." John Bogle. "The Little Book of Common Sense Investing," Page 204. Compare Accounts Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. 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