There aren't a lot of investment experts who will tell you what they said 10 years ago and just how much of it turned out to be right. But
Bogle, author of "Common Sense on Mutual Funds," is right most of the time, which differentiates him from 97 percent of the mutual fund managers who attempt to beat the market. When he updated his book this year for its 10th-anniversary edition, he put updated passages in red but left the original text, too, so that everyone could see how well his earlier advice held up. Batting average? Almost perfect, about .950, he says.
But his advice also has been largely the same for the last 50 years.
The 80-year-old founder of Vanguard Investments, one of the nation's largest mutual fund companies, has been preaching a simple, disciplined approach to managing money since he graduated from
The short version: Invest consistently and for the long haul in a widely diversified portfolio of stocks and bonds. Pay attention to taxes and costs. But leave your investments alone.
"You should start when you get your first job and put money into your account every month," he said. "If you did that and didn't look until you started withdrawing money 40 or 50 years later, you wouldn't believe how rich you were."
Unfortunately, investors don't follow that advice very often, Bogle says. They peek at their portfolios. And the moment they start watching their investments on a regular basis, they get tempted to do something stupid -- like react to a temporary market blip by selling or trading the perfectly good stuff they already own.
"We are our own worst enemies," Bogle said. "We buy at the highs and sell at the lows."
"Who was talking about buying gold a decade ago? Nobody," said Bogle. At the time, the investment had been much maligned and long disappeared from most portfolios. Today the metal has had a decade-long run and soared to record highs. "Who is talking about buying gold now? Everybody."
Bogle thinks gold is now the wrong place to invest. Most investors should stick with the chocolate and vanilla of the investment world -- U.S. stocks and bonds, he said. And, frankly, he thinks stocks (which make some investors queasy because of the last decade of rotten returns) have about twice the potential of bonds, even though bonds have done beautifully in that time too.
He doesn't recommend that people load up on stocks, though, because stocks are volatile. And he knows that investors will peek at their portfolios and react to what they see -- even if what they're seeing is a temporary blip on the investment horizon.
"Stocks should do about twice as well as bonds over the coming decade," Bogle said. "But what good is that going to do you if, when stocks drop 50 percent as they are likely to do at some point, you say: I'm out of here?"
Notably, Bogle's current predictions are the reverse of his forecast a decade ago, when he said bonds would soar and stocks were in for some tough sledding. Those predictions were unpopular at the time because stocks had been zooming while bonds earned half as much.
But he doesn't make these predictions just to be perverse. Stocks and bonds both have "internal rates of return," which is investment-speak for the fact that there are fundamental, mathematical measures you can use to predict future returns.
With stocks, that's the company's dividend yield, plus its projected earnings growth. (When you're projecting for the market as a whole, you use average dividend yields, plus the projected rate of growth of the U.S. gross domestic product.)
Bogle thinks it's reasonable to assume that those two factors will produce an 8 percent average annual return over the coming decade.
Bonds, meanwhile, promise a set return on your investment via the bond's "coupon" or yield. If your promised return is 4.5 percent, the long-term return on that investment is likely to be 4.5 percent.
How does Bogle suggest you play this market? The same way you should have played it a decade ago -- or a decade from now. Invest your age in bonds, he suggests, and the rest in stocks.
Buying individual stocks is a loser's game, he adds. Mutual fund managers, who invest for a living, can't pick their investments consistently enough to beat the market as a whole, he notes. And it's even less likely that the average investor is going to be able to do any better.
The good news is that you don't have to, Bogle said. You can get market returns by simply buying an index mutual fund, the broader the better. Bogle recommends Vanguard's Total Market Index fund for stocks and Vanguard's Total Bond Market Index fund for the bond portion of your portfolio.
But wouldn't you be better off diversifying your portfolio by owning, say, four or five different stock funds? No, Bogle said.
The fund is only as good as the manager who directs its investments, and managers come and go. The average stock fund manager lasts about five years, Bogle said, so if you have five funds, you'll have gone through 20 fund managers in 10 years and 40 managers in 20 years.
"The idea that this wide array of managers could consistently beat the market is just absurd," Bogle said.
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(c) 2010 Kathy Kristof