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Straight Talk

Jack Brennan   |  April 27, 2021

TWO DECADES AGO, we witnessed the bursting of one of history’s biggest stock market bubbles. Many investors were left burned and bewildered. At the time, I was chief executive of Vanguard and saw the need for a practical, back-to-basics guide to help investors navigate the financial markets. My 2002 book Straight Talk on Investing was born.

Since then, we’ve endured a few more market shocks, plus the investing landscape has changed considerably—mostly for the better. Product choice is greater, investment costs are lower and convenience has vastly improved. What’s more, professional financial advice is now more accessible and affordable. I genuinely believe that there’s never been a better time to be an investor.

That said, today, I see much of the same unbridled enthusiasm among market participants that I saw two decades ago, during the heady days of the late 1990s bull market. This zeal is often fueled by financial firms that lead individuals to confuse trading and speculating with investing. Social media is further fanning the flames.

The reality: Investing is not a game—and “gamifying” it strikes me as irresponsible.

The timing is coincidental, but an updated and expanded More Straight Talk on Investing was just published. It offers a remedy to today’s speculation and short-termism by emphasizing a timeless, tried-and-true investing approach based on balance, diversification, low costs and a long-term orientation.

At the end of the book, readers will find a summary of 12 principles that offer sound foundational knowledge to novices and a good refresher for those with more experience. I believe these “CliffsNotes” serve as a tonic to true investors and strong medicine to gamers:

1. Develop a financial plan. Identify your goals and design an investment program that’ll enable you to reach them. Be conservative when projecting how fast your money will grow.

2. Become a disciplined saver. Learn to live below your means. Make it a habit to put away money every month. If you aren’t naturally disposed toward saving money, find ways to trick yourself into doing so, such as automating your savings program.

3. Start investing early and keep it up. Make time your ally. Begin setting aside money for your goals as soon as possible. Keep plugging away, contributing fixed amounts on a regular basis in both good markets and bad.

4. Invest with balance and diversification. For balance, invest across the three major asset classes: stocks, bonds and cash investments. For diversification, make sure you aren’t overly exposed to any single company, industry or investment style. For an individual, mutual funds and exchange-traded funds are the simplest, most effective vehicles for accomplishing these two strategies.

5. Control costs. Avoid funds with high annual expenses. The average mutual fund expense ratio was 0.63% in 2019, but there are funds that charge much, much less. While you watch your costs, don’t forget to minimize the bite from taxes.

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6. Manage risk. Create a portfolio that’ll enable you to sleep at night. If you design an investment mix that fits with your objectives, time horizon, risk tolerance and financial situation, you should be able to endure volatile times in the markets without feeling that you need to make drastic changes to your portfolio.

7. Be a buy-and-hold investor. Those who frequently trade stocks, bonds and funds rarely succeed over the long term. A surer path to success is to settle on a trusted financial firm or firms, set up a sensible portfolio and stick with it.

8. Avoid fads and “can’t-miss” opportunities. You’re sure to encounter people promoting alluring new investment opportunities in individual securities or narrow market sectors. Don’t be tempted to abandon your diversified strategy—or you could quickly undo all the good that you’ve accomplished.

9. Tune out distractions. Resist the barrage of news and information about the market’s daily movements. Much of this information is irrelevant to you as a buy-and-hold investor. The danger: It may tempt you to make investment moves that aren’t in your best long-term interest.

10. Maintain perspective. There will be good times and challenging times during your investment career. When times are good, be grateful, not greedy. When times are bad, be patient. Focusing on your long-term goals is a winning strategy for all seasons.

11. Give your portfolio an occasional tune-up. No investor should put his or her investment mix on autopilot. Periodic rebalancing will keep your portfolio aligned with its target asset allocation, while life changes may necessitate tweaking those targets.

12. Define “enough.” Know when you have enough money to meet your goals. You’ll be content and, more important, far less likely to reach for more and take unnecessary risks.

Even accounting for the stock market’s remarkable drop last year, at the start of the pandemic, we’ve enjoyed a strong bull market that goes all the way back to 2009—exceedingly long by historical standards. And long bull markets tend to lull people into a false sense that it’s easy to succeed as an investor. There’s a tired, but true, adage that says, “Never confuse genius with a bull market.” You don’t have to be a genius to achieve your investment goals. But if you’re a knowledgeable, disciplined and confident yet humble investor, you’ll end up looking like one.

Jack Brennan is chairman emeritus of Vanguard. He joined the company in 1982 and served as chief executive officer from 1996 to 2008.

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Leonard Go
Leonard Go
20 days ago

From an investing legend, advice that sounds like common sense but sometimes difficult to practice when the rubber hits the road. Great read.

Piper
Piper
20 days ago

Number 12 describes where I am. I’m only working now to reduce sequence risks but the comment about “far less likely to… take unnecessary risks” is too vague. Where does one invest if they don’t need risk and only require a zero percent rate of real return? I’m 50-something years old, ready to retire with 44 times annual expenses saved, but can’t find a single place that doesn’t have a fairly sizable amount of either interest rate risk or market risk. I feel damned if I do and damned if I don’t invest in something.

Ed
Ed
17 days ago
Reply to  Piper

vanguard had the the treasury money market fund VUSXX which i thought was about as safer as i could get. But i just received a notice that they were changing the make up of the fund. Now were do i go to be as safe?

davebarnes
davebarnes
20 days ago

A good 12-point plan, but I think you could reduce it to #2, 3, 5, 7.

Ormode
Ormode
20 days ago

This advice does not preclude investing in individual stocks. If you know how to read a balance sheet and research companies, you can build up a portfolio of solid businesses that will pay you dividends in the long run.
Right now, there is a lot of concentrated risk in the S&P 500. A mere six high-flying tech stocks make up nearly 30% of the index. Sure, the S&P 500 has done well, but that’s because the tech stocks have soared.

booch221
booch221
16 days ago
Reply to  Ormode

Most people don’t know how to research companies.
If professional fund managers can’t beat the market consistently, how do you expect the average investor to?

Guest
Guest
20 days ago

I do hope the book and the usual marketing and interviews that go along with it reaches and resonates with the intended audience.

David Powell
David Powell
21 days ago

Sensible guidance. I look forward to reading the new book.

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