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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: Little Books. Big Profits
- Sprache: Englisch
- Veröffentlichungsjahr: 2017
The best-selling investing "bible" offers new information, new insights, and new perspectives The Little Book of Common Sense Investing is the classic guide to getting smart about the market. Legendary mutual fund pioneer John C. Bogle reveals his key to getting more out of investing: low-cost index funds. Bogle describes the simplest and most effective investment strategy for building wealth over the long term: buy and hold, at very low cost, a mutual fund that tracks a broad stock market Index such as the S&P 500. While the stock market has tumbled and then soared since the first edition of Little Book of Common Sense was published in April 2007, Bogle's investment principles have endured and served investors well. This tenth anniversary edition includes updated data and new information but maintains the same long-term perspective as in its predecessor. Bogle has also added two new chapters designed to provide further guidance to investors: one on asset allocation, the other on retirement investing. A portfolio focused on index funds is the only investment that effectively guarantees your fair share of stock market returns. This strategy is favored by Warren Buffett, who said this about Bogle: "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. For decades, Jack has urged investors to invest in ultra-low-cost index funds. . . . Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me." Bogle shows you how to make index investing work for you and help you achieve your financial goals, and finds support from some of the world's best financial minds: not only Warren Buffett, but Benjamin Graham, Paul Samuelson, Burton Malkiel, Yale's David Swensen, Cliff Asness of AQR, and many others. This new edition of The Little Book of Common Sense Investing offers you the same solid strategy as its predecessor for building your financial future. * Build a broadly diversified, low-cost portfolio without the risks of individual stocks, manager selection, or sector rotation. * Forget the fads and marketing hype, and focus on what works in the real world. * Understand that stock returns are generated by three sources (dividend yield, earnings growth, and change in market valuation) in order to establish rational expectations for stock returns over the coming decade. * Recognize that in the long run, business reality trumps market expectations. * Learn how to harness the magic of compounding returns while avoiding the tyranny of compounding costs. While index investing allows you to sit back and let the market do the work for you, too many investors trade frantically, turning a winner's game into a loser's game. The Little Book of Common Sense Investing is a solid guidebook to your financial future.
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Little Book Big Profits Series
In the Little Book Big Profits series, the brightest icons in the financial world write on topics that range from tried-and-true investment strategies to tomorrow’s new trends. Each book offers a unique perspective on investing, allowing the reader to pick and choose from the very best in investment advice today.
Books in the Little Book Big Profits series include:
The Little Book That Still Beats the Market
by Joel Greenblatt
The Little Book of Value Investing
by Christopher Browne
The Little Book of Common Sense Investing
by John C. Bogle
The Little Book That Makes You Rich
by Louis Navellier
The Little Book That Builds Wealth
by Pat Dorsey
The Little Book That Saves Your Assets
by David M. Darst
The Little Book of Bull Moves
by Peter D. Schiff
The Little Book of Main Street Money
by Jonathan Clements
The Little Book of Safe Money
by Jason Zweig
The Little Book of Behavioral Investing
by James Montier
The Little Book of Big Dividends
by Charles B. Carlson
The Little Book of Bulletproof Investing
by Ben Stein and Phil DeMuth
The Little Book of Commodity Investing
by John R. Stephenson
The Little Book of Economics
by Greg Ip
The Little Book of Sideways Markets
by Vitaliy N. Katsenelson
The Little Book of Currency Trading
by Kathy Lien
The Little Book of Market Myths
by Ken Fisher and Lara W. Hoffmans
The Little Book of Venture Capital Investing
by Lou Gerken
The Little Book of Stock Market Cycles
by Jeffrey A. Hirsch and Douglas A. Kass
The Little Book of Stock Market Profits
by Mitch Zacks
The Little Book of Big Profits from Small Stocks
by Hilary Kramer
The Little Book of Trading
by Michael W. Covel
The Little Book of Alternative Investments
by Ben Stein and Phil DeMuth
The Little Book of Valuation
by Aswath Damodaran
The Little Book of Bull’s Eye Investing
by John Mauldin
The Little Book of Emerging Markets
by Mark Mobius
The Little Book of Hedge Funds
by Anthony Scaramucci
The Little Book of the Shrinking Dollar
by Addison Wiggin
Books by John C. Bogle
1994
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
—Foreword by Paul A. Samuelson
1999
Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor
—Foreword by Peter L. Bernstein
2001
John Bogle on Investing: The First 50 Years
—Foreword by Paul A. Volcker, Introduction by Chancellor William T. Allen
2002
Character Counts: The Creation and Building of the Vanguard Group
2005
The Battle for the Soul of Capitalism
—Foreword by Peter G. Peterson
2007
The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
2008
Enough. True Measures of Money, Business, and Life
—Foreword by William Jefferson Clinton, Prologue by Tom Peters
2010
Common Sense on Mutual Funds:
Fully Updated 10th Anniversary Edition —Foreword by David F. Swensen
2011
Don’t Count on It! Reflections on Investment Illusions, Capitalism, “Mutual” Funds, Indexing, Entrepreneurship, Idealism, and Heroes
—Foreword by Alan S. Blinder
2012
The Clash of the Cultures: Investment vs. Speculation
—Foreword by Arthur Levitt
2017
The Little Book of Common Sense Investing:
10th Anniversary Edition | Updated & Revised
THE LITTLE BOOK OF COMMON SENSE INVESTING
The Only Way to Guarantee Your Fair Share of Stock Market Returns
10th Anniversary Edition | Updated & Revised
JOHN C. BOGLE
Cover design: Wiley
Copyright © 2017 by John C. Bogle. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
First edition published 2007 by John Wiley & Sons, Inc.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993, or fax (317) 572-4002.
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
ISBN 978-1-119-40450-7 (Hardcover)
ISBN 978-1-119-40452-1 (ePDF)
ISBN 978-1-119-40451-4 (ePub)
To the memory of the late Paul A. Samuelson, professor of economics at Massachusetts Institute of Technology, Nobel Laureate, investment sage.
In 1948 when I was a student at Princeton University, his classic textbook introduced me to economics. In 1974, his writings reignited my interest in market indexing as an investment strategy. In 1976, his Newsweek column applauded my creation of the world’s first index mutual fund. In 1993, he wrote the foreword to my first book, and in 1999 he provided a powerful endorsement for my second. While he departed this life in 2009, he remains my mentor, my inspiration, my shining light.
Contents
Introduction to the 10th Anniversary Edition
Notes
Chapter One A Parable
Note
Chapter Two Rational Exuberance
Notes
Chapter Three Cast Your Lot with Business
Notes
Chapter Four How Most Investors Turn a Winner’s Game into a Loser’s Game
Note
Chapter Five Focus on the Lowest- Cost Funds
Note
Chapter Six Dividends Are the Investor’s (Best?) Friend
Chapter Seven The Grand Illusion
Notes
Chapter Eight Taxes Are Costs, Too
Notes
Chapter Nine When the Good Times No Longer Roll
Chapter Ten Selecting Long-Term Winners
Note
Chapter Eleven “Reversion to the Mean”
Note
Chapter Twelve Seeking Advice to Select Funds?
Chapter Thirteen Profit from the Majesty of Simplicity and Parsimony
Note
Chapter Fourteen Bond Funds
Chapter Fifteen The Exchange-Traded Fund (ETF)
Notes
Chapter Sixteen Index Funds That Promise to Beat the Market
Note
Chapter Seventeen What Would Benjamin Graham Have Thought about Indexing?
Note
Chapter Eighteen Asset Allocation I: Stocks and Bonds
Notes
Chapter Nineteen Asset Allocation II
Note
Chapter Twenty Investment Advice That Meets the Test of Time
Acknowledgments
EULA
List of Illustrations
Chapter 2
EXHIBIT 2.1 Investment Return versus Market Return. Growth of $1, 1900–2016
EXHIBIT 2.2 Total Stock Returns by the Decade, 1900–2016 (Percent Annually)
Chapter 3
EXHIBIT 3.1 S&P 500 versus Total Stock Market Index: Portfolio Comparison, December 2016
EXHIBIT 3.2 S&P 500 and Total Stock Market Index, 1926–2016
EXHIBIT 3.3 Percentages of Actively Managed Mutual Funds Outperformed by Comparable S&P Indexes, 2001–2016
Chapter 4
EXHIBIT 4.1 The Magic of Compounding Returns, the Tyranny of Compounding Costs: Growth of $10,000 over 50 Years
EXHIBIT 4.2 The Tyranny of Compounding: Long-Term Impact of Lagging the Market by 2 Percent
Chapter 5
EXHIBIT 5.1 Equity Mutual Funds: Returns versus Costs, 1991–2016
Chapter 6
EXHIBIT 6.1 S&P Price Return versus Total Return
EXHIBIT 6.2 S&P 500—Dividends per Share
EXHIBIT 6.3 Dividend Yields and Fund Expenses, 2016
Chapter 7
EXHIBIT 7.1 S&P Index Fund versus Average Large-Cap Fund: Profit on Initial Investment of $10,000, 1991–2016
EXHIBIT 7.2 The Timing and Selection Penalties: Net Flow into U.S. Equity Funds
Chapter 9
EXHIBIT 9.1 Cumulative Investment Return and Speculative Return, 1900–2016
EXHIBIT 9.2 Total Return on Stocks, Past and Future
EXHIBIT 9.3 Initial Bond Yields and Subsequent Returns
EXHIBIT 9.4 Total Return on Bonds, Past and Future
EXHIBIT 9.5 Total Return on 60/40 Stock/Bond Balanced Portfolio, Past and Future
Chapter 10
EXHIBIT 10.1 Winners, Losers, and Failures: Long-Term Returns of Mutual Funds, 1970–2016
EXHIBIT 10.2 Fidelity Magellan: Long-Term Record versus S&P 500, 1970–2016
EXHIBIT 10.3 Fidelity Contrafund: Long-Term Record versus S&P 500, 1970–2016
Chapter 11
EXHIBIT 11.1 Reversion to the Mean, First Five Years 2006–2011 versus Subsequent Five Years 2011–2016
EXHIBIT 11.2 Reversion to the Mean, First Five Years 2001–2006 versus Subsequent Five Years 2006–2011
Chapter 13
EXHIBIT 13.1 Odds of an Actively Managed Portfolio Outperforming Passive Index Fund
EXHIBIT 13.2 Costs of Selected S&P 500 Index Funds
Chapter 14
EXHIBIT 14.1 Percentage of Actively Managed Bond Funds Outperformed by S&P Indexes, 2001–2016
Chapter 15
EXHIBIT 15.1 Traditional Index Funds versus Exchange-Traded Index Funds
EXHIBIT 15.2 Composition of TIF Assets and ETF Assets, December 2016
Chapter 16
EXHIBIT 16.1 “Smart Beta” Returns: 10-Year Period Ended December 31, 2016
Chapter 18
EXHIBIT 18.1 By Reducing Costs, You Can Earn Higher Return with Lower Risk
Chapter 19
EXHIBIT 19.1 The Low-Cost Balanced Index Portfolio versus Its High-Cost Peers, 1992–2016
EXHIBIT 19.2 Asset Allocations of Various Balanced Funds
Guide
Cover
Table of Contents
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Introduction to the 10th Anniversary Edition
Don’t Allow a Winner’s Game to Become a Loser’s Game.
SUCCESSFUL INVESTING IS ALL about common sense. As Warren Buffett, the Oracle of Omaha, has said, it is simple, but it is not easy. Simple arithmetic suggests, and history confirms, that the winning strategy for investing in stocks is to own all of the nation’s publicly held businesses at very low cost. By doing so you are guaranteed to capture almost the entire return that these businesses generate in the form of dividends and earnings growth.
The best way to implement this strategy is indeed simple: Buy a fund that holds this all-market portfolio, and hold it forever. Such a fund is called an index fund. The index fund is simply a basket (portfolio) that holds many, many eggs (stocks) designed to mimic the overall performance of the U.S. stock market (or any financial market or market sector).1 The traditional index fund (TIF), by definition, basically represents the entire stock market basket, not just a few scattered eggs. It eliminates the risk of picking individual stocks, the risk of emphasizing certain market sectors, and the risk of manager selection. Only stock market risk remains. (That risk is quite large enough, thank you!) Index funds make up for their lack of short-term excitement by their truly exciting long-term productivity. The TIF is designed to be held for a lifetime.
The index fund eliminates the risks of individual stocks, market sectors, and manager selection. Only stock market risk remains.
This is much more than a book about index funds. It is a book that is determined to change the very way that you think about investing. It is a book about why long-term investing serves you far better than short-term speculation; about the value of diversification; about the powerful role of investment costs; about the perils of relying on a fund’s past performance and ignoring the principle of reversion (or regression) to the mean (RTM) in investing; and about how financial markets work.
When you understand how our financial markets actually work, you will see that the index fund is indeed the only investment that essentially guarantees that you will capture your fair share of the returns that business earns. Thanks to the miracle of compounding, the accumulations of wealth that are generated by those returns over the years have been little short of fantastic.
The traditional index fund (TIF).
I’m speaking here about the traditional index fund. The TIF is broadly diversified, holding all (or almost all) of its share of the $26 trillion capitalization of the U.S. stock market in early 2017. It operates with minimal expenses and with no advisory fees, with tiny portfolio turnover, and with high tax efficiency. That traditional index fund—the first one tracked the returns of the Standard & Poor’s 500 Index—simply owns shares of the dominant firms in corporate America, buying an interest in each stock in the stock market in proportion to its market capitalization, and then holding it forever.
The magic of compounding investment returns. The tyranny of compounding investment costs.
Please don’t underestimate the power of compounding the generous returns earned by our businesses. Let’s assume that the stocks of our corporations earn a return of 7 percent per year. Compounded at that rate over a decade, each $1.00 initially invested grows to $2.00; over two decades, to $4.00; over three decades, to $7.50; over four decades, to $15.00, and over five decades, to $30.00.2
The magic of compounding is little short of a miracle. Simply put, thanks to the growth, productivity, resourcefulness, and innovation of our corporations, capitalism creates wealth, a positive-sum game for its owners. Investing in equities for the long term has been a winner’s game.
The returns earned by business are ultimately translated into the returns earned by the stock market. I have no way of knowing what share of these market returns you have earned in the past. But academic studies suggest that if you are a typical investor in individual stocks, your returns have probably lagged the market by around two percentage points per year.
Applying that figure to the annual return of 9.1 percent earned over the past 25 years by the Standard & Poor’s 500 Stock Index, your annual return has likely been in the range of 7 percent. Result: investors as a group have been served only about three-quarters of the market pie. In addition, as explained in Chapter 7, if you are a typical investor in mutual funds, you’ve done even worse.
A zero-sum game?
If you don’t believe that return represents what most investors experience, please think for a moment about “the relentless rules of humble arithmetic” (Chapter 4). These iron rules define the game. As investors, all of us as a group earn the stock market’s return.
As a group—I hope you’re sitting down for this astonishing revelation—we investors are average. For each percentage point of extra return above the market that one of us earns, another of our fellow investors suffers a return shortfall of precisely the same dimension. Before the deduction of the costs of investing, beating the stock market is a zero-sum game.
A loser’s game.
As investors seek to outpace their peers, winners’ gains inevitably equal losers’ losses. With all that feverish trading activity, the only sure winner in the costly competition for outperformance is the person who sits in the middle of our financial system. As Warren Buffett recently wrote, “When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsize profits, not the clients.”
In the casino, the house always wins. In horse racing, the track always wins. In the Powerball lottery, the state always wins. Investing is no different. In the game of investing, the financial croupiers always win, and investors as a group lose. After the deduction of the costs of investing, beating the stock market is a loser’s game.
Less to Wall Street croupiers means more to Main Street investors.
Successful investing, then, is about minimizing the share of the returns earned by our corporations that is consumed by Wall Street, and maximizing the share of returns that is delivered to Main Street. (That’s you, dear reader.)
Your chances of earning your fair share of the market’s returns are greatly enhanced if you minimize your trading in stocks. One academic study showed that during the strong bull market of 1990–1996 the most active one-fifth of all stock traders turned their portfolios over at the rate of more than 21 percent per month. While they earned the annual market return of 17.9 percent during that bull market period, they incurred trading costs of about 6.5 percent, leaving them with an annual return of but 11.4 percent, only two-thirds of the market return.
Mutual fund investors, too, have inflated ideas of their own omniscience. They pick funds based on the recent performance superiority—or even the long-term superiority—of a fund manager, and often hire advisers to help them achieve the same goal (Warren Buffett’s “Helpers,” described in the next chapter). But as I explain in Chapter 12, the advisers do it with even less success.
Oblivious of the toll taken by costs, too many fund investors willingly pay heavy sales loads and incur excessive fund fees and expenses, and are unknowingly subjected to the substantial but undisclosed transaction costs incurred by funds as a result of their hyperactive portfolio turnover. Fund investors are confident that they can consistently select superior fund managers. They are wrong.
Mutual fund investors are confident that they can easily select superior fund managers. They are wrong.
Contrarily, for those who invest and then drop out of the game and never pay a single unnecessary cost, the odds in favor of success are awesome. Why? Simply because they own shares of businesses, and businesses as a group earn substantial returns on their capital, pay out dividends to their owners, and reinvest what’s left for their future growth.
Yes, many individual companies fail. Firms with flawed ideas and rigid strategies and weak managements ultimately fall victim to the creative destruction that is the hallmark of competitive capitalism, only to be succeeded by other firms.3 But in the aggregate, businesses have grown with the long-term growth of our vibrant economy. Since 1929, for example, our nation’s gross domestic product (GDP) has grown at a nominal annual rate of 6.2 percent; annual pretax profits of our nation’s corporations have grown at a rate of 6.3 percent. The correlation between the growth of GDP and the growth of corporate profits is 0.98. (1.0 is perfect.) I assume that this long-term relationship will prevail in the years ahead.
Get out of the casino and stay out!
This book intends to show you why you should stop contributing to the croupiers of the financial markets. Why? Because during the past decade they have raked in something like $565 billion each year from you and your fellow investors. It will also tell you how easy it is to avoid those croupiers: Simply buy a Standard & Poor’s 500 Index fund or a total stock market index fund. Then, once you have bought your stocks, get out of the casino—and stay out. Just hold the market portfolio forever. And that’s what the traditional index fund does.
Simple but not easy.
This investment philosophy is not only simple and elegant. The arithmetic on which it is based is irrefutable. But it is not easy to follow its discipline. So long as we investors accept the status quo of today’s crazy-quilt financial market system, so long as we enjoy the excitement (however costly) of buying and selling stocks, and so long as we fail to realize that there is a better way, such a philosophy will seem counterintuitive. But I ask you to carefully consider the impassioned message of this Little Book. When you do, you too will want to join the index revolution and invest in a new, “more economical, more efficient, even more honest way,”4 a more productive way that will put your own interests first.
Thomas Paine and Common Sense.
It may seem farfetched for me to hope that any single book could ignite the spark of a revolution in investing. New ideas that fly in the face of the conventional wisdom of the day are always greeted with doubt and scorn, even fear. Indeed, 240 years ago, the same challenge was faced by Thomas Paine, whose 1776 tract Common Sense helped spark the American Revolution. Here is what Tom Paine wrote:
Perhaps the sentiments contained in the following pages are not yet sufficiently fashionable to procure them general favor; a long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason. . . . I offer nothing more than simple facts, plain arguments, and common sense.
As we now know, Thomas Paine’s powerful and articulate arguments carried the day. The American Revolution led to our Constitution, which to this day defines the responsibilities of our government and our citizens, the very fabric of our society.
Similarly, I believe that in the coming era, my own simple facts, plain arguments, and common sense will carry the day for investors. The Index Revolution will help us build a new and more efficient investment system for our nation, a system in which serving investors is its highest priority.
Structure and strategy.
Some may suggest that, as the creator both of Vanguard in 1974 and of the world’s first index mutual fund in 1975, I have a vested interest in persuading you of my views. Of course I do! But not because it enriches me. It doesn’t earn me a penny. Rather, I want to persuade you because those two rocks on which Vanguard was founded all those years ago—our truly mutual, fund-shareholder-owned structure and our index fund strategy—will enrich you over the long term.
Don’t take my word for it!
In the early years of indexing, my voice was a lonely one. But there were a few other thoughtful and respected believers whose ideas inspired me to carry on my mission. Today, many of our wisest and most successful investors endorse the index fund concept; among academics, the acceptance is close to universal. But don’t take my word for it. Listen to these independent experts who have no ax to grind except for the truth about investing. You’ll hear from some of them at the end of each chapter.
Listen, for example, to this endorsement by the late Paul A. Samuelson, Nobel laureate in economic sciences and professor of economics at the Massachusetts Institute of Technology, to whose memory this book is dedicated: “Bogle’s reasoned precepts can enable a few million of us savers to become in twenty years the envy of our suburban neighbors—while at the same time we have slept well in these eventful times.”
It will take a long time to fix our financial system. But the glacial pace of that change should not prevent you from looking after your own self-interest. You don’t need to participate in its expensive foolishness. If you choose to play the winner’s game of owning shares of businesses, and to refrain from playing the loser’s game of trying to beat the market, you can begin the task simply by using your own common sense, understanding the system, and eliminating substantially all of its excessive costs.
Then, at last, you will be guaranteed to earn your fair share of whatever returns our businesses may be generous enough to deliver in the years ahead, reflected as they will be in our stock and bond markets. (Caution: You’ll also earn your fair share of any interim negative returns.) When you understand these realities, you’ll see that it’s all about common sense.
The 10th Anniversary Edition of The Little Book of Common Sense Investing.
When the first edition of The Little Book of Common Sense Investing was published 10 years ago, my hope was that investors would find it useful in helping them to earn their fair share of whatever returns—positive or negative— our financial markets deliver.
That original Little Book of 2007 was a direct successor to my first book, Bogle on Mutual Funds: New Perspectives for the Intelligent Investor, published in 1994. Both books set forth the case for index investing, and both became the best-selling mutual fund books ever, with investors purchasing a combined total of more than 500,000 copies.
During the near quarter-century since the publication of my first book, index funds have come into their own. Assets of equity index funds have risen 168-fold, from $28 billion to $4.6 trillion in mid-2017. In the past decade alone, U.S. investors have added $2.1 trillion to their holdings of equity index funds and withdrawn more than $900 billion from their holdings of actively managed equity funds. Such a huge $3 trillion swing in investor preferences surely represents no less than an investment revolution.
In retrospect, it seems clear that my pioneering creation of the first index mutual fund in 1975 provided the spark that ignited the index revolution. And it also seems reasonable to conclude that my books, read by an estimated 1.5 million readers, played a major role in fueling the extraordinary power of the revolution that followed.
The creative destruction reaped by index funds has, by and large, served investors well. As you read this 10th Anniversary Edition of The Little Book of Common Sense Investing, you’ll see that it stands firmly behind the sound principles of its predecessors, with new chapters on dividends, asset allocation, and retirement planning focused on the implementation of those principles.
Learn! Enjoy! Act!
JOHN C. BOGLE
Valley Forge, Pennsylvania
September 1, 2017
Don’t Take My Word for It
Charles T. Munger, Warren Buffett’s business partner at Berkshire Hathaway, puts it this way: “The general systems of money management [today] require people to pretend to do something they can’t do and like something they don’t. [It’s] a funny business because on a net basis, the whole investment management business together gives no value added to all buyers combined. That’s the way it has to work. Mutual funds charge 2 percent per year and then brokers switch people between funds, costing another three to four percentage points. The poor guy in the general public is getting a terrible product from the professionals. I think it’s disgusting. It’s much better to be part of a system that delivers value to the people who buy the product.”
* * *
William Bernstein, investment adviser (and neurologist), and author of The Four Pillars of Investing, says: “It’s bad enough that you have to take market risk. Only a fool takes on the additional risk of doing yet more damage by failing to diversify properly with his or her nest egg. Avoid the problem—buy a well-run index fund and own the whole market.”
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Here’s how the Economist of London puts it: “The truth is that, for the most part, fund managers have offered extremely poor value for money.
