Jack Bogle, founder of Vanguard Group, has maintained a very simple personal investment strategy for many years: 60% U.S. stocks, 40% U.S. bonds. Now age 84, he has recently shifted to a 50/50 portfolio mix, explaining “I just like the idea of having an anchor to the windward,” and, “I’m not so much worried about having my portfolio grow.”
Bogle’s approach is based on a few broad principles. Research tends to support his view that a passive strategy to mirror the market is better for an investor over the long term (a controversial idea when he advanced it over 40 years ago). Bogle’s other principles are more controversial. He doesn’t believe in rebalancing — “If you want to do it,” he says, “once a year is probably enough.” He doesn’t invest overseas because “we have the best investor protections and legal institutions,” even though U.S. companies derive at least 50%of their revenue from outside the U.S., and even though Bogle’s firm, Vanguard Group, has produced research suggests allocating 20% of a portfolio overseas. Third, Bogle diversifies exclusively through bonds and has increased the allocation to bonds as he ages to protect against risks from a short-term drop in stocks. Research suggests that stocks are the best long-term investment vehicle, but that bonds protect against stock market losses that might coincide with times when the investor needs the money. Finally, Bogle recommends taking an approach that is “simple” because it reduces the investor’s worry and protects against emotion-based decision-making.