Bogle's view/advice for long-term stock investments returns.

[DiamondEcho]

'The latest good advice from Vanguard’s Jack Bogle.
https://www.marketwatch.com/story/the-l ... 2017-11-03

The article is short and to the point, so difficult to choose small extracts from it to post. Many elements will be familiar to LTB+H investors who are DIYing say a future pension pot.
Actually one point stood out as pretty amazing IMO...
'1.More than 90% of portfolio returns (Bogle says 94%; some academics say 99%) can be explained by asset allocation.'

[TimR]

'The latest good advice from Vanguard’s Jack Bogle.

Thanks for posting the article. I have not heard of the guy who was interviewing Bogle before (Paul Merriman) but from the links he referenced he seemed to be promoting his own US advisory company and implying his advice was an improvement on Bogle's. (ie. standing on the shoulders of a giant).

My portfolio is LTB+H based on the advice of Bogle / Las Krojer, etc. - I just hold low cost regional equity ETFs covering the whole world in an ISA & SIPP. As the capital value my DB pension is 40% of my equity ETFs allocation I use the DB pension instead of holding 'Bonds' plus I also hold some Cash (I would have used one of the Lifestategy funds but my platform has a high % fee for funds.

Being a UK investor with a 'world portfolio' however the fall in the value of sterling has also boosted my portfolio since the Brexit referendum but I feel that that the exchange rate will have a negative effect on my 'world portfolio' when some sort of agreement is reached with the EU (probably not until the 2019 deadline) when the pound should stabilise at a bit higher than at present.

TimR

[BarrenWuffett]

I am a convert to passive funds in recent years - particularly the Vanguard Lifestrategy which accounts for half of my portfolio. I think for most small investors it will provide better returns than shares so point two from the list:

2.Investors’ time and energy is much better spent choosing asset classes than in choosing individual stocks and financial sectors.

I think not enough attention is paid to understanding risk in relation to out emotional make-up so another important point for me would be :

5.Although investment volatility can be measured mathematically, using standard deviation, the far more meaningful risk is that investors may liquidate part or all of their portfolio unexpectedly, either because of a need for cash or because of an emotional reaction to market performance.

6.The evidence is clear and convincing that index funds are more productive than actively managed funds.

All good stuff and I still hold a few actively managed funds such as Scottish Mortgage, Finsbury Growth, Aberforth and City of London.

[TUK020]

Being a UK investor with a 'world portfolio' however the fall in the value of sterling has also boosted my portfolio since the Brexit referendum but I feel that that the exchange rate will have a negative effect on my 'world portfolio' when some sort of agreement is reached with the EU (probably not until the 2019 deadline) when the pound should stabilise at a bit higher than at present.

TimR

When some sort of agreement is reached? Given the current shambles, 'If' might be a better word.

[TimR]

I still hold a few actively managed funds such as Scottish Mortgage, Finsbury Growth, Aberforth and City of London.

Have you bought any actively managed funds since going passive or are the ones you mention legacy ITs from the past ?

I imagine Vanguard Lifestrategy would not cover small caps so is that why you have Aberforth ?

I have heard some commentators saying that in the area of small caps and EM an active strategy may better than passive as they are less 'well known' areas

TimR

[TimR]

When some sort of agreement is reached? Given the current shambles, 'If' might be a better word.

I have given up with what the politicians are doing - I just wish the pound was more stable as the total value of my 'world portfolio' changes every time there is a move in the value of the pound.

Most of the UK economists and political commentators on Bloomberg in the last few weeks believe will something agreed with the EU (may not be any better than what Norway has) even if it is just before the 11th hour in March 2019. Could even just be a two or five year extension on the same terms as Norway.
TimR

[BarrenWuffett]

I still hold a few actively managed funds such as Scottish Mortgage, Finsbury Growth, Aberforth and City of London.

Have you bought any actively managed funds since going passive or are the ones you mention legacy ITs from the past ?

I imagine Vanguard Lifestrategy would not cover small caps so is that why you have Aberforth ?

I have heard some commentators saying that in the area of small caps and EM an active strategy may better than passive as they are less 'well known' areas

TimR

No these are long standing ITs purchased well before I moved into Lifestrategy.

Aberforth has done v well for my portfolio with a capital gain well over double since purchase as well as some handy dividends along the way. I think generally the active small cap managers can outperform but Lifestrategy has ~25% holding of FTSE all share so must hold quite a few of the same holdings as ASL.

[TimR]

@BarrenWuffett - Does the value of your Lifestrategy fund vary much with changes in exchange rate ?

I suppose if the Bond component is mainly UK and as 25% of equity is FTSE all share then it will be more stable ?

TimR

[DiamondEcho]

Since I've the Vanguard sub-set of funds open via Morningstar, you can see the table of their funds under the LifeStrategy heading here > http://www.morningstar.co.uk/uk/funds/S ... &type=FUND

^Also click into each fund and it gives say a stock vs bond split, asset allocation by country/region etc...

[BarrenWuffett]

@BarrenWuffett - Does the value of your Lifestrategy fund vary much with changes in exchange rate ?

I suppose if the Bond component is mainly UK and as 25% of equity is FTSE all share then it will be more stable ?

TimR

The funds will have gained an average of ~10% due to the fall in sterling post the referendum. Here's an article on DIY Investing about the fund which may be of interest.
http://diyinvestoruk.blogspot.co.uk/201 ... pdate.html

As well as the equity element, there is a significant proportion of UK gilts/bonds are included in the bond part of the fund.

[BarrenWuffett]

I have a problem accepting such blanket statements about tracker funds as are made up the thread. In another recent thread a poster said that tracker funds had beaten Woodford Income (a 4th quartile fund) since launch. It was a false assertion easily debunked as untrue. Whilst I accept that the majority of funds are not great performers, I happen to believe it quite wrong to say that tracker funds are "the answer". Are all the fools here wrong? Should they all switch their portfolios into tracker funds? What would happen if the entire market switched into trackers? There'd be no market to track. Would there?

Sounds like you are considering a tracker then....?

I don't believe anyone on this thread has suggested 'tracker funds are the answer'. I am a convert but said I also retain several active funds.

You may want to have a read of Bogle's 'Little Book of Common Sense Investing'...a few extracts..

"Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy."

On index funds:
" while an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite."

On the long-term:
"The perception of investors, reflected by the speculative returns, counts for little. It is economics that controls long-term equity returns; the impact of emotions, so dominant in the short term, dissolves."

On balance and regret:
"My own total portfolio holds about 50/50 indexed stocks and bonds, largely indexed short- and intermediate-term. At my age of 88, I’m comfortable with that allocation. But I confess that half of the time I worry that I have too much in equities, and the other half of the time that I don’t have enough in equities".

On building wealth:
"The way to wealth, I repeat one final time, is not only to capitalize on the magic of long-term compounding of returns, but to avoid the tyranny of long-term compounding of costs. Avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today’s financial services system. While the interests of Wall Street’s businesses are well served by the aphorism “Don’t just stand there—do something!,” the interests of Main Street’s investors are well served by an approach that is its diametrical opposite: “Don’t do something—just stand there!"

This is probably the best book ever written for normal investors to help them understand how the markets and financial services industry functions.

The idea that “the stock market is a giant distraction to the business of investing" is an all-time classic imho.

[colin]

What would happen if the entire market switched into trackers? There'd be no market to track. Would there?

The entire market has not switched into trackers so why should anyone invest according to a hypothetical reality which does not yet exist?

[Hariseldon58]

I think the positives of passive funds are First holding all the shares in a given market, it’s surprising how many companies over time do badly over their entire lifetime ( more than half ..) but it’s the winners doing incredibly well that ensure the long term stock market averages are positive and the tracker does capture all the winners, plus the losers of course but the average is positive in most markets over a long enough period.

The Second positive of passive funds is (generally) low costs and a low cost active fund that minimises turnover and is diverse could well do just great as well but very few satisfy these requirements sadly...

[richfool]

and the tracker does capture all the winners, plus the losers of course but the average is positive in most markets over a long enough period.

H, As you said "the tracker does capture all the winners", I think it only fair that you should have included an "all" in front of the words "the losers" too! - I.e. plus all the losers. As, after all a tracker will include all the losers, as well as all the winners. Also, surely its performance over whatever term can only be average, give or take a bit of tracking error; and it can't avoid any "calamity" stocks, like Carillion or PFG.

[Hariseldon58]

@Richfool
Quite right, I did intend to add all the losers as well.
Posting in a mobile is not ideal..

This link is interesting concerning the disproportionate influence of the “winners” , it’s more important to catch ALL the winners rather than eliminate a loser. A loser can at worst be 100% but a winner can be 500% or more.

http://awealthofcommonsense.com/2016/05/the-sp-500-is-the-worlds-largest-momentum-strategy/

The link is from the USA but I have seen other similar research for other markets.

[BusyBumbleBee]

Posting in a mobile is not ideal..

- yes - I can see that - how did you get in?

I see there are a number of followers of psycho-history here and thought this quote from the trilogy was apposite.

“Any fool can tell a crisis when it arrives. The real service to the state is to detect it in embryo.”
― Isaac Asimov, Foundation

Was it Hari Sheldon or Salvador Hardin who said this?

To put that quote in context we need to know when the crash is coming because sooner or later we will have that 'correction'.

[SalvorHardin]

Was it Hari Sheldon or Salvador Hardin who said this?

To put that quote in context we need to know when the crash is coming because sooner or later we will have that 'correction'.

"Any fool can tell a crisis when it arrives. The real service to the state is to detect it in embryo" comes from Foundation, part five (The Merchant Princes). It was said by Tomaz Sutt, a member of the board of trustees of the Encylopedia Committee.

A couple of Salvor Hardin quotes:

"An atom-blaster is a good weapon, but it can point both ways"

""Violence is the last refuge of the incompetent."

[BusyBumbleBee]

But Salvador Hardin I prefer this one for this board

“Fighting and scars are part of a trader's overhead. But fighting is only useful when there's money at the end, and if I can get it [money] without, so much the sweeter.”
― Isaac Asimov, Foundation

[LooseCannon101]

On building wealth:
"The way to wealth, I repeat one final time, is not only to capitalize on the magic of long-term compounding of returns, but to avoid the tyranny of long-term compounding of costs. Avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today’s financial services system. While the interests of Wall Street’s businesses are well served by the aphorism “Don’t just stand there—do something!,” the interests of Main Street’s investors are well served by an approach that is its diametrical opposite: “Don’t do something—just stand there!"

This excerpt from Jack Bogle's book, is at odds with the financial industry e.g. spread-betting and stockbroking firms who encourage the novice investor to trade like their pants were on fire. Trading in a desperate, crazed manner every day, week or month is a sure way to lose money over the long term.

[Bubblesofearth]

HYP1 has thumped FTSE trackers since 2000. Was it just lucky or is it a better strategy?

BofE