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Common Sense on Mutual Funds

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Common Sense on Mutual Funds

New Imperatives for the Intelligent Investor


15 min read
10 take-aways
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What's inside?

You can't beat the market with mutual funds – but you can still make money by investing in index funds.

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Recommendation believes that this classic work by one of the twentieth century’s great investment authorities belongs on every investor’s bookshelf. Published in 1999, at the height of a notorious stock market bubble, it was a rare, sage, clear-eyed appraisal of investment reality. It remains relevant. Author John C. Bogle argues so strenuously for a low-cost, passive investment approach based on index funds that you could almost accuse him of marketing hype. After all, he did start Vanguard, an investment company best known for its low-cost index funds. However, the evidence he presents to back up everything he says exonerates him fully. Today’s investors are not quite as eager as investors were in the 1990s to believe in the impossible dream of infinite wealth from the stock market. Still, many people waste their time and money trying to beat a market that the best financial research unequivocally shows is, for most people and over the long run, unbeatable. Bogle explains why, while recommending much-needed reform of the mutual fund industry.


Revolutionary Common Sense

The Oxford English Dictionary defines common sense as "the endowment of natural intelligence possessed by rational beings...the plain wisdom which is every man’s inheritance...good, sound practical sense." Thomas Paine’s pamphlet series Common Sense was a masterly bit of rhetoric that lit the fuse of the American Revolution. Common sense is not necessarily in abundant supply. To invest successfully, however, you must apply revolutionary common sense consistently to your investment strategy, selection and performance.

Your guiding principle should be an appreciation of the long-term. Whether you put your money into stocks, bonds or alternative investments, you are always taking some amount of risk. As an investor, you must maintain a tolerable balance between risk and return. Because each person has a different tolerance for risk and a different appetite for return, this balance is always individualistic, if not idiosyncratic.

Allocating Your Assets

The most important investment decision you will make is how to allocate your assets. Most of the return from any investment portfolio is attributable to asset allocation, that is, ...

About the Author

John C. Bogle is founder and senior chairman of the Vanguard Group, Inc., the world’s largest no-load mutual fund group.

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