Boglehead Core Principles - Sound Theory?

[Route246]

Summed up:

• live below your means
• risk tolerance and assessment
• 2/3/x fund strategies
• low expense ratios
• diversification
• tax efficiency
• sound asset allocation
• etc., blah, etc.

I get asked frequently about my investment strategy. From this forum I discovered Bogleheads and found that it matches my strategy consistently and without conflict. My roots are Bob Brinker's Marketimer and I've done OK with that.

That said, is it arrogance or ignorance to go through life thinking these core principles are just opinionated prattle or does the collective success of those who follow these principles speak for itself?

The reason I'm thinking about this is when asked about my own strategy I refer people to the Bogleheads wiki and tell them to start there. I'm sensitive to being the grumpy old man who is set in his ways. I've been successful using this strategy and know others who have also been successful.

 

[sleepysurf]

I, for one, am quite satisfied since embracing the Bogleheads philosophy ~11 yrs ago and dumping my 1% AUM advisor. I'm still stuck with a few legacy holdings, but have significantly simplified my portfolio. No more chasing hot funds or individual stocks, or market timing. It's just "time in the market" from here on out, with a well diversified index portfolio, rebalanced annually if indicated.

 

[38Chevy454]

It works. One factor not listed is the power of compounding. Save as much as you can, as early as you can, then let compounding do it's thing.

 

[GrayHare]

That can work for certain goals and risk tolerance.

 

[sparky08]

For, me it worked during the accumulation years. It got me to FIRE.

I think it's much more complicated in retirement.

 

[SnowballCamper]

That said, is it arrogance or ignorance to go through life thinking these core principles are just opinionated prattle or does the collective success of those who follow these principles speak for itself?

I think it comes down to the Efficient Market Hypothesis. If you believe it strongly, you probably think these core principles are prudent. If you think these principles are opinionated prattle, you likely don't subscribe to the efficient market hypothesis. And that's fine. Someone has to be an active trader for my passive investment strategy to work in the long tun.

 

[Yegey]

In my opinion, these are good set of strategies. For example, I don't see how you can make it without living below your means. .

 

[gman57]

90% of fund managers don't beat the indexes over time. If you can find those managers or do better on your own great for you. Over the years I've owned ~200+ individual funds and companies or bonds - all the major ones. About a year ago I said heck with this and went almost all SP500 index and 4 bond funds. Wish I would have done that AND STUCK WITH IT 10-20 years ago. I still have a hard time not buying this or that individual asset from time to time but I'm working on it.

 

[Exchme]

Every year, SPIVA compares active managed funds to passive investors and active consistently underperforms after considering fees. Some active managers do make money, but on average they charge more than they are worth.

Sticking with passive, diversified funds will avoid many of the behavioral mistakes that ruin returns - trying to market time, performance chase, excessive concentration in a single sector or stock, etc.

 

[Lorenzo]

I, for one, am quite satisfied since embracing the Bogleheads philosophy ~11 yrs ago and dumping my 1% AUM advisor. I'm still stuck with a few legacy holdings, but have significantly simplified my portfolio. No more chasing hot funds or individual stocks, or market timing. It's just "time in the market" from here on out, with a well diversified index portfolio, rebalanced annually if indicated.

I believed my 1% AUM advisor had some pretty reasonable philosophies. It wasn't until after he and I parted ways and I stumbled onto this forum, and from here on to Bogleheads, that I realized by advisor was essentially just following the Bogleheads philosophies and that most people who believe in those philosophies are DIY.

 

[Yegey]

I believed my 1% AUM advisor had some pretty reasonable philosophies. It wasn't until after he and I parted ways and I stumbled onto this forum, and from here on to Bogleheads, that I realized by advisor was essentially just following the Bogleheads philosophies and that most people who believe in those philosophies are DIY.

The 1% AUM might make sense not for the portfolio managment. The porttfolio they generate will look like a boglehead portfolio but they will make it look overly complicated with 50 different fund or ETF or direct indexing to make it look like they are doing something. What the 1% good for is financial planning, but you are still better off just paying them by the hour. The 1% is a drag. 4% rule is now a 3% rule.

 

[Diogenes]

Bogleheads much aligns with this forum. I actually found this forum via Bogleheads... somebody recommended it via private message on BH, the context being, that seemingly everyone on BH waits to retire until age 70, and I was looking for chummy banter amongst folks retiring in their 50s.

The big difference between the two - speaking anecdotally, as opposed to having done any rigorous investigation - is that the BH philosophy is more or less unremitting thrift and delay of gratification, whereas around here, we have, after a certain point, "blow that dough". A zealous Boglehead might never retire, instead relishing the prospect of dying on the job, with a fat portfolio. But the route to wealth - good career/salary, thrift, steady-as-she-goes investment mainly in equity index funds... that's pretty much universal, whether on BH, here or elsewhere.

 

[imjustawarrior]

That said, is it arrogance or ignorance to go through life thinking these core principles are just opinionated prattle or does the collective success of those who follow these principles speak for itself?

The collective success is anecdotal proof, so take that for whatever it is worth.

I don't think it is prattle. There is solid logic and evidence behind the boglehead philosophy.

 

[Montecfo]

I think THAT you invest is more important than HOW you invest.

People getting started should regularly invest in something. And Stay Fully Invested (not mentioned above). Don't jump in and out of the market.

Then once that habit is ingrained, style and optimization strategies can be next.

 

[audreyh1]

Funnily what drove me to index funds was not their super low cost, which is great, but their extreme tax efficiency compared to the active funds I used to own.

 

[rk911]

Never heard of Bogleheads until I found this forum but I too was a Bob Brinker fan. Our philosophy was (in no particluar order)...

- Buy & Hold
- Fully fund IRA's
- Live Beneath your means; no debt
- Save and invest regularly
- Good, growth, no-load mutual funds

We did that for 23-years, retired at 55 with a 7-figure net worth.

 

[Route246]

It works. One factor not listed is the power of compounding. Save as much as you can, as early as you can, then let compounding do it's thing.

Compounding works both ways. AUM and excessive fees also compound in reverse. With spreadsheets these days it is really easy to see how much they compound in reverse and it is often stunning how much AUM costs in terms of net worth.

I asked multiple chatbots how a hypothetical $3M retirement account contributed over 30 years and invested in index equities would do vs AUM fee management. They all used the term "fee drag" which sounds appropriate.

Summary of response edited for clarity but the points are well taken:

Rough fee drag over decades, if your equity index portfolio earned a long-run ~9% nominal annualized return (a standard estimate for the S&P 500 over the last 30 years), then paying 1%–1.5%/yr in combined advisory+fund costs effectively knocks that down to ~7.5%–8%.

• Over 30 years, a 9% vs 8% return difference means you end up with about 20–25% less money purely due to that 1% fee drag.
• Over 30+ years with 1.5% total drag, the gap can be closer to 30–35% less than the no‑fee (or ultra‑low‑fee) path.

Translating that to $3M outcome:
• If fees had cut your compounded return by about 1% per year over your investing lifetime, your end balance might be more like $2.25M–$2.4M instead of $3M today, implying something on the order of $600k–$750k effectively “lost” to extra fees.
• If the all‑in drag averaged closer to 0.75%, the “missing” amount would be roughly in the mid–hundreds of thousands (say $300k–$500k).
• If you had been in a full 1.4%+ all‑in EJ type advisory platform (including higher‑cost funds) for most of the horizon, the cost could easily be north of $900k in today’s terms on a $3M pot.

I don't think much can be done for people who are already retired and have subjected themselves to this. But costing yourself almost a third of your nest egg borders on tragic but I realize most of this cannot be helped because it is none of my business to tell people what to do with their money. What I have learned in the past two months since retiring and engaging in tier 1 options for my IRA is that although to me it seems like free money sitting on the table waiting to be gathered up, it is becoming apparent that it requires a certain amount of intellectual engagement to understand exactly what is going on in order to have confidence to sell those covered calls and cash-covered puts. I'm gaining more confidence in the process as I understand the micro-nuances of what is going on in the markets and I think I have found a way to confidently gather up 1% yield while only assuming a small risk of being left out of extreme market moves that is otherwise, literally being left on the table. I'm willing to take that risk as the IRA is a small percentage of our net worth. I would be willing to listen to people who disagree with my sentiment because I'm just learning this stuff and I'm more than willing to digest and think about aspects I haven't considered. Information is king.

 

[Exchme]

I'm gaining more confidence in the process as I understand the micro-nuances of what is going on in the markets and I think I have found a way to confidently gather up 1% yield while only assuming a small risk of being left out of extreme market moves that is otherwise, literally being left on the table. I'm willing to take that risk as the IRA is a small percentage of our net worth. I would be willing to listen to people who disagree with my sentiment because I'm just learning this stuff and I'm more than willing to digest and think about aspects I haven't considered. Information is king.

I claim no expertise on the subject, but since you started this thread with a nod to Bogleheads' principles, I suggest you ask this over on bogleheads.org where there are more folks that are professionals in the business. Something like this comes up now and then and the answer is generally along the lines that low probability is not zero, so you risking being wrong-footed when there is a big market move, the analogy I've seen is to picking up nickels in front of a steam roller.

 

[jazz4cash]

Hat tip to Bogle and Brinker.

 

[Koolau]

And thank God for THIS site as well! That's where I learned about all this stuff.

 

[USGrant1962]

I think THAT you invest is more important than HOW you invest.

People getting started should regularly invest in something. And Stay Fully Invested (not mentioned above). Don't jump in and out of the market.

Then once that habit is ingrained, style and optimization strategies can be next.

Super insight!

There is nothing unsound about Boglehead core principles, and they are a great approach. But before I "knew better" I had positions in all kinds of random or well-known stocks and mutual funds. Had Magellan, Dell, Apple, Compaq, Intel, Lowes (my biggest winner because I bought and held) and others. I still have a legacy position in Primecap that is 3/4 LTCGs even after I turned off reinvestment of distributions about 15 years ago. I'm sure that my 401(k) fund selections were not perfect, but I just plopped 15% plus generous MegaCorp match into it for 30 years and here I am with an RMD problem

So yea, first principle it TO invest, second principle is HOW to invest.

 

[Koolau]

Even Scott Burns "Couch Potato" portfolio is a great start for those of us (like me) who are lazy.

Just do it! when it come to investing.

 

[pjigar]

I think THAT you invest is more important than HOW you invest.

That and have a substantial portion invested in equity. I know a LBYM couple who have saved over 15% or more since the first job but they only "invest" in CDs. If things don't change (unlikely since I tried to "inspire" them in so many different ways) then they will have a crummy retirement. Moving in with kids may in the cards for them which, fortunately, is an acceptable practice in my culture.

 

[DrRoy]

It's not on this list, but I have never used the "bucket" concept. I managed my portfolio as a whole.

 

[GlitterGirl]

Even Scott Burns "Couch Potato" portfolio is a great start for those of us (like me) who are lazy.

Just do it! when it come to investing.

YES! I was about to jump in and say Couch Potato investing but you beat me to it. Index and bond funds, leave everything alone for the most part and live below your means. That philosophy has worked so well for us.