The Bogleheads Guide to Investing

If you’re considering starting investing or want to explore different strategies, you may have come across the term “Bogleheads Investing.” While this may seem a little daunting, in our Bogleheads guide to investing, we’ll break down this approach and its strategies to help you decide if it is a good choice for you. 

Who are the Bogleheads?

The term “Bogleheads” was developed to honor Vanguard founder, John Bogle. This group of investment enthusiasts embrace certain investment strategies and philosophies, sharing their opinions and practical advice on the Bogleheads forum. This forum has more than 120,000 members and there are threads on theories, techniques, financial news and more.

In fact, there are almost 2,000 new posts on the forum every day, providing a great resource for experienced traders to discuss the merits of various strategies and newbie investors who need help developing their portfolios. 

What are the Bogleheads Investment Strategies?

There are several simple philosophies that steer the Bogleheads guide to investing to help you achieve financial freedom. These include:

• Live Below Means: This simply refers to spending less than you earn. If you can adopt a frugal lifestyle and live below the amount you earn, you can save the rest for your investment goals.

• Invest Regularly and Early: Bogleheads have the opinion that it is never too early to get started on your investment journey. In fact, the earlier that you can start, the better financial position you can put yourself in. 

• Balance Risk: Investing is risky, but there is a balance between taking on too much or accepting too little. While you don’t want to lose money, you also want to get decent returns. 

• Prioritize Diversification: Diversity is crucial to achieving the desired returns. It is never a good idea to have all of your eggs in one basket. Bogleheads encourage mixing things up with bonds, stocks and other asset classes. 

• Invest for the Long Term: Many investors try to time the market, taking advantage of when it is at the top or bottom. However, this can be exceptionally risky, so Bogleheads recommend investing for the long term. 

• Utilize Index Funds: Index funds can be a superb diversification tool. There are even index funds that allow you to buy the total stock market. When you are looking at low-cost diversification tools, you need to use index funds. 

• Keep Your Costs Low: Fees are one of the downsides to investing, and with the wrong choice of platform, fees can quickly offset any investment gains. An important philosophy of Bogleheads is to keep your costs low, watching out for advisor fees and investing in low-cost funds. 

• Minimize Your Tax Burden: Another area where you can lose some of your investing profits is through taxation. So, you should ensure that you take advantage of any tax-deferred investment tools, such as a 401k or IRA.

• Focus on Simplicity: Simplicity is crucial for Bogleheads. These investors take the approach that the more complex you make your investing, the harder it will be to manage. Bogleheads prefer to pick a few funds and keep accounts together to make investing simple. 

• Stay on Course: The stock market will go up and down, but you need to keep investing for the long term. Avoid falling for the panic and stay on course.

The two most well-known strategies that encompass all of the above philosophies are the Bogleheads 3 fund portfolio and the 4 fund portfolio. Both of these strategies are designed to be simple, but as the names suggest, they differ in the funds used.

The Bogleheads 3 fund portfolio involves investing in three types of index funds, a U.S. total stock market, an international stock market and a U.S. total bond market. All of these types of funds allow access to the whole market for a low-cost, simple diversified investing strategy. The aim of this is to potentially capture the long-term growth of both the stock and bond markets, while the risks associated with investing in individual assets are reduced. 

The Bogleheads 4 fund portfolio adds a total international bond market index fund into the mix to provide exposure to the global bonds market. The goal of this strategy is to provide even greater diversification for long-term growth and a reduced impact on expenses. 

Is there an Official Bogleheads Guide to Investing?

Yes, there is an official “The Bogleheads’ Guide to Investing,” written by Boglehead founder Taylor Larimore, along with forum leaders, Mel Lindauer and Michael LeBoeuf. This guide breaks down the principles of Bogleheads investing. 

However, you don’t necessarily need a book to adopt the Bogleheads approach. There is a full forum and an official website, which are packed with helpful information and advice. The forum even has investing start-up kit discussions, breaking down everything you will need for beginners, retirement and more. This means that you can assess the Bogleheads approach and determine if the strategies are something you would like to try without needing to spend money. 

The Pros and Cons of Bogleheads Investing

As with any financial strategy, there are both positives and negatives associated with Bogleheads investing. It is important to be aware of the pros and potential cons before you make any investing decisions.

The Pros:

• Simple Approach: If you’re new to investing or lack the time to oversee a complex investment portfolio, the Bogleheads investing approach is likely to appeal to you. The strategies focus on keeping things simple to minimize fees, management and complexity.

• Minimal Fees: Another key of the Bogleheads approach is to minimize fees. No one enjoys paying fees and taxes, so if you adhere to the Bogleheads principles, you can minimize your burden to ensure that more of your money is put to work. 

• Long-Term Strategies: The Bogleheads techniques are designed to offer solid returns and investment success across the long term.

The Cons:

• Simple Indexing isn’t Foolproof: While simple indexing of stocks and bonds can be highly effective, there are occasions when it doesn’t work so well, so market timing is crucial. For example, in 2008 and 2022 when the stock market suffered a collapse, these types of index funds were badly hit. Simple indexing can leave you vulnerable when stocks are falling and bonds don’t provide sufficient defensive coverage. 

• Playing it Safe: One of the messages of Bogleheads is to balance risk, but sometimes taking a full market approach is a little like playing it safe, working with averages rather than the highs and lows. However, with bigger risks comes the potential for bigger rewards that may not be possible if you’re a Boglehead. 

• Fee Obsession: While we all want to pay as little as possible in fees and charges, becoming a Boglehead may lead to a little fee obsession. You need to be careful to ensure that you are not choosing an inferior product because you are worried about nickels and dimes. 

The Bogleheads Guide to Investing FAQs

Do you have to follow a particular Boglehead strategy?

No, you can embrace the Boglehead approach to investing without following a particular three fund or four fund portfolio. However, you will need to ensure that your strategy meets the Boglehead principles that we covered earlier in this article. 

Do you have to invest with Vanguard?

This may seem a little controversial since Jack Bogle, the namesake of the movement, founded Vanguard. For this reason, there are many Bogleheads who would never deviate from investing with Vanguard funds, particularly since Vanguard has some of the best funds and ETFs. However, there is no hard and fast rule that you need to stick to Vanguard. There are a number of other companies that offer highly competitive funds. 

Summary

If you’re looking for help deciding the best investment strategy for a sound financial lifestyle, Bogleheads investing does hold some appeal. You can either follow the three fund or four fund portfolio strategies or develop your own ideas adhering to the Bogleheads principles. This can provide a long-term strategy for reliable returns with minimal management, minimal fees and balanced risk. 

However, there are some drawbacks to the Bogleheads approach and it may not be the best fit for everyone. So, it is important to assess your own investment goals, and preferences to see if embracing a Boglehead investing mindset would help you achieve your aims.