Implement a Bogle index fund strategy to simplify your investment plan

John (Jack) Bogle, founder of Vanguard, one of the world’s largest investment management firms, was known for his practical personal finance advice for everyday investors.

As an index fund creator in the 1970s, Bogle was a strong proponent of investing in low-cost indexes and cautioned against what he viewed as speculative investments, such as gold and bitcoin. Bogle, who died in 2019, still has a legion of fans known as Bogleheads who promote and adhere to his investment philosophy.

The principles formulated by Bogle decades ago are still valid today. These are just three of his timeless principles.

1. Invest mostly in index funds

Bogle was a proponent of making investing easier, encouraging people to keep 50% to 100% of their portfolios in index funds.

“Successful investing is all about common sense,” Bogle wrote in his 2007 book. “Simple arithmetic suggests, and history confirms, that the winning strategy is to own all the publicly owned companies in the country at a very low cost.” The Little Book of Sound Investing. “The best way to implement this strategy is really simple: buy a fund that holds this market portfolio and hold it forever. This fund is called an index fund.”

With an index fund, investors buy a basket of stocks that mimic the performance of an index, such as the S&P 500, which represents the largest publicly traded companies in the United States. One of the primary advantages of index funds is diversification. Today, it’s easier to do this through a 401(k) or exchange-traded funds (ETFs), whose shares are traded on exchanges.

By investing in a variety of stocks at one time, you can reduce the impact of any individual company or sector’s poor performance on your investment portfolio.

2. Choose funds with low fees

Bogle advised people to choose index funds with low expense ratios, which are annual fees charged for managing and operating the fund.

“Although cost differences may seem trivial when expressed on an annual basis, they compound over the years and make the difference between investment success and failure,” Bogle wrote.

3. Have a Funny Money account.

While Bogle recommended people invest most of their money in index funds — which he called a “serious money” account — he also suggested that people who like to trade stocks could do so if they kept it limited.

That’s why I suggest creating a “funny money” account that you can use for up to 5% of the value of your portfolio.

Bogle recommends investing in individual stocks, choosing ETFs, and actively managing money with your own “funny money” account. However, people warned against using it for commodities and hedge funds.

After a few years, if that account isn’t performing as well as your “serious money” account, Bogle suggested considering whether it’s worth the cost.

If your “serious money” account offers greater returns, “you can then decide whether all this fun is adequate compensation for the potential wealth you gave up,” Bogle wrote.