Overview
This book has good general investment advice but I was expecting it to be much more.
If this is the first book on investing that you read or if you're not even vaguely familiar with the ideas of value investing and index funds, then it can serve as a well-rounded introduction to the subject.
It was written by John C. Bogle himself, the creator of index funds and the founder of The Vanguard Group an investment firm with more than 6 trillion assets under management.
Notes and Highlights
Hold and dividends
The first piece of advice Bogle gives echoes what other great investors like Warren Buffett have been saying for decades: buy stocks that pay dividends and hold for the long run so that reinvesting and compound interest can work their magic.
“For investors as a whole, returns to the decrease as motion increases.” - Warren Buffett
“In the long run, stock returns depend almost entirely on the reality of the investment returns earned by our corporations. The perception of investors, reflected by the speculative returns, counts message for little. It is economics that controls long-term equity returns”
“Successful investing is about owning businesses and reaping the huge rewards provided by the dividends and earnings growth of our nation’s-and, for that matter, the world’s-corporations."
“The real money in investment will have to be made …not out of buying and selling but of owning and holding securities… [for their] dividends and benefitting from their long-term increase in value."
Beware high costs
Another important point that Bogle dwells on are high fees that some firms charge for handling your money. He says that the majority of us are better off just putting our money on low-cost index funds rather than paying someone to do practically the same thing for us. He writes:
“The miracle of compounding returns has been overwhelmed by the tyranny of compounding costs. " And “actively managed equity funds confiscate your dividend income."
As an example he mentions that Mr. Charles Schwab—founder and chairman of Charles Schwab Corporation, one of the biggest asset managers in the world—invested most of his personal portfolio on index funds. This is no different from Warren Buffett’s strategy for his wife. Buffett has argued that unless one is interested in investing and doing it for a living the best strategy is to put the money in low-cost funds.
Taxes
Of course, in order for compound interest to work its magic, it is best to hold your investments for the long-term. Bogle also talks about tax-efficiency and how actively-managed funds give the illusion of more gains by focusing on the short-term. He writes:
“Most managed mutual funds are astonishingly tax-inefficient. Why? Because of the short-term focus of their portfolio managers, too often are frenetic traders of the stocks in the portfolios that they supervise.
“Active funds often distribute substantial short-term capital gains to their shareholders-which are taxed at higher ordinary income rates, not the lower long-term capital gains rate-investors in active funds face substantial tax burdens that index investors do not face."
“Switching from security to security involves realizing capital gains that are subject to tax. Taxes are a crucially important financial consideration because the earlier realization of capital gains will substantially reduce net returns."