The Bogleheads' Guide to Retirement Planning

of American investors to allocate at least some portion of their nest egg to stocks in 5. Diversify, Diversify, Diversify While it's impossible to eliminate all of the risk associated with investing, risk can be reduced by diversifying broadly within each asset class, ideally using a low-cost total market index fund, and then constructing a well-balanced portfolio that owns an appropriate mix of stocks and bonds. 6. The Eternal Triangle Risk, return, and cost are the three sides of the eternal triangle of investing, inextricably linked to the long-term growth of your portfolio. 7. The Powerful Magnetism of the Mean Investment superstars come and go, the vast majority proving to be comets who briefly illuminate the firmament with spectacular performance, only to see their returns deteriorate, returning to, and then lagging, the average returns of their peers and the market. 8. Don't overestimate your ability to pick superior equity mutual funds, nor underestimate your ability to pick superior bond and money market funds. In equity funds, past returns tell us nothing about what the future holds. Performance comes and goes, and yesterday's leaders are likely to be tomorrow's laggards. The top-performing bond and money market funds, on the other hand, are typically populated by the lowest-cost alternatives. In these areas, investors can choose the low-cost leaders with a reasonable amount of confidence in their favorable prospects for continued success. 9. You may have a stable principal value or a stable income stream, but you may not have both. Intelligent investing involves choices, compromises, and tradeoffs, perfectly illustrated by the choice between a 90-day Treasury bill's fixed value and volatile income stream on one hand, and a long-term Treasury bond's volatile market value and relatively stable income stream on the other. 10. Beware of fighting the last war. Too many investors, individuals and institutions alike, become infatuated with the recent past and find themselves eternally, and futilely, reacting to what has happened in the financial markets, instead of building a portfolio that can withstand whatever the future holds, recognizing that particular cycles and trends never last forever. 11. You rarely, if ever, know something the market does not. The financial markets reflect the hopes, the fears, even the greed of all investors everywhere. It is nearly always unwise to act on insights you think are your own, but are in fact shared by millions of others. 12. Think long-term. The daily volatility of the market is often a tale told by an idiot, full of sound and fury, signifying nothing. The wise investor tunes out this noise and patiently focuses on the long-term while staying the course. Of course these twelve pillars are more than just an epilogue to a fifteen-year-old book. They represent the foundation on which I built the Vanguard Group. From its inception in 1974, I strove to make Vanguard a firm that emphasized the simple over the complex, the enduring over the ephemeral, and the low cost over the costly, represented most clearly by the Broad Market Index Fund, which guarantees its investors nothing more, and nothing less, than their fair share of whatever returns our financial markets provide. And as pleased as I am that thirty-five years later history has shown the merit in such an approach to investing, I'm even more pleased with how broadly it's been embraced by millions of investors, none more so than the group that calls themselves the Bogleheads. I met my first Boglehead on February 3, 1999. I had flown to Miami to deliver a speech, and Taylor Larimore, the group's unofficial leader, invited me to join a group of his compatriots for dinner at his home that evening. Taylor and his friends proved to be as wonderful a group of people as I had ever met, intelligent, thoughtful, trustworthy, and eager to help others. In short, good human beings. We all had so much fun that our gathering quickly became an annual event. We've held our reunion in cities all over the country.