Top 8 Investing Lessons from the Bogleheads®

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The Bogleheads® are a loose and diverse coalition of mostly anonymous individual DIY investors and investing professionals who meet at an online forum to help boost financial literacy among themselves and others. They have a lot to teach, and you would do well to internalize the primary lessons espoused by Bogleheads.

The forum’s namesake, the late John C. Bogle (note the name is neither spelled nor pronounced Boggle), is commonly referred to as Saint Jack and was the founder of Vanguard and probably the greatest proponent of index funds that ever lived. The forum started on Morningstar as the now nearly defunct Vanguard Diehards forum and migrated over to its own site mostly due to the hatred of the color orange among forum members (among other issues at Morningstar). I started reading the forum midway through residency, way back in 2004-2005, as I embarked on my own journey toward financial literacy and investing success. At one point, I was the 8th most prolific poster on the forum. Since I started putting in most of my efforts here, that number has dropped down to number 21 or so with a mere 15,000 posts. Some might think I’m mostly critical of the Bogleheads, but that is hardly the case. Just because some of them get a few things wrong hardly negates the overall value of the message. So today, we’re going to go over the most important investing lessons you can learn from the Bogleheads.


8 Investment Principles You Can Learn from a True Boglehead

If some of this sounds familiar, don’t be surprised. The philosophy is heavily woven throughout my own writing.

# 1 Have and Follow a Written Plan

This principle seems so obvious to me but is so infrequently done among physicians. I can’t even get some of my fellow WCI Network bloggers to write and follow a written plan. Bogleheads are very big on developing a written plan, sometimes called an Investing or Investor Policy Statement (IPS). Without a solid written plan to refer to, an investor not only has difficulty staying the course in market downturns but has trouble even getting on course. This manifests itself with questions like “What ETFs should I invest in?” or “Should I move my money out of stocks if Democrats win the election?” or “Should I buy Tesla?” The answer to all of these is “What does your investment plan say?” The usual answer, of course, is “I don’t have an investment plan”. Well, get one, and then follow it.

Recommended Reading

You Need an Investing Plan


# 2 The Market Is Not Perfectly Efficient, but You Should Act Like It Is

For many years, academics argued about the Efficient Market Hypothesis. There was a weak version, a strong version, and a semi-strong version. Figuring out which of those is most true doesn’t really matter. What does matter, however, is that the publicly traded stock market is efficient enough that acting as if it is perfectly efficient is the right move for the individual investor. In an efficient market, securities (i.e. stocks) always trade at the most accurate price known at the moment. Taking all available information into account, and weighing the opinions of millions of investors, the trading price is the best price. As known information changes, that price will change, of course, but right now, that’s it. That means that if you think the price is wrong—that the stock is worth more or less than the trading price—then you’re probably wrong. So if you act on that idea, it’s probably going to cost you some money. So the right way to invest in publicly traded stocks is to simply buy all of the stocks at the lowest possible cost and hold them indefinitely. Picking stocks and active fund managers is a fool’s game.

There is a great deal of data out there supporting this idea. It comes from individual investors, mutual fund managers, and pension fund managers. It has persisted across numerous countries, asset classes, and time periods. If you will simply capture the market return (which is very easy and cheap to do with an index fund), you will outperform the vast majority of individual and professional investors over the long-term, especially after tax.

Recommended Reading

10 Reasons I Invest in Index Funds


# 3 Time in the Market Matters More Than Timing the Market

Investing early and often gives compound interest more time to work its magic. I invest every time I get the money because I know the longer it is exposed to the market, the more it will grow. But some people worry so much about losing money that they keep it in cash or, worse, pull it in and out of the market trying to only catch the upside while avoiding the downside. It turns out this is so hard to do reliably in the long run that you ought to consider it impossible to do. You will save yourself a lot of time, hassle, and expense, as well. You can then focus on what really matters—making a lot, saving a lot of it, and getting it into the market as fast as possible.

Recommended Reading

  1. Should I Try to Time the Market?
  2. Should I invest at All-Time Highs?
  3. How to Get Rich


# 4 Watch Your Taxes and Investment Costs

Investment costs are a drag on your returns, and there is no cost greater than taxes. Learning how to minimize this drag is a key part of investing in a smart way. That means using retirement accounts, reducing turnover, choosing low-cost, tax-efficient investments, tax-loss harvesting, donating gains to charity, taking advantage of the step-up in basis, and proper asset location and diversification.

Recommended Reading

  1. Mutual Fund Expenses
  2. In Defense of the 401(k)
  3. Multiple 401(k) Rules
  4. Backdoor Roth IRA Tutorial
  5. The Stealth IRA
  6. Should You Use Your 457?
  7. Taxable Investing Account
  8. Six Principles of Asset Location
  9. Tax Loss Harvesting
  10. The Proper Ratio for Retirement Tax Diversification


# 5 Diversify

This one is so obvious, yet there are so many people who don’t do it. If your portfolio is composed of 25% Tesla stock, 25% Gold, and 50% in your brother-in-law’s small business, you are not diversified. I’m sorry. You need to diversify both within and across asset classes. Don’t put all of your eggs in one basket.

Recommended Reading

  1. 5 Diversification Errors That Are Increasing Your Portfolio Risk
  2. In Defense of Bonds
  3. Real Estate Investing 101


# 6 Risk Should Be Rewarded, in the Long Run

Another aspect of a relatively efficient market is that an investor should generally be rewarded for taking risk. Thus, the expected return on stocks is higher than the return on bonds. That doesn’t mean it will always happen, but that is the way to bet. There are uncompensated risks (i.e. those that can be diversified away), and sometimes risk shows up and you are not rewarded for it for long periods of time, but, in general, you want to make sure you are taking enough risk to meet your goals and no more. This is also the reason why small value stocks should theoretically produce a higher long return than the overall market—they are riskier. But as small value fans have undoubtedly learned over the last decade or so, the long run can be really long.

Recommended Reading

  1. The Reason You Take Market Risk
  2. Stop When You Win the Game
  3. An Appropriate Amount of Investing Risk
  4. Don’t Give Up on Your Small Value Strategy
  5. Safe Savings Rate


# 7 More Complex Is Not Better

Wall Street is infamous for trying to make investing seem more complex than it really is. Making complexity attractive increases the likelihood you will pay for advice, how much you will pay for advice, and the costs of investment turnover. The Bogleheads, like Jack Bogle, are good at reminding you of the Majesty of Simplicity. Many surprisingly sophisticated portfolios consist of a single fund of funds. While I’m a fan of using three or even seven different asset classes in a portfolio, if you think you’re really going to benefit from having more than ten in your portfolio, you’re nuts. There are costs to complexity, and they should not be ignored. That said, it is wise to remember the words of Albert Einstein: “Everything should be made as simple as possible, but no simpler”.

Recommended Reading

12 Rules for Simplicity in Your Taxable Account


# 8 Stay the Course and Rebalance

Our first tip above was to get a written plan and follow it. It’s so important that I’m going to include it at the end as well. When you go over what really matters in reaching your investing goals (remember investing is a one-player game, you against your goals), one of the most important is following a reasonable investing plan. The investor matters more than the investment. It doesn’t matter what your plan is if you do not follow it. Staying the course means avoiding the classic behavioral mistake of selling low in a market downturn. In fact, it means continuing to buy and even buying more in a downturn to rebalance the portfolio. When you recognize that your crystal ball is cloudy (and so is everyone else’s), you will realize the value of maintaining your risk constant by rebalancing periodically.

Recommended Reading

  1. Stay the Course!
  2. Bear Market! What If Anything Should You Do?
  3. Rebalancing


As you can see, the Bogleheads® have a great deal to teach you about investing. There might be a wide variety of people and opinions there, but these core principles are held by all and should be internalized by every investor.

What do you think? What have you learned from Bogleheads®? What are the most important principles of investing? Comment below!


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