Wes Moss: Six important rules for investing

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB.

I’m a big fan of Vanguard Group founder John Bogle. I can’t think of anyone in the investment world with a better record for divining market trends and their impact on investors.

So it got my attention when Bogle recently said he believes we are facing the most difficult investment environment of his long career. An anemic economy, poor financial industry oversight and a Wall Street culture of greed are among his big concerns. But what most bothers Bogle is today’s shortened investor time horizons. He notes our post-World War II habit of long-term investing has given way to a “culture of short-term speculation.”

A study by Strategas RP supports Bogle’s theory, tracking the steady drop in the average holding period for stocks, from 8.3 years in the 1960s to 1.4 years today.

Shortsighted investment strategies generate portfolio turnover, which leads to increased trading costs, more impulsive investment decisions and a bigger tax bite from all the buying and selling. The result is decreased portfolio performance.

Reprinted with permission of Strategas RP

Reprint permission from Strategas RP (Click chart to enlarge)

But Bogle still believes equities are the best long-term game in town. Where else can we find returns strong enough to outpace inflation? Cash, currently paying about 0 percent, has never been able to do so. Today’s bond yields aren’t much better. The 10-year Treasury note pays less than 2 percent. Real estate might offer an option in the coming years as we are starting to see some increases in home prices.

Stocks, though frustrating the past decade, still offer your best hope for serious growth — assuming you keep a smart, long-term strategy.

Some Bogle-isms I heartily endorse:.

1. The Basics: There’s no substitute for getting the basics right,  starting with…

2. Asset Allocation: As a very general rule of thumb Bogle says, “Own your age in bonds.” I offer these variations: Own your age in the right bonds, and own your age in income. If you are 60, for example, about 60 percent of your investment assets should be in the right bonds, including shorter-term, higher-yielding and floating-rate bonds — all purchased via low-cost mutual funds or ETFs. Owning your age in income means once you retire a vast majority of your investments should produce some level of steady cash flow through dividends, interest and distributions.

3. On Timing the Market: Anything less than a 10-year horizon is just speculation.

4. Stay the Course: We will inevitably go through tough times, but our nation will remain one of the best places to invest during our lifetime.

5. On Fees: Keep your fees and costs to a minimum.

6. Investing is simple, but not easy: Success in any field, including investing,“must not be bought but earned.” Despite how nervous we get about the world, remember what Bogle says: The stock market is just a big distraction from the business of investing.

How do you keep your costs low? Any Bogle-isms you disagree with — or ones you’d add to his list?

– Wes Moss, for Atlanta Bargain Hunter

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– Wes Moss, for Atlanta Bargain Hunter

Follow Wes Moss: Twitter | Facebook | Email

8 comments Add your comment

Independent voter

August 20th, 2012
6:21 am

you don’t mention the #1 rule for investing : Dollar cost averaging if you’re talking about long term like 10 + years. Asset allocation should also include rebalancing at least yearly. Income should also include REITS and utilities not just bonds at these low interest rates.

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An observer

August 20th, 2012
9:31 am

So much silliness.

Glenn Olson

August 20th, 2012
10:22 am

I’m sorry, but interest rates are at their lowest so when interest rates go up, bond prices go down, I disagree you should own your age in bonds!!!!!!!!!!!!!!!

Daniel

August 20th, 2012
11:26 am

I like Warren Buffet’s idea of “I buy when others panic, and when others panic, I buy.” Buying dividend aristocrats stocks when they are at a lowpoint has proven to be a good strategy for me for the past 3 years.

JF McNamara

August 20th, 2012
11:39 am

I’m not sure what to make of that average holding period number, and the link doesn’t go to the report. I’d like to know:

1. Did they strip out high frequency trading and other automated trading techniques employed by investment banks.

2. What they though the effect of not having dividends on most stocks played. If you are getting a steady return in the form of dividends, then you don’t feel compelled to try to find a new “hot” stock that could provide higher returns. These days, if it isn’t a growth stock (no dividend), then you are unlikely to get the best returns and you have to keep turning over your portfolio (unless you are using index funds).

Independent voter

August 20th, 2012
3:25 pm

most people have given up on the stock market.. so if you are stable in your job … buy a nice ( not huge ) home in a great neighborhood with 25 % ( or more ) down payment from a bank on a foreclosure or short sale. @ below market price.

wolfman

August 26th, 2012
10:36 pm