John Bogle

IFA's Quote of the Week - 46 (John C. Bogle)

John Bogle

"We need a mutual fund industry with both vision and values; a vision of fiduciary duty and shareholder service, and values rooted in the proven principles of long-term investing and of trusteeship that demands integrity in serving our clients."

John C. Bogle, founder and former chairman of The Vanguard Group, and author of many books, including Enough, from which the above quote is taken.

 

 

 

 

Draw the Line in '09

It is entirely possible that most investors have but one good thing to say about 2008: "It's over!"

Given time, however, investors may determine that 2008 turned out to be a rewarding year after all, if not in the traditional sense.

With practically every equity asset class down in 2008, the only positive returns were in fixed income investments. A US Real estate index was down 37%, with many leveraged real estate investors finding themselves completely wiped out. Emerging Markets were down 50% and private equity, venture capital and hedge funds were hammered, as well. Investors with lock-up provisions find themselves especially pinched as their assets have declined and they can’t even get their money out. Anyone who jumped on the supposed inflation-hedging commodities markets was grossly disappointed as demand waned when speculation hit an all-time high. Those who had investments with Madoff's massive hedge fund scam have the inglorious distinction of feeling like the "biggest suckers who ever walked the earth," to quote former Madoff investor, Eric Roth.  The Forbes May 2004 cover article on hedge funds, titled “The Sleaziest Show on Earth,” had a subtitle that investors ignored at their peril. It stated that “Hedge Funds will suck in $100 Billion from an ever-broader swath of investors. Pretty good for a business rife with exorbitant fees, phony numbers and outright thievery.” Bernie Madoff can now be added to the list of other hedge fund thieves reported in the story from nearly 5 years ago.

Certainly, many investors have sacrificed financial losses in the past year. They have also been presented with certain unavoidable, undeniable and hopefully, unforgettable truths that have the power to usher in a new breed of more discriminating investors.

A handful of lessons courtesy of 2008:

  • Don't pick stocks: Bear Stearns, Lehman, Wachovia, AIG, Fannie, Freddie-steady Eddies can turn into dead ducks.

  • Margin Cuts Both Ways: Unlike a bicycle, the ride down is not fun.

  • Broken Trust: Brokerage commissions, performance premiums and other incentives (often buried in the fine print) have the power to foster conflict of interest.

  • Liquidity Matters: It's your money. When you need it, you should be able to get it.

  • Transparency: What's in your portfolio? Do you understand it? Can you account for all of your holdings, and is information easily accessible and straightforward?

  • Prediction: As physicist Niels Bohr observed, “Prediction is very difficult, especially if it is about the future.”

2008 is painfully well-documented by financial journalists, but many are conflicted in their efforts. In one breath, they describe the ravaging effects to investors. But in the next breath, make predictions about where to invest in 2009. The reality is, however, until investors establish a true understanding of whom they can trust, they are vulnerable to the siren songs of active management that promise great wealth without regard to risk. The New Year provides a watershed moment for investors to finally avoid listening to those who do not harbor their best interests . This filter is a very simple one. It's the standard that requires fiduciaries to put their clients' best interests above their own.

To borrow a phrase from Amy Grant: "You've got to know who NOT to listen to." The New Year provides a watershed moment for investors to finally avoid listening to those who do not harbor their best interests (even if it is their own flawed judgment that works against their long-term best interests). This filter is a very simple one. It's the fiduciary standard and it requires fiduciaries to put their clients' best interests above their own, and at all times. For a detailed explanation of the fiduciary standard, click here.

Enlisting the services of a fee-only fiduciary can go a long way toward stemming the tide of deception that frequently travels in lock-step with active management and the brokerage industry.

Larry Swedroe aptly surmises, "Anyone who says active managers can win should wear a T-shirt that says, 'I can't add.'"

William Bernstein declared, "Brokers service clients the same way Bonnie and Clyde serviced banks."

And, in an almost prophetic stroke aimed at nursing the world through the impact of what was yet to come at the end of 2008, Vanguard founder, John C. Bogle released his latest book Enough.

In his book, Bogle states, "The rampant greed that threatens to overwhelm our financial system and corporate world runs deeper than money. Not knowing what enough is subverts our professional values. It makes salespersons of those who should be fiduciaries of the investments entrusted to them."

With no intent to alter the significance of what Bogle refers to as "Enough," IFA says "Enough!" to the illusions captured in the smoke and mirrors that drive Wall Street.

IFA says "Enough!" to the speculation that grinds down the value of investors' accounts while driving up commissions.

IFA says "Enough!" to the deception that lures trusting investors toward the elusive goal of market-beating returns, when reams of data and non-biased studies comprehensively reveal the folly that accompanies such a hope.

IFA says "Enough!" to the broken trust that will likely define 2008, if not the entire decade.

IFA urges investors to say "Enough!" and finally abandon the frustration that has plagued ill-fated attempts to beat the market. Hundreds of studies continue to show that market returns are the superior returns, and they come with zero conflict of interest. IFA advises on investable indexes that carry up to 81 years of risk and return data*. These investments are tax-efficient, globally diversified, low-cost, risk-appropriate and provide an excellent way for investors to capture market rates of return that are in keeping with an individual's risk capacity.

IFA advises clients to invest in investments that are tax-efficient, globally diversified, low-cost, risk-appropriate and provide an excellent way for investors to capture various market rates of returns that, as a whole, are in alignment with investors risk capacities.

IFA applies tremendous resources to help investors make sound investment decisions. The ifa.com website contains comprehensive and up-to-date data on Indexes and Index Portfolios. It also provides hundreds of articles and charts detailing landmark studies that pertain to virtually all investing strategies. We have posted dozens of IFA Films on youtube, iTunes and ifa.com, including interviews with some of the most highly regarded financial experts.

We are constantly add new information. Why… because when it comes to being a resource on proper and prudent investing, IFA will never say "Enough!"

To learn more, visit ifa.com.