Tuesday, February 3, 2009

If Bogle only looks at his investments once a year...

In order to protect myself from short-term focused financial pornography, I try not to read finance magazines directed at consumers, because I find those publications generally have a goal of selling more magazines rather than providing sound financial planning advice. But like a highway rubbernecker passing a car wreck occasionally I can't help myself. Perusing Money Magazine during one such weak moment recently I was rewarded with a good article by William Bernstein, a leader in the index investing movement and author of "The Four Pillars of Investing".

His article discussed returns after the other 40%+ stock market declines in the past century (not including the 2000-02 decline as there is not sufficient data to examine post-decline returns). His analysis showed real returns (above inflation) of 2.9% to 7.5% over the decade following the steep losses. While we can't infer anything specifically about the current decline we are in, it is more evidence that investing in stocks for the long term is the best - and only - way to keep our wealth ahead of inflation.

He goes on to talk about making regular rebalancing a routine math exercise rather than an emotional decision making process as the best means of keeping yourself 'financially fit', and he also says that John Bogle has told him that he only looks at his investment statements once a year.
Two pieces of advice we all would do well to heed.

Bernstein also includes a quote from John Maynard Keyes which couldn't be any more timely: "Selling at very low prices [is not] a remedy for having failed to sell at high ones."

Bernstein, William. "The Intelligent Investor." Money, February, 2009.

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