Bogle On Mutual Funds

New Perspectives For The Intelligent Investor

John C. Bogle

• Publisher: Wiley
• Year: 2015
• Print ISBN: 9781119088332
• eBook ISBN: 9781119109570
• Edition: 1
• Topic: Business
• Subtopic: Investments & Securities
• Index: Business

The seminal work on mutual funds investing is now a Wiley Investment Classic

Certain books have redefined the way we view the world of finance and investing—books that should be on every investor's shelf. Bogle On Mutual Funds—the definitive work on mutual fund investing by one of finance's great luminaries—is just such a work, and has been added to the catalog of Wiley's Investment Classic collection. Updated with a new introduction by expert John Bogle, this comprehensive book provides investors with the wisdom of the pioneer of mutual funds to help you identify and execute the ideal mutual fund investment choices for your portfolio.

The former Vanguard Chief Executive, Bogle has long been mutual funds' most outspoken critic; in this classic book, he provides guidance on what you should and shouldn't believe when it comes to mutual funds, along with the story of persistence and perseverance that led to this seminal work. You'll learn the differences between common stock, bond, money market, and balanced funds, and why a passively managed "index" fund is a smarter investment than a fund managed by someone making weighted bets on individual securities, sectors, and the economy. Bogle reveals the truth behind the advertising, the mediocre performance, and selfishness, and highlights the common mistakes many investors make.

• Consider the risks and rewards of investing in mutual funds
• Learn how to choose between the four basic types of funds
• Choose the lower-cost, more reliable investment structure

• See through misleading advertising, and watch out for pitfalls

Take a look into this timeless classic and let Bogle On Mutual Funds show you how to invest in mutual funds the right way, with the expert perspective of an industry leader.

PART I
BUILDING BLOCKS

Part I provides basic background information on the rewards of investing, the risks of investing, and the principles and practicalities of investing through mutual funds.

If you are an experienced investor, well-acquainted with the financial markets and the mutual fund industry, you may wish merely to browse through the material in this section. However, I believe that, even for knowledgeable investors, each chapter will provide at least several new perspectives on familiar financial issues.

Chapter One
The Rewards of Investing
The Magic of Compounding

“The greatest mathematical discovery of all time.” That is how Albert Einstein is said to have described compound interest. This first chapter emphasizes the magic of compounding—the interaction of rate of return and time—in the search for optimum long-term rates of return on your financial assets. I believe virtually every financial goal you may have—building capital, obtaining income to meet your day-to-day financial needs, saving for your child's college education, putting away money for your retirement, or any other wealth-building purpose—can be met through a disciplined approach to the ownership of financial instruments.

This is, first and foremost, a book about mutual funds and the mutual fund industry. To set the stage, I will discuss the fundamentals of the different classes of financial assets and their unique investment characteristics. While this is not a textbook on the financial markets, I believe the intelligent, and ultimately successful, investor must consider and understand the three major categories of liquid financial securities: stocks, bonds, and cash reserves.

I hope this first part helps eliminate some of the mystery of the financial markets. This is no mean task. I have realized over the years that many individual investors regard the financial markets as enigmatic, occult, and driven by forces unseen. Mysterious though the markets may seem in the short run, in the long run it is the basic fundamentals of investing that determine the returns on financial assets. For stocks, returns are driven by earnings and dividends; for bonds and money market instruments, by interest coupons over specified periods. It is the reality of underlying financial forces, not the illusion of superficial emotions—optimism and pessimism, hope and fear, greed and satisfaction—that is at the heart of intelligent investing.

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CAVEAT EMPTOR: The Real World

The rates of return actually experienced by investors in the aggregate will fall short of the returns of the three unmanaged measurement standards: the S&P 500, the 20-year government bond, and the 90-day U.S. Treasury bill (or T-bill). If you own an actively managed equity portfolio, you may easily incur annual investment expenses ranging from 0.50% or less to 3.00% or more, including advisory fees and portfolio transaction costs. (Even if you invest in an index portfolio, you may incur annual charges of 0.20%.) Expenses of this magnitude are not incurred in the ownership of a U.S. Treasury bond or a U.S. T-bill, but in a high-grade bond portfolio or a money market portfolio you may incur investment expenses of 0.30% to 1.50%. For a large institutional investor, these costs would be lower; for a small individual investor, the costs would be much higher. Whatever the case, the returns actually realized by investors as a group would have fallen short of those in our historical, but theoretical, study.

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A LONG-TERM PERSPECTIVE

The magic of compound interest is simply a combination of time and rate of return. Let us begin by taking a truly long-term look at the financial markets. Complete data tracing the returns on financial assets are available beginning in 1872. I use primarily the Standard & Poor's 500 Composite Stock Price Index (and a predecessor index prior to 1926) as the measure of common stock returns, the long-term (20-year) U.S. government bond as the measure of bond returns, and the 90-day U.S. Treasury bill as the measure of the returns on cash reserves.

During the 1872–1992 period, the annual return on U.S. common stocks averaged +8.8%, the annual return on long-term bonds averaged +4.6%, and the annual return on cash reserves averaged +4.2%. The differences in returns—which may appear small—result in a staggering dispersion in the final value of $1 invested in each asset ...

Table of contents

• Cover
• Series
• Title page
• Copyright
• Dedication
• How Bogle on Mutual Funds Became a Classic
• Foreword
• Acknowledgments
• Preface
• Caveat Emptor Index
• PART I BUILDING BLOCKS
• PART II MUTUAL FUND SELECTION
• PART III NEW PERSPECTIVES ON THREE KEY ISSUES
• PART IV PRACTICAL APPLICATION OF INVESTMENT PRINCIPLES
• Epilogue Twelve Pillars of Wisdom
• Notes
• Index
• John C. Bogle
• EULA