Vanguard Group founder John Bogle is almost universally worshipped in financial markets. But Eric Nelson, CEO of Servo Wealth Management, while holding Bogle in high regard, takes the investment legend to task for a few of his ideas.
"I have a lot of respect for John Bogle and think Vanguard, is an excellent firm — one of the few good guys. He is responsible, of course, for creating the first index fund for retail investors, which has changed the way we all invest," Nelson tells Sensible Investing.tv
"But with great power comes great responsibility. And I think some of his guidance lately might lead investors astray or at least confuse them."
First, Nelson points out that Bogle discourages the idea of investing in foreign stocks. "I just don't think concentrating all of one's assets in their home country is a smart decision," Nelson notes. "Ask Japanese investors how that's worked out for the last 25 years."
Second, Bogle appears to be neutral on the idea of portfolio rebalancing, Nelson says. But that's how you keep your portfolio aligned with your investment goals, he maintains.
"I don't mean to be critical of Bogle, it's just that he is such an influential figure with such a wide following, he has a responsibility to get these things right. Global diversification, disciplined rebalancing, and an appreciation for the tradeoff in stock and bond risk and return are the foundations of a successful investment experience and we can't afford to overlook them."
Meanwhile, Wall Street Journal columnist Jonathan Clements
shares Bogle's affinity for index investing. He adds an interesting point to the discussion: index funds promote good investor behavior.
"Mutual-fund investors have a reputation for buying funds after they have performed well and then selling in a panic when that hot performance turns cold," Clements writes.
"But here is the surprise: It seems investors behave more sensibly when they bypass actively managed funds, which seek to beat the market, and instead purchase index funds."
That's likely because index funds change holdings only when their indexes change, so there is little reason for investors to switch from one to another.
"When you buy an index fund, your only worry is the market's performance. But when you buy an active fund, you have to worry about both the market's direction and your fund's performance relative to the market," Clements says.
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