The Boglehead Investment Philosophy

The term “Boglehead” is a term to reflect a philosophy in investment created by John Bogle. John Bogle, the founder the Vanguard Group mutual fund company in 1974. Mr. Bogle was a big proponent and pioneer of index and no-load mutual funds.

The Bogleheads are a group of enthusiasts who have their own website and forum where investment philosophy is discussed. Several members of the group wrote the book, The Bogleheads’ Guide to Investing.

Recently, I read this book and it changed the way I view investing (slightly). Most readers and customers of Everyday Financial Strategies know that I subscribe to the investment philosophy of Dave Ramsey. The philosophy ranges from getting out of debt, buying the right types of insurance, and how to invest your money in mutual funds (asset allocation).

Surprisingly, there are many similarities to the Bogleheads and Dave Ramsey. The book covers many topics in personal finance, they include:

  • Get out of debt
  • Start saving early and invest regularly
  • Know what you’re buying before investing
  • Keep your investing simple
  • Buy no-load index mutual funds
  • Diversify your investments
  • Don’t time the market

There are a few concepts with which I may disagree. For example, the book recommends that you pay off your highest interest debt first. Mathematically, this makes sense. However, I find that the debt snowball works better because the motivation factor tends to create quick wins which speeds up the process. Regardless on how to get there, the Bogleheads recommend that you get out of debt.

The Bogleheads recommend buying no-load funds simply because loaded funds or funds with high fees erode your returns. Also, they highly recommend that you purchase index mutual funds.

Index mutual funds attempt to replicate the market and are passively managed, meaning the mutual fund manager buys a bunch of stocks in the specific index and lets it ride such as the S&P 500. The mutual fund manager has very little turnover therefore does not occur transaction fees which are normally passed on to the investor.

Statistics show that most active managers fail to beat the market and charge higher fees to its investors due to more frequent trading. Don’t get me wrong, some mutual fund managers have beaten the market, but that is not the norm.

There is much more in the book and I highly recommend it. It has changed my philosophy on investing. If you follow the basic premise of this book, you can learn how to invest without a broker, cut your investment expenses, and enhance your returns.