Five Investing Principles that are Built to Last

I came across an article recently that I found to be profoundly timeless. I keep hearing about the new normal, and that times have changed. However, there are many things that have and will not change that I believe are being forgotten and sometimes swept under the rug. I hope you enjoy this article as much as I did. I changed some of the wording to fit the end consumer, as theirs was geared towards advisors. You can find the article HERE.

Markets are unpredictable and investment fads come and go. Already in 2021, we’ve seen speculative behavior around AMC and Gamestop and overheated trading based on emotions rather than fundamentals. At Vanguard, we believe you can  stay on the path to long-term financial success by avoiding trends and focusing on balance, discipline, and diversification.

In his new book, More Straight Talk on Investing: Lessons for a Lifetime, former Vanguard CEO Jack Brennan provides a timely antidote to today’s headlines. He shows—in a simple, straightforward manner—how to help clients develop a sound investment program for the long term, evaluate funds and ETFs (exchange-traded funds), and manage risks and taxes.

He also outlines 12 timeless principles that can help you through the financial markets over time. Below are five of those enduring lessons learned through interactions with Vanguard crew, and partnership with advisors and clients around the world.

Five principles to guide you on your financial journey

You can’t control the markets, the economy, or the performance of an individual security. As their advisor, you can, however, take ownership of your finances in a sensible way. Here are five lessons.

Develop a financial game plan

First, establish clear, attainable goals and create a plan that will help you reach them. Be conservative in your projections about how fast your money will grow. By avoiding impractical saving or spending requirements, you can help keep your plan on track.

Become a disciplined saver

Four key words for building a secure financial future are “live below your means.” Make a habit of putting money away. If saving money doesn’t come naturally to you, find creative ways to make it a fun challenge. Consider what changes you’re willing to make to set aside a little more for your future.

Invest with balance and diversification

Create a sound investment strategy by choosing an asset allocation that uses broadly diversified funds and considers your goals, time horizon, and risk tolerance.

Control your costs

While you can’t control the markets, you can control your investment costs and taxes. The less you pay for funds, the greater your share of the investments’ potential returns. Be sure to avoid funds with high expense ratios. The average Vanguard mutual fund and ETF expense ratio is 83% less than the industry average.*

To minimize taxes, consider tax-efficient investments like index mutual funds and ETFs. IRAs are another way to mitigate the impact of taxes.**

Maintain a long-term perspective

Over time, you’ll experience both good and challenging times that can evoke various emotions. Resist the urge to make impulsive decisions. Taking a disciplined approach that keeps you focused on your long-term objectives is a winning strategy for all seasons.

*Vanguard average expense ratio: 0.09%. Industry average expense ratio: 0.54%. All averages are asset-weighted. Industry averages exclude Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2020.

**When taking withdrawals from an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.