The father of index funds shares his wisdom
Bogle is now a mini industry. There is the fund house (Vanguard), the world’s first index fund, there are the books and now there are the writings compiled into books, apart from a large online community called the Bogleheads. The current volume Bogle on Mutual Funds: New Perspectives for the Intelligent Investor (Wiley; 320 pages; Rs499) offers us insights into investing in mutual funds. Bogle believed that mutual funds should be managed in a manner that serves the interests of the investing public. The book serves as a guide to investors who wish to build wealth through investing in mutual funds, covering equity and debt schemes. The book explains the concepts with a host of numerical examples covering data over a long period.
Divided into four key sections, it starts with the rewards of investing with focus on the power of compounding. It moves to an important dimension of investing—risk—explaining different types of risks for common stocks and bonds. How inflation reduces your real return on investments is explained with examples. It delves into the details of choosing different types of mutual fund schemes, focusing on how to evaluate their past performance and the kind of schemes that need to be avoided. It explains, in detail, the process to assess a scheme’s potential risks and actual costs.
A book on mutual funds authored by the creator of indexing would be incomplete without a chapter on index funds. The chapter covers stock indexing as well as bond indexing. Other key issues in mutual funds investing, such as fund costs and tax considerations, are explained. Explaining asset allocation between bonds and stocks, the book emphasises the importance of a sound intellectual framework and emotional discipline in investing. A few model portfolios, for different types of investors, are provided.
The book moves on to the four fundamental rules of mutual fund investing—being canny, thrifty, active and sceptical. Canniness involves wisdom to rely on common sense. Thrift consists of choosing schemes with lower costs. Being active means exercising your rights as a mutual fund investor; and scepticism involves not falling prey to misleading advertisements and promotions. The book ends with 12 pillars of wisdom—simple rules of an investment programme including thinking long term, diversification, simplicity and reversion to the mean.
Warren Buffett, chairman of Berkshire Hathway, calls the book “comprehensive, insightful, and—most importantly, honest.”