Bogle, the creator of Vanguard revolutionized the investing landscape with the creation of index funds. Using index funds, investors can embrace a simple, low cost way of managing & growing their wealth. Listen as Bri & Dr. Jay breakdown key concepts like asset allocation, fees, & discuss the generational differences of investing using active & passive methods. Dr. Jay even challenges traditional wisdom when it comes to investing for those who plan to die with zero.
Get ready to embrace a simple, effective, & stress-free approach to growing your wealth. Join Bri & Dr. Jay as they give helpful guidance on your journey to financial freedom!
Book - The Little Book of Common Sense Investing by John C. Bogle
Book - The Psychology of Money by Morgan Housel
Podcast - Ep. 39: Think and Grow Rich
Podcast - Ep. 34: The Simple Path to Wealth
Podcast - Ep. 30: Die With Zero
Be sure to join the conversation by emailing us at [email protected], following Childfree Wealth on social media!
Book a free call here!
Disclaimer: This podcast is for educational & entertainment purposes. Please consult your advisor before implementing any ideas heard on this podcast.
We are back in our book club. If you've listened to our book club last month we Think and Grow Rich and Bri did not love it. This time her assignment was John Bogle’s Little Book of Common Sense Investing or some of those words, I can never get them right. I have to Google it every time but it is, like a little red book of investing.
But my belief and why I gave it to Bri as a part of the book club, is it holds up and there's not too much that I changed now And people that don't know, Bogle and kind of where he comes from, he's the founder of Vanguard, but really actually what he is is the founder of the concept of index funds and what we now, a lot of the ETFs, the things we do now didn't exist when he started.
It's one of those books, like if you're going, I just want to get a little nerdy on stocks. It's one of those I hand out. But Bri, what'd you think?
I really liked this book out of all the book clubs we've read so far, I ranked Die With Zero five stars and I ranked this five stars. I think it did a really good job of talking about different investing, the fees, what to watch out for, and it did get a little nerdy.
It had some different charts in there explaining the returns, the fees, and how you should pay attention to those and figure out what your actual return is. So I enjoyed the book overall.
Actually you have the book right in front of you. What year was that printed originally? What's it say? 1980 something.
So this is the updated one and the original one was published in April 2007. Yeah, so this one was done in 2017.
So the book was written in 2007. Interestingly enough,Bogle had started these index funds back in the 70s, which is even before I was born. But really, the concept didn't pick up until they started talking about it more. And to me, if you've read The Simple Path to Wealth, which was one of the other book club books, You're going to see a lot of the same principles, except like Bogle was first in working that through.
Did you see that Bri?
Yeah, there were definitely a lot of the same principles, but Bogle would talk about how he started this way back when and why he started it. So it did have some overlap, but I think this book was more exciting to read than The Simple Path to Wealth. Just a little bit.
Okay, wait, you broke out a nerd there if you're more excited about the technical things of stocks than The Simple Path to Wealth. Everybody loves The Simple Path to Wealth. I mean, this, you're, going to say this… Why is this more interesting or more engaging?
For me, I hate fees. I don't like paying people extra unnecessary things.
And this talked a lot about it. And it also had, don't take my word for it in it. And then he would go on and have Warren Buffett quotes from him. Or other big people in there and them explaining why to watch out for whatever point he was making and backing it up. So that is what I really liked about it.
Alright, so take us through a couple of the points. What jumped out to you? I saw you got a whole bunch of like, for those not watching the video, Bri actually has the tabs on the book and specific highlights.
So, one of them is, As an intelligent investor, you must make four decisions about your asset allocation program.
Asset allocation is just what you invest in, like stocks, bonds, index funds, how you break that up. First, strategic choice between stocks and bonds. That's going to be number one. Second, either you want a fixed ratio or a ratio that varies with market returns. Figure that out. The third is going to be tactical allocation, varying the stock bond ratio as market conditions change that has risks for it.
And fourth, perhaps most important is a decision whether to focus on actively managed mutual funds or traditional index funds. That is all very nerdy. And I'm well aware of that. But it essentially gives you points to think about, you need to figure out these four different things. The actively managed mutual funds would be if you went to somebody and they took over your assets and then were switching up into different funds.
The traditional index funds, you can just go ahead and log in and buy those on your own. And there's not much to them, they're lower fees. But thinking through each of those points is really good. So I really like that.
That was one. Let's pause there. This split between stocks and bonds and, I'm going to do a bunch of comparisons between this book and The Simple Path to Wealth because they're talking about the same things with just like small, like probably 5 percent differences between them.
And in The Simple Path to Wealth they talk about VTSAX and chill. Okay, put 100 percent in the market and let it ride. And by the way, I would argue Bogle would be okay with that because, frankly, it was his fund also. He's okay with 100 percent into stocks or not or back and forth.
He's not saying what percentage you should have. He's just saying, you gotta pick what you want. Is that fair?
Yeah, absolutely. And he talks about the different percentages, whether it be 80/20. So 80 percent stocks, 20 percent bonds, 60/40. And he hit hard on 60/40 being really good. However, we know that in recent years, it has experienced a worse return.
So that changes a little bit. This updated version was published five, six years ago now. Some things were different. You just kind of, whenever you're reading a book and you make sure you check the facts and that they're all up to date. Cause they're not quite, but I liked it. It was good.
And if you're getting real nerdy, which I think Bri is going to, there's actually a Bogleheads conference.
There's actually a community for it and that's where the three fund portfolio comes from. The simple way is buy the whole U. S., buy the whole world, and buy some bonds and call it a day. And you're just talking about the mix between those. And by the way, everybody's mix is going to be slightly different, and I don't think there's one right one.
It just depends on you and your situation. One of my debates I've been having lately, and this is just like a little tangent, but go with me for a second. For childfree folks, because we're not trying to have the highest net worth, and we're more embracing Die With Zero, does that mean we should take on more risk or less? Meaning more stocks or less?
And my current thought is we can actually buy a higher percentage of stocks because if the risk goes in the negative, we're still okay. Because we're not trying to pass it on to another generation. So there actually could be an argument that says, all right, if you're trying to die with zero, you're childfree, you're doing your thing, it's okay to have 100 percent in stocks, 90 percent in stocks, versus, hey, let me just say 60/40 forever and be old.
But I think the hard part of that is, it's going to be one of those research areas for me, is okay, cool. Over your lifetime, what's the impact of that? And if you're trying to die with zero, does it actually make a different problem?
You're making more money, so you have more to give away. I don't know. What do you think, Bri?
You have a good point and it can make more money if you are doing more stocks. Not always, but it might because you're not, you're exposing yourself to a little bit more risk and we know higher risk can come higher reward at times.
It is valid. I don't think you necessarily need to hang on to money in the sort of sense of buying more bonds and having that 60/40 if you're going ahead and trying to die with zero and not concerned with passing anything on. You could just spend more money too. It's okay.
It is the question of, should you like swing for the fences, you go a little bit harder, but you got some upside downside.
And by the way, it's going to depend by person, but for me personally, I'm going, I think I'm going to let my bond portfolio drop down to nothing and I don't know. I just, it's a debate. Now in that statement there, they had a, the last part was this debate between active and passive funds.
And we're going to do a whole separate episode on fees. Not going to go too nerdy on that, but really he's talking about the difference between paying, 1 percent or more just to have a fund or paying 0.1 percent or less just to have it. And that's actually one of the big things that Bogle and Vanguard did, which they just said, Hey, you know what, we don't have to charge giant fees.
We can just simplify everything. We don't have to actively manage it. You could just buy the whole stock market and set it and forget it. What do you think Bri? Is that your way of thinking?
It absolutely is my way of thinking. I do not like to hand over money to people just to give it to them.
I'm not gonna give anybody an extra payday. I think, I guess the easiest way or like easiest analogy I can think of is taxes. You want to pay what you owe, but you don't want to pay any more. If there are different ways you can lower your taxes, you would do that. When it comes to investing. If there are different ways to lower your fees, I'm going to do that.
So that's my, take on it.
This is where the book's a little bit older. And some of this, for example, ESG investing is not one of those things. That's big at this time when this book's written, I actually, when I do my investing personally, I try to do ESG funds. Is the whole stock market minus like the naughty list,the kind of the people we know that are the worst for the environment and social governance.
But I pay a little extra fees. Now, a little extra, it's an extra maybe 0.10 or something like that. It's very little, but that fee to me has a purpose. It is to select these companies, do the research work through it. But the argument behind it, active management is, “Hey, they could do better than you or pick better.”
I just don't see the data backing that up. You with me?
I'm with you, especially when you look at different fees and not only like their sales load, which is what you pay just to buy the fee and then their expense ratio which is what you have to pay every year while you have a fund. Or there's other ones who have 12b1 fees, which is a marketing fee. You add those up and you're paying a lot of money in fees every year and that is not something that I even ethically, I don't feel I can say you should do that.
That to me just feels wrong. And so I like Vanguard's strategy of lowering fees and creating different index funds, people can just buy themselves.
And today that just sounds like a no brainer. By the way, Fidelity is doing the same thing as a bunch of other places doing very low cost. Fidelity is trying to do some zero cost fees.
That's just like kind of democratization of the market of just that's there. But gotta remember that's not the way the market used to be. You used to have to call your broker and they'd have to do a commission and they'd get a chit and they'd sign off on the paper trades and they would charge you percentages.
But that still stuff is there. Commissions are still there, fees are still there for, I don't know why. Actually I do know why, it's 'cause people make money off it, but for us it doesn't really have a purpose. John Bogle, really is saying, hey, buy everything, set it, and forget it.
He's not a fan of buying individual stocks. What'd you find in there, Bri, about that?
He says, you can do it, but you might lose out on a lot. It just over complicates things. Index funds make it very easy to just buy, set, forget, not worry about it. He has a chart in here and it goes through and it says which of the highest return companies then also had the next highest return for the, 5 or 10 years after that.
And it shows, okay, a lot of them dropped down and were no longer the highest return. And so that placement really switched in there, and it's nearly impossible to go ahead and pick which one is going to do the best for the next 10 years.
Yeah, and Buffett's had those bets for years on saying, hey, if you can actively manage and do better than the S& P, I'll donate a million dollars to charity.
He keeps winning. I joke about it's true, chickens and monkeys have beat active managers pretty regularly. You can do well one year. You might even be able to do well two years. Doing it three or four or five years in a row. It's just the data's not there. You're trying to outsmart the market. And I just don't know that you can do that.
I'm gonna be transparent. I keep about 10 percent of my money aside for gambling. I'll buy individual stocks just because they're fun. And that's really just to stop me from spending my other stock money on individual stocks. You know, anybody's like, well, I want to do crypto. Now, the guy on crypto is like 1 percent of your portfolio.
Where, you can set it there. If it goes to the moon, great. If it goes to zero, doesn't impact you. Whatever to stop you from playing, because the problem with timing is you have to both time when to buy and when to sell, and then what to buy next. And this is a constant problem.
And Bogle was like, nope, set it and forget it. The simple part of this. I still believe there's a whole lot of stock pickers out there that are mad that Bogle's had such good success. It's too simple, and he's not even like you'll talk about rebalancing your portfolios in the book.
He's kind of like, yeah, that's fine, but you're also okay if you just let go and fix it over time. It's not like it has to be exact because he's also making the point every time you buy and sell, you got some commissions, you got some spread, even if it's zero commission, there's ways that you get hit on the fees.
Fidelity did a study on this and they found that the best investors are dead investors. Like they just died, set the money in there and never touched it. And that's really what Bogle's talking about. Be dead and just set it and forget it.
That is true. I've told people that before. Better off not touching things.
And there's a Warren Buffett quote in here. It says, “When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.” When they're trading things back and forth, I've heard people say, oh, well, I need a manager because I don't know how to trade things back and forth.
Do you know why they're trading things back and forth? Have you ever asked them why? Have you ever read about it? It's not necessarily for your benefit all the time.
This is, they call it, by the way, that technical term, they call it churning, when they're buying and selling things just to get commissions on the way by.
But, Bogle was famous for saying, don't just do something, stand there. And that's against, every thought, you're like, but the markets, who cares what the markets do? Put your money in when you’ve got it to buy it and sell it when you need it at the end. Just set it and forget it. And I've had people, they go, well, I've got, 10 million, 5 million, 15 million, 20 million, whatever it is.
I need a more complex investing program. No, you don't. What's there works. What you need is a better tax planning structure. That's a different question. But the investments, just buy the whole stock market, set it and forget it. Works no matter whether you got, 5 in the stock market or 5 million.
It's just having the patience and the will to just set it and forget it.
That can be hard. We've talked to people who they want to play around with things and I'm not opposed to that if it's a little bit. Like you said, you have some set aside to just play around. Okay, but don't make that your entire investment strategy because that can, it can hurt you if you make the wrong moves.
And. I'd rather you have a strategy that's simple, doesn't make you stressed at night, and you can just go to bed and not worry about big swings in the market.
Yep. So what's the next tab you got put out there in the book? By the way, you got to see, she's got a hundred of them. So we got to…
I have quite a few.
And then I also have big old sticky notes in here. I, a lot of this talks about fees. Dr. Jay knows that I've been on a tirade about how much I hate fees recently. Most of them are just in regards to fees.
And we're gonna do a whole separate thing, that's actually gonna be our next podcast. So if you don't want to pick it about fees, you can always skip that one.
Yeah. If you don't want to hear me essentially rant on them. There's one in here. It talks about how easy it is to get paid to not understand something and make money off of it, instead of teaching somebody. We are advice-only, so we teach you how to do it. Where a lot of people would rather just do it for you, not teach you how to do it and make more money off of you.
That was something... I was very anti-financial professional for the longest time. I was just like, I can do all this myself. I don't need a financial professional. I'm not paying them extra money. And then I found the advice-only world and I was like, okay, this feels good. This feels ethical.
I can sleep at night. And I feel good about this work, and that is really important for me. I never want to compromise my morals when I'm doing work and helping people. And so I would rather teach people how to do this. Because I was the person my friends would come to and say, Oh, Bri, what do I do?
Like, how do I open this high yield savings account? How do I do this? What's a Roth IRA? And I was explaining all these things. You know what? If I'm doing all this, I might as well go ahead and make a career out of it where I can help people and I can teach them. And to me, I would rather be paid to teach somebody than be paid to just take over and say, “Oh yeah, here you go. Here's a quarterly statement.” And not really talk to somebody.
The way I look at it is if you want to pay a flat fee for somebody to manage your, assets, I'm okay with that. Like, you know, you're saying, Hey, I don't want to like do the push the buttons. You could do it for me, whatever. But paying somebody a percentage over your entire life, that is just ridiculous.
The advice-only will actually look over people's shoulders and be like, buy this, sell this. But here's the thing. If you're following the Bogle approach, you're buying when you have money. You're selling when you need money. That's it. You can rebalance when you buy in more or you can do different things.
You're not messing around with it. And I think what happens is, and the Buffet quote was there when people are charging a percentage of assets or commissions or whatever else it is, they have to be doing stuff to encourage, to like justify themselves. We actually in the advice-only world is kind of weird.
We tell our clients when you don't need us, we want you to fire us. We want you to go off and come back when you need us. But realistically, financial planning is so much more than investing. We embrace the Bolo approach, just three funds, set it and forget it. And sometimes in your 401ks, you want to have all those options.
We can find best options out of that, but the investment should be the easiest part of your plan. It's what do you want to do with your life? And what do you want to do with the money and how you… What's your insurance look like and who's going to take care of it? Those are the harder questions, which investment advice does not cover.
This book is intentionally the little book like he could have wrote like a book. Buy the whole stock market, set it and forget it. That's it. That's his entire book.
It is. It very much so is. Just with some charts thrown in there and quotes from other people. It's so much more simple than I think we've ever been led to believe.
I've had this conversation with some people older than me and like, If you have somebody who's actively managing your stuff, don't be upset, that is what you went to because that is what you knew. I grew up with the internet and have always had… I've had a phone since I was in 5th grade and had the internet all the time.
I can easily learn this stuff because I have access to it. But that wasn't always the case for everybody. It was, you went in and called your broker, different things like that. And now, as you learn more, you can do more.
I really do think it's a generational thing. Because if you really said to somebody in your generation, that they had to have a paper ticker tape.
That said, this was the stock at the time, then you had to call somebody, say, please make this trade. It would take a day or two for it to get done. They would send you a piece of it. That makes no sense right now. You'll even hear now they call them ticker tape parades. That was the old school.
They would just throw them out the window and celebrate things. People don't realize that's because that was the old stock ticker tape. That's what a stock ticker comes from. Like this stuff that just makes no sense nowadays, but it's still there. The commission model became the percentage based AUM model.
The whole financial industry just as a whole has very little innovation. It's iteration, these small changes over time. Interestingly enough, Bogle was an innovator by doing these index funds. But he started those in the mid seventies and now they're popular. We're not talking about this is not an overnight success.
I think the hard part of that is like the way people manage money needs to change today. we're talking specifically to childfree folks and look, almost all financial planning and financial systems assume you have kids. That's legacy of decades and decades of doing it the same way. Same with investing, same with, so it's, it becomes a challenge to make sure your investing matches you and that it's as simple as it comes and simple works.
Seriously. So Bri, you gave it five stars. So this goes on the reading list before Simple Path to Wealth?
If you're just starting out, I think Simple Path to Wealth is a bit easier to understand and is more of like the instruction manual to do things. When you're ready to dive a little bit deeper than this is the book to go for.
Awesome. So next up we are actually gonna be looking at The Psychology of Money. This is gonna be a little more fun or at least for me I love the behavioral stuff. The investing stuff to me by the way, it's so simple that it's not fun anymore.
Like it's like buy these three. Set it. Forget it. The Psychology of Money is actually why we do things and our mental models around and structure. That's where I get to nerd out and you know get all excited. So we'll see if Bri's on the same page. Feel free to read along with us. And if you have any ideas for books, you feel free to throw in the comments Hey, this would be a great one.
I think we're actually now got a collection of a dozen books We got to get to, but hey, we'll keep working on it. Also, we're gonna start a little different book club coming up. So Bri is finishing her CFP education So as she finishes each course, there's six courses. We're going to start reviewing what she learned in her CFP education.
You won't be able to read along with that, but I think it will be enlightening to see what we're taught as CERTIFIED FINANCIAL PLANNERS™ and also what we're not taught. For example, childfree people don't exist.