Jack Bogle, the founder of the Vanguard Group, reminded me recently that one of his "prime rules of investing" can be summed up in two words: Don't peek.
It takes preparation to adopt a “no peeking” strategy.
Jack Bogle, the founder of the Vanguard Group, reminded me recently that one of his “prime rules of investing” can be summed up in two words: Don’t peek.
“Peek the day you retire,” Bogle said, “and you are going to have so much money, you are going to say ‘What kind of miracle is this!’ “
Far be it for me to doubt Bogle, but anyone who didn’t look at the returns of their mutual funds for the last few months or years and who just now decided to gaze upon their retirement accounts probably isn’t feeling uplifted about it now. The miracle they’re seeing is the one that might be necessary to rebuild their savings.
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And yet while he follows a no-peeking rule, his ability to persevere with his eyes closed is based on some very solid and sound investment ideas.
For investors whose primary investment strategy is to put their head down and power through until they reach retirement age, there’s more to success than keeping your eyes closed. Here are the things you have to do, in order to be able to live as a long-term investor without looking at your statements.
• An appropriate asset allocation, and enough money in cash to cover emergencies and short- to intermediate-term needs.
Bogle thinks investors should have a percentage of their assets in bonds that is equal to their age, so that a 50-year-old would have an even split between stocks and bonds.
Many financial advisers would suggest that rule of thumb is too conservative; it’s not hard to find people who would suggest it’s your age minus 40, so that the bond portion of your portfolio starts at age 40 and grows each year from there.
The key to taking a set-it-and-forget-it approach is to have a strategy that you are comfortable with, so that you are not tempted to peek.
• Mutual funds (or other investments) you can believe in.
Whichever strategy you take in executing a no-look strategy, consider the implications of your eyes-closed approach: If you can’t pick a fund confident that it will reward you over the next decade or more, then you’re not only going to want to check in periodically, but you will second-guess your pick at each and every look-see.
• A solid concept of your needs and time horizon.
Short-term-market needs don’t belong at risk in the stock market. If you need the money, you need to watch it like a hawk to make sure it will be available. Thus, the only monies that should be exposed to a closed-eye approach are the ones that have a sufficiently long time to pay off.
• A willingness to save until it hurts.
One of the successes of a no-peek strategy is that an investor may know they are setting aside chunks of money regularly, but those direct deposits typically are automatic and painless. The more you set aside, the more fuel you’ll have for the time when the market is delivering your version of Bogle’s miracle.
• No “Plan B.”
No peeking requires commitment. If you open your eyes, get scared and make a change, you’re too late. You only got scared because you rode out the bad parts of the market, and unless you have a plan for recovering, you’re just going to flail around and get the worst the market has to offer.
While Bogle would like investors to think that no peeking is easy to live by, the truth is that it’s every bit as hard to do well as trying to follow a timing strategy, a sector-rotation approach or any active management idea.
It may not require as many trades or moves, but it involves just as much commitment to following the plan through times of failure to reach success.
Chuck Jaffe is a senior columnist at MarketWatch columnist. He can be reached at email@example.com or Box 70, Cohasset, MA 02025-0070.