- "But here’s the problem. Relatively few people save the money needed to run the Bogleheads plan." Denigrating a philosophy because people choose not to use it?
Well, we see this differently. But I think the fact that the plan assumes people can save over decades when most people can't is really a big issue. And my point in saying this isn't to denigrate the philosophy--I've recommended it myself in books for maybe twenty years longer than Bogleheads has existed, My point is to emphasize the critically important requirement to get the savings thing working right.
...Neither, however, do Bogleheads (emphasis added): "Bogleheads emphasize starting early, living below one's means, regular saving, broad diversification, and sticking to one's investment plan. "
Isn't it fairer to say Bogleheads emphasizes do-it-yourself passive investing using tax deferred and tax advantaged accounts, inexpensive index funds and simple asset allocation formulas? That's what i see as the groups emphases. All really good things, I agree (and as I said so several times).
But my reading leads me to think they emphasize the saving part way less than, for example, MMM. And actually I the savings part is more important. Gosh, as noted in the post, half of people at the doorstep of retirement have no retirement savings... and the average balance of the half that do have savings is pretty modest.
- "The Bogleheads investment philosophy and similar strategies basically assume you’ll earn a median return over the decades you save and invest." Actually they claim the Bogleheads® investment philosophy has "been shown over time to produce risk-adjusted returns far greater than those achieved by the average investor."
Yes, I agree with this. And this might be rephrased into an actionable recommendation: Passive investing using inexpensive index funds and a common sent asset allocation formula works well. Totally agree.
But my point is--and I think many people miss this--the average annual returns enjoyed by current retirees over the, say, three or four decades they saved has been either average or more likely above average.
You can see this in a couple of places. First, if you look at the heat maps provided for common popular portfolios at
https://portfoliocharts.com/portfolios/ you'll see that returns have been average or above average on an annual basis for pretty much anyone who used any cookie cutter asset allocation.
A second place to get an even better view into this reality is with
http://cfiresim.com/ and more specifically the spreadsheet you can download and use to see the average annual portfolio returns for a representative asset allocation since right after the civil war. What you see when you do this is that pretty much anyone who actually ran the plan got an average or above average annual return.
I think this is a big important insight. And a big important insight many people miss.
For anyone unfamiliar with Bogleheads, see Getting started - Bogleheads. Just as MMM isn't for everyone, neither is Bogleheads, but for many the sites are complementary and both worth using. One might give the nod to MMM for those getting started and to Bogleheads for those further along, but there is much overlap.
We absolutely agree here. Here were my ending remarks:
Two final quick comments in closing.
First, let me again say that the basic theory of the Bogleheads approach works really well. Low-cost index funds and a common sense asset allocation formula work better than most new investors realize. As a result, if you can run a savings and investment plan based on the Bogleheads investment philosophy, well, I don’t think there’s any simpler or surer way to invest successfully in traditional asset class investments. (I’ve used such a strategy myself for decades and have no plan to stop. Ever.)
Second, though that basic theory works well, reality shows the philosophy is impractical for many… and then incomplete. To get to the point where the theory can work its magic, for example, you and I must get the savings thing going right. And then even after that, we need to recognize that the orthodoxy of the Bogleheads investment philosophy means there are holes and blindspots in the strategy.