4. Minimize the costs of investing. The beauty of indexing is not only that the diversification it offers is priceless, but that it is price-less. The management fees and expenses, sales loads, and hidden portfolio transaction costs of the typical actively managed mutual fund come to about 2 percent per year. Over, say, a 50-year investment lifetime, these costs will consume about 75 percent of your capital. The miracle of compounding returns can be overwhelmed by the tyranny of compounding costs.
5. Stay the course. The temptations to get out of the market (usually when it's gone way down) and to pile in (usually when it's setting new highs) are overwhelming, and clearly counterproductive. Do your best to follow these proven principles through the inevitable swings in the economy and in our financial markets, and do your best not to peek at your portfolio. When you build it over your career, and see what it's worth when it comes time to draw down some of it when you retire, you'll be amazed at how much wealth you've accumulated.
To see a slide show of Jack Bogle, and to read more of the series, go to http://go.philly.com/defining_lives
Contact staff writer Art Carey at 610-696-3249 or acarey@phillynews.com.
