CHAPTER SIX
Stay the Course

If you have followed the five steps in the previous chapter, you are well on your way to meeting your investment goals. You must stay the course you have chosen, but it won’t always be easy. You will be confronted with many temptations to make changes. Here are two that you must resist:

Bull Markets: When stocks are in a Bull Market, there will be a great temptation to increase your stock allocation. A small deviation from your asset allocation plan is permissible, but you should rebalance any time your stock allocation exceeds 10% (some would say 5%) of its desired allocation. If you are in the accumulation phase of investing, you can do this by putting all new contributions into your bond fund or by selling stocks. If you are in the withdrawal phase of investing, you should take withdrawals from your stock funds, or exchange stocks for additional bonds in your tax-advantaged account(s).

Bear Markets: When stocks are in a Bear Market (U.S., International, or both), you will be strongly tempted to sell at least a portion of your stock funds. DON’T DO IT. This is the time when stocks are on sale at lower prices. Sticking with your allocation means you likely will be buying low and selling high when you rebalance—the opposite direction of the herd. Rebalance by adding to your stock funds until you have again met your desired asset allocation. This is the most difficult (but most important) thing you can do in a Bear Market. Here is what Jack Bogle wrote in his classic, Common Sense on Mutual Funds.

Stay the course. No matter what happens, stick to your program. I’ve said, ‘Stay the course’ a thousand times, and I meant it every time. It’s the most important single piece of investment wisdom I can give to you.

It takes knowledge and willpower to stay the course and avoid succumbing to carefully prepared (and often misleading) marketing by mutual funds, insurance companies, banks, advisors and others seeking to make a profit from your investments. However, millions have now discovered the wisdom in Jack Bogle’s advice and are following it.

Bogleheads Speak Out

“We’re using the Three-Fund Portfolio across the board. I wish I could convey how much I appreciate what you’ve done.”

—RE

“Don’t let the trivia distract you. I’ve been down that road before and now ended up with my own three-fund portfolio.”

—MU

“I moved everything to Taylor’s 3-fund portfolio. I am a happy camper!”

—JA

“The venerable Three-Fund Portfolio is a marvelously simple and effective way to invest.”

—PI

College Endowments Compared with The Three-Fund Portfolio

Each year, the National Association of College and University Business Officers (NACUBO) issues a Commonfund Study of Endowments (NCSE). This is a much-anticipated study, because colleges and universities are highly competitive. The schools have access to the best stock and bond fund managers and use the largest and best-connected groups of advisors and consultants—the finest money can buy. Investments include venture capital, real estate, timber, hedge funds, and derivatives, among others, and we would expect these endowments to outperform most individual investors.

Ben Carlson, CFA, writes for the newsletter, A Wealth of Common Sense. In his February 2018 column, “How the Bogle Model Beats the Yale Model,” he compared the 2017 investment returns of the Vanguard Three-Fund Portfolio with the average returns of the 809 U.S. college and university endowments reported in the NCSE study. Here are the results:

Endowments 1 Year 3 Years 5 Years 10 Years
The Three-Fund Portfolio 14.9% 5.6% 10.3% 5.5%
Average Endowment Return 12.2% 4.2% 7.9% 4.6%
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