Oct 21, 2015

Amazing Investment Advice from Three Gurus

Sometimes the best investment advice is FREE (and simple too).  NPR has a great new special series “Your Money and Your Life” which provides great personal finance resources (articles and audio) that are accessible for high school students. In this article, two of my investing heroes (Jack Bogle, founder of Vanguard and David Swensen, manager of the Yale endowment) provide simple advice to young investors about investing strategies.

Here are a few quotes that I found particularly useful:

  • Swensen on index funds:

“Fees can do terrible damage to your investment returns. Even in higher-risk, higher-return asset classes such as stocks you can only expect high-single digit or low double-digit returns over long periods of time. So if you end up paying 1 percent to a financial adviser, and then 1 percent to 2 percent on top of that in mutual fund fees and then adjust for inflation (2 percent to 3 percent a year), you’re losing half of your returns or more, Swensen says. The odds, he says, are overwhelmingly in favor of index funds.”

  • Bogle on balancing risk and return as you age:

“Let’s start with the concept that when we’re young, have few assets, are willing to take risks, and seek capital accumulation, we should emphasize common stocks,” he says. “But as we age, our assets grow, we gradually become more risk averse, and increasingly seek income, we should emphasize bonds.”One rule-of-thumb is to begin with a bond position similar to our age — 20 percent (or less) in bonds in our 20s, 80 percent bonds in our 80s — and then make adjustments based on your personal circumstances.

How you can use this in the classroom?

  1. Have students read the article and compare and contrast the advice from the three experts.
  2. What is one piece of consistent advice offered by all three?  (Hint: Fees!)
  3. Why do you think it is important to shift your asset allocation as you age?  How do each of the experts deal with this issue?
  4. Why does time horizon (or the time period over which you expect to hold your investment) matter?

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Check out the NEW NGPF Lesson on Investing for Retirement.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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