• What are
  FAVORITES?
  Bookmark any page of our site conveniently in this one area.
  
  Sign In or Register so you can take advantage of all of the features of After Fifty Living

With relics of American investing history framing them, some respected icons of the nation's financial system told investors that a secure future comes from following what has worked in the past.

Their message: Straightforward, long-term investments will turn out far better than the flavor of the week.

The John C. Bogle Legacy Forum recently at the Museum of American Finance in New York brought together three former heads of the Securities & Exchange Commission, former Fed Chairman Paul Volcker, some ultra-smart money managers and Jack Bogle, the legendary founder of the Vanguard Group and the patron saint of index investing and long-term asset-allocation strategies.

An underlying theme was that investing should be easier than most people make it.

Caught up in the 24-hour news cycle, with talking heads tweeting stock tips and blurting out their feelings about what's happening "now" - as if they have special insight about the current moment - consumers are too involved in the day-to-day and not nearly focused enough on the right thing.

"Too many people spend their time trying to figure out the hot stock to buy rather than spending their time trying to get their asset allocation right," said Gus Sauter, Vanguard's chief investment officer. "Stocks, bonds and cash - take care of that decision, and the rest should go right."

Not surprisingly, Sauter's sentiments to what Bogle has always expressed, noting that the key is not in picking a fund manager or managers who can actively beat the stock market for a year, but rather who will beat the index over two decades.

"If you have no skill in picking managers, you should be 100 percent indexed," Sauter said.

Interestingly, one of the people sharing the dais with Sauter in a session about the importance of product simplicity and low costs was David Swensen, chief investment officer for the Yale University Investments Office and a manager with a nearly unparalleled record for successful active management.

Said Swensen: "You either have the passive strategy that wins the majority of the time, or you have this very active strategy that beats the market - but the people who are in the middle are the ones who will be the losers."

The losers, according to Swensen, represent the bulk of investors, considering that roughly one-quarter of all assets in mutual funds are run by passive strategies.

The problem is that consumers always want what's new and hot and what promises the best results, and in the financial-services world, that typically means something that manages - for a while, at least - to buck the odds and look great, justifying the higher costs.

One of Bogle's favorite sayings is that "the investor gets what he doesn't pay for," meaning that every dollar that doesn't go to pay for expenses winds up with the shareholder.

A panel discussion on whether indexing will be "the way of the future" got the answer to that question wrong, however. Although they advocated that average investors keep it simple, low-cost and long-term, they failed to acknowledge that the industry is heading in the opposite direction - and most consumers are going with it.

It's not so much that asset allocation and buy-and-hold strategies are dead, as their critics proclaim. It's that people are making moves warranted by their thinking, justified by a system that is increasingly complex.

It's why money gushes out of funds where a downturn in performance leads to a lower star rating from industry research firm Morningstar Inc., but floods into funds that have gained an extra star to get an above-average rating. The move is based on past performance; there is plenty of evidence to show that investors typically move into hot issues just before they cool and bail out of beaten-down securities just before they rebound.

(c) 2012 Tulsa World. Provided by ProQuest LLC. All rights Reserved.

Leave a Comment -

Guidelines: We welcome your thoughts, but for the sake of all visitors to AfterFiftyLiving.com, please refrain from the use of obscenities, personal attacks or slurs. All comments are subject to our terms of use and may be removed. Repeat offenders may lose commenting privileges.