Investors who are over 50 years old may want to turn to advice from Vanguard founder Jack Bogle as they work toward their long-term financial goals.
Investing is a core pillar of retirement planning, and following a few simple strategies can help you save thousands of dollars. Here are three pieces of advice from Bogle’s playbook that can act as a late-game tune-up to your nest egg.
1. Trim your fees
One of the easiest ways to save money on your investments is by reviewing your funds and shifting your capital to low-fee exchange-traded funds (ETFs). Vanguard was instrumental in popularizing index funds that track key benchmarks like the S&P 500. Some of these funds have expense ratios under 0.10%, which means you pay less than $10 for every $10,000 you have invested in the ETF.
On the other hand, actively-managed mutual funds often have higher expense ratios — and that can eat away at your earnings. A 1% expense ratio means you have to pay $100 per year for every $10,000 you have in the fund.
The savings from a 0.10% fee versus a 1% fee can reach thousands of dollars each year for someone who has a $250,000 portfolio. It’s the difference between paying $250 per year and $2,500 per year. If you stretch that out to 10 years, it’s the difference between paying $2,500 versus $25,000. Your fees will also go up as the fund gains value, so the savings potential increases over time.
Bogle spearheaded the shift to low-cost funds to tackle what he referred to as the “tyranny of compounding costs.”
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2. Stay the course
Bogle also advocated for buying and holding assets instead of chasing trends. Not all investors can find individual stocks and spend hours researching assets each week. Index funds and ETFs make it easier to achieve a desirable level of allocation across sectors.
The Vanguard founder also warned against chasing hot sectors or investing with managers who were on hot streaks. While some popular investments continue to rally higher, soaring investments can also crash hard, as investors saw with many electric vehicle stocks right after the pandemic. These stocks rallied during lockdowns, but many of those same picks — Nikola Motors, Workhorse, Lucid and Rivian — have collapsed from their pandemic valuations.
Using automatic investments and rebalancing your portfolio each year can save you a lot of time while achieving similar returns to what active managers see. In fact, studies show most managers underperform index funds despite all of the time they put into assessing investment opportunities.
As the adage goes, time in the market beats timing the market.
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3. Help every extra dollar compound
Your 50s are a critical decade for building your retirement savings. Maxing out your retirement plans and capitalizing on catch-up contributions will put you in a better position as your golden years approach. Higher contributions and lower fees can accelerate compounding in your final working decade.
Bogle’s investing approach does not involve drastic changes or actively monitoring financial markets and individual assets. Instead, it involves passive investing and focusing on funds with lower fees.
This approach can materially change outcomes in your 60s and 70s if you commit to investing in your 50s. It is never too late to save money for retirement and end up with more flexibility when the time comes to walk away from your career.
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