Jonathan discusses principles from late Vanguard founder Jack Bogle, reviews asset class performances in 2018, and adds context to the performance of cash in long term investors’ portfolios.
Good afternoon. This is Jonathan Satovsky of Satovsky Asset Management. In January of 2019 with a video blog update.
So today I wanted to pay tribute, special tribute to Jack Bogle who passed away.
The original founder of Vanguard funds. Responsible for the original creation of the index fund and his company now stores over $5 trillion and many can say that he’s had one of the then one of the most influential people in the field of finance the last 50 years, in helping peopole think about investing, and saving and making it accessible to people for secure futures.
So there’s 3 takeaways that, and I’m sure there’s amny more, but I’ll highlight three that I am most fond of, is one is the simple beats the complex.
The second is saving has a much greater impact on people’s futures than speculation.
Which leads to the third thing is that education over speculation is a very important thing.
So in my effort to do these video blogs, I’m going to give a little nugget of education to remind people about many of Jack Bogle’s principles of thinking long term.
And it’s particularly important and timely to remind people because the 4th quarter of 2018 was a very sharp decline in financial assets and caused a lot of people a tremendous amount of heightened emotions and why is that important?
Because it takes people out of the idea of seeing having long term thinking.
I learned recently about the idea of emotions being like a seesaw. And the higher ones emotions are the lower someone’s rational thinking is.
So if emotions are calm, someone can think more rationally.
So if you’re speculating rather than investing for the long term, it leads to heightened emotions and people make a lot of mistakes along the way.
So why do I share this? Because 2018, it makes it hard for peoople to think long term because cash outperformed every other asset class in the world in 2018.
But going back to the principle of long term investing and even including 2008 you can see that stocks in the U.S. have done marketably better and a diversified portfolio has done marketably better than holding cash which has earned close to zero the last decade.
So being a long term thinker, a long top term investor pays off over time but not all the time.
So that’s why the importance of planning is critical that people have enough cash and liquidity to be able to control their temperament and to control their emotions.
So when we look back at the last 90 years, just to put it in perspective.
How interesting 2018 was. There’s only been 2 years in the last 90 that stocks and bonds were down and cash was up and only 10 years that cash outperformed stocks and bonds all together.
But 2 years in the last 90 that stocks and bonds were down and cash was up.
Just think about that for a minute and it’s been 25 years since 1994 that last time that that happened.
So I would leave this conversation reminding people that habits and discipline are immensely critical going into 2019 and beyond to be able to think long term and save and we’re going to do everything we can our part to simplify, simplify, simplify to make it easier for people to live a calm, chill, wonderful, elegant life.
Have a wonderful January. Bye-bye.