Dow Jones Newswires -- February 10, 1998
Vanguard's Bogle Offers Eight Rules In Picking Mutual Funds
Dow Jones Newswires NEW YORK --
The founder of the nation's second-largest mutual fund firm encouraged a simplified approach to investing and outlined mutual fund-picking principles in an address Saturday at the Los Angeles Times Investment Strategies Conference. "The great paradox of this remarkable age is the more complex the world around us has become, the more simplicity we must seek in order to realize our financial goals," said John C. Bogle, senior chairman and founder of mutual-fund giant Vanguard Group. While Bogle, of course, endorsed an all-index-fund approach (Vanguard is best known for its huge index fund lineup), he offered eight rules for fund selection to those investors pursuing actively-managed funds. They are: Rule 1. Select low-cost funds. Bogle advised investors to consider the role expense ratios play in shaping mutual fund returns. Rule 2. Carefully consider the added costs of advice. Bogle said investors who need personal assistance should factor the impact that these costs will have on long-term investment returns. Rule 3. Do not overrate past fund performance. "There is simply no way under the sun to forecast a fund's future absolute returns based on its past record," Bogle said. Rule 4. Use past performance to determine consistency and risk. "While you should disregard a single aggregate number showing a fund's past long-term return," he said, "you can indeed learn a great deal by studying the nature of its past returns." Rule 5. Beware of "stars." Bogle warned investors about both the perils of investing with "star" managers and relying on "star" rating systems in the fund selection process. Rule 6. Consider a fund's asset size. "Size can, and likely will, kill any possibility of investment excellence," said Bogle, who advised investors to avoid fund companies that have no history of closing funds to new investors and those that seem willing to let their funds grow to "seemingly infinite size." Rule 7. Don't own too many funds. Bogle recommended a simple five-fund portfolio, allocated as follows: 50% large cap, 10% mid cap, 20% small cap, 10% specialty, and 10% international. Rule 8. Buy your fund portfolio - and hold it. "Once you decide on your long-term objectives and define your tolerance for risk, it is time to carefully select a fund or small number of actively managed funds that meet your own goals," Bogle said. -------------------------------------------------------- Briefing Book for: X.VGI Return to top of page Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.