Bogleheads' Guide To Investing

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Bogleheads' Guide To Investing
Bogleheads Guide to investing 2nd edition.jpg
AuthorTaylor Larimore, Mel Lindauer, Michael LeBoeuf
PublisherJohn Wiley & Sons
Publication date
August 18, 2014
August 4, 2014 (Kindle)
Pages336 printed pages
ISBN978-1118921289 ASIN: B00JUV01RW (Kindle)

Bogleheads' Guide To Investing is an easy to read, comprehensive guide to investing. It is suitable for investors of any experience level, and would be a good choice for a first investment book. It's written in a number of short chapters in light-hearted, plain language. It does not go into a high level of detail on most subjects, but the information presented is well-chosen, supplemented with lots of charts and references to other books and information if you want to delve deeper into a subject. The book offers a lot of practical advice and examples, and also touches on the emotional aspects of investing.

The 2nd edition was released on August 4, 2014. Among the changes since the first edition (2006):

  • Updates to reflect tax law changes, estate taxes, and gifting
  • Changes related to 401(k) and 403(b) retirement plans, revised contribution limits
  • Revised perspectives on ETFs
  • Added a discussion of Backdoor Roth IRAs

About the authors

The Boglehead's Guide was written by Taylor Larimore, Mel Lindauer and Michael LeBoeuf, long-time forum members who continue to be active on the forum today.

Table of contents

Part 1: Essentials of Successful Investing

Chapter 1. Choose a Sound Financial Lifestyle

Chapter 2. Start Early and Invest Regularly

Chapter 3. Know What You're Buying Part I

Chapter 4. Know What You're Buying Part II

Chapter 5. Preserve Your Buying Power with Inflation-Protected Bonds

Chapter 6. How Much do You Need to Save?

Chapter 7. Keep it Simple

Chapter 8. Asset Allocation

Chapter 9. Costs Matter

Chapter 10. Taxes Part I

Chapter 11. Taxes Part II

Chapter 12. Diversification

Chapter 13. Performance Chasing and Market Timing Are Hazardous to Your Health

Part 2: Follow-Through Strategies to Keep You on Target

Chapter 14. Savvy Ways to Invest for College

Chapter 15. How to Manage a Windfall Successfully

Chapter 16. Do you Need an Advisor?

Chapter 17. Track Your Progress and Rebalance When Necessary

Chapter 18. Tune Out the "Noise"

Chapter 19. Mastering Your Investments Means Mastering Your Emotions

Chapter 20. Making Your Money Last Longer Than You Do

Chapter 21. Protecting Your Assets by Being Well-Insured

Chapter 22. Passing It On When You Pass On

Chapter 23. You Can Do It - The Bogleheads Will Help

Appendices: There are several appendices with a glossary, recommended books and websites, and a Vanguard Risk-Assessment/Asset Allocation questionnaire and charts.

Book summary (first edition)

The first two chapters discuss getting your personal finances in order - paying off credit card and other high interest debt, establishing an emergency fund, living frugally with a focus on saving, not borrowing and consuming, "paying yourself first", and using the power of compounding to increase your net worth over time.

The next three chapters get into the basics of stocks and bonds, mutual funds, ETFs, and annuities. There is also an explanation of the effect of inflation and on buying I Bonds and Treasury Inflation-Protected Securities (TIPS).

Chapter 6 tackles the difficult question of how much you need to save for retirement. They discuss factors such as the age of retirement, life expectancy and the length of retirement, estimated inflation and future returns, and also any expected inheritances and desire to leave an estate. They also cover the basics of retirement calculators, with a few examples.

"Index funds outperform approximately 80 percent of all actively managed funds over long periods of time. They do so for one simple reason: rock-bottom costs. In a random market, we don't know what future returns will be. However, we do know that an investor who keeps his or her costs low will earn a higher return than one who does not. That's the indexer's edge."
-- The Boglehead's Guide to Investing, chapter 7

Chapters 7-9 get to the heart of the bogleheads' philosophy: the advantages of low-cost, tax efficient index funds, the costs of active management both in fees and turnover, and hidden costs such as spread costs. It then describes setting a goal and investing timeframe and determining your risk-tolerance. The authors then tackle the subject of what percentage of your portfolio should be stocks vs. bonds, what sort of bonds, how much international stock? There are suggested portfolios for both young and middle aged investors, and for both early and late retirees.

Chapter 10 explains the tax implications of stock and bond funds: dividends, long and short-term capital gains, and the effect of turnover on taxes. They discuss ways to avoid unnecessary taxes, such as using low turnover or tax-managed funds, avoiding short-term capital gains, not buying a dividend, tax loss harvesting, and using EE/I bonds.

Chapter 11 covers 401(k), 403(b), and IRAs (Traditional, Roth and non-deductible). They discuss the pros and cons of each, rollovers and IRA conversions, choosing between Roth and Traditional IRAs. The also discuss hidden costs of 401(k) plans. The chapter ends with a discussion of asset location (placement of funds within either taxable or tax-advantaged accounts), with stock and bond classes listed in order of tax-efficiency.

Chapter 12 discusses diversification, promoting whole market funds, and provides an extensive list of correlations between Vanguard funds. Chapter 13 is an account of why market timing of stocks, bonds, and interest rates, and performance chasing of hot funds is fruitless.

Chapter 14-16 offer practical advice on saving for college (covering UGMA/UGTA, 529 and Coverdell plans), how to manage a windfall, and how to choose a financial advisor if you need one. Chapter 17 starts with a lengthy discussion on rebalancing your portfolio to reduce risk, and doing so in a tax-efficient manner.

Practical examples are given Chapter 18, which goes in-depth on "tuning out the noise" of much of the financial media. Included is television, internet, newsletters, radio shows, seminars and books, which they label "financial porn." Chapter 19 is an excellent review of the basics of behavioral finance: greed and fear, loss aversion and regret, ego and overconfidence, following the herd, the endowment effect, mental accounting, and more. The authors discuss strategies to avoid these traps.

Chapters 20 through 22 discuss retirement: when to take social security, what is a safe withdrawal rate, given longevity and health, market returns, inflation, etc. They urge the importance of remaining flexible. Next is an overview of insurance: life, health, disability, property and auto, and long term care: how much do I need, and for how long do I need it? Finally they discuss wills, living trusts, powers of attorney and gifting.

This final chapter encourages the investor to get started, and assures them that they can rely on the bogleheads online forum and local boglehead groups for support. Appendices: There are several appendices with a glossary, recommended books and websites, and a Vanguard Risk-Assessment/Asset Allocation questionnaire and charts.

Readers comments

mikenz (first edition)

I have read lot of books on investing before the Boglehead's Guide, and have followed the forum for years, so there was little new in this book. However it was one of the most enjoyable books I've read for its organisation and good humor. It would be an excellent first investment book, and one of the few books in the Book List that I could give my mother (and she could finish!). This book really captures what the diehard philosophy is all about.

See also

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