Sage Advice From John Bogle

Comments on “Six Questions With John Bogle,” an interview with John C. Bogle, in the March 2016 AAII Journal.

As usual, Bogle makes this easy. Buy a low-fee index fund. Start this early and start with $50 to $100 per month and keep going. Low fees and low costs. Let the power of tax-free compounding work for you. At 7%, money doubles every 10 years.

This is an excellent article.
—L.R. Gardner

Enjoyed reading John Bogle’s sage advice. But I must admit, there is no way I’m not looking at my statements!
—Dennis P. Lima from Colorado

I have great admiration for John Bogle and Vanguard. While index funds have been successful in the past, I have two concerns about them in the future. The first concerns the growing amount of equities in index mutual funds. If this trend continued to absurdity, imagine all equities being purchased through index mutual funds. Who then will be evaluating the individual company stocks? My second concern is the use of exchange-traded index funds for speculation. How will they impact the price of index mutual funds?

Even with my two concerns, I think John Bogle’s advice is about as good as you can get.
—Sl Sundgren from California

Investing in Funds for Downside Protection

Comment on “Shorting: A Strategy for Profiting From Price Declines,” an interview with Greg Swenson, in the March 2016 AAII Journal.

I have used Federated Prudent Bear fund (BEARX), Rydex Inverse S&P 500 Strategy fund (RYURX) and ProShares UltraPro Short S&P500 ETF (SPXU) to provide downside protection to equities exposure, mostly in my taxable accounts since I do not wish to sell equities that have capital gains yet attached to them and take an immediate 24% shaving even if the market doesn’t go down. How does the Grizzly Short fund (GRZZX) compare to those products? Can it be held for days or weeks or even months at a time? I held BEARX for about a year in 2007–2008 and made a lot of money by the end of 2008, yet the other two aren’t made for buy-and-hold. I am always searching for better vehicles, especially when protecting on the downside, and I wonder if GRZZX is that type of fund.
—Craig from Wisconsin

Charles Rotblut, CFA, responds:

It’s always important to read a fund’s prospectus. For example, the prospectus for the Rydex Inverse S&P 500 Strategy fund (RYURX) warns that it seeks daily inverse results of the S&P 500 index and, due to compounding, holding periods beyond a day may result in different-than-expected returns. In contrast, the Grizzly Short fund (GRZZX) shorts specific stocks as opposed to specifically targeting an inverse daily return of the S&P 500.

Puts Versus Stop Orders: Check Your Circumstances

Comment on “Protecting Against a Price Drop: Puts Versus Stop Orders,” by Ryan McKeon, in the March 2016 AAII Journal.

A good comparison of two strategies. I don’t believe there is a simple answer. I think you need to look at individual stock volatility, how the market is trading (deliberate or erratic), your risk tolerance and if you’re trading or investing.
—Ronald Later from Virginia

One Fund for Simple Rebalancing?

Comment on “Rebalancing Update: A Tiny Raise for Retirees,” by Charles Rotblut, CFA, in the March 2016 AAII Journal.

Perhaps the results would be about the same if one just bought Vanguard Wellington (VWELX) in 1988. The fund has approximately the same 70/30 stock-to-bond ratio and since it maintains this ratio (approximately), it takes care of the rebalancing process. This would certainly be simpler for the individual investor.
—Robert Stevens from Washington