CEO and founder of the Vanguard Mutual Fund Group, John C. Bogle wrote on the first page of chapter 1 his essential thesis: "Successful investing is all about common sense . . . the best way to implement this strategy is simple . . . buying a fund that holds this market portfolio, and holding it forever. Such a fund is called an index fund" (p. xi-xii). By purchasing an index fund, which contains a basket of stocks, the investor distributes the risk of depending on one company's performance to multiple companies. Furthermore, by maintaining the account for the long term, the investor reaps the rewards of compounding returns. He attested that the holders of individual stocks "returns have probably lagged the market by about 2.5 percentage points per year" (p. xiv); owners of mutual funds have fared worse. Bogle argued that this plan conforms to "Occan's Razor: When there are multiple solutions to a problem, choose the simplest one" (p. 25).
If those of us near retirement age had followed Bogle's advice, we would have amassed, according to him, enough income to adhere to the prescription of holding bond positions equal to your age, 20 percent at 20 and 70 percent at seventy. Itching to own individual stocks? Bogle recommended that to satisfy the urge, allot only 5 percent of a portfolio to personal choices.
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