Jack Bogle’s Amazing Advice for Anyone Nearing Retirement

The late great Jack Bogle is the legend behind Vanguard ETFs and a low-cost index investing movement of sorts (called Bogleheads). Indeed, the Bogleheads have embraced the teachings (and ETFs) of passive investing greatly. And they’ve likely saved themselves a small fortune in fees by doing so. Vanguard and its founder, Mr. Bogle, have a strong following for a reason.

If you’re a new investor who’s embraced the DIY approach but has a preference for passive investment rather than stock-picking, following the teachings of Jack Bogle can be a wise move. Indeed, the Bogle way aims to keep things simple, while minimizing costs, allowing investors to pocket the difference in fees that would have gone right into the pockets of a money manager.

For investors in retirement, Bogle’s advice is pretty simple and may come across as obvious to many: don’t take on excessive risk!

Indeed, not shocking advice by any means, but you would be surprised how many retirees are biting off more risk than they can chew following the stock market’s two-year run, which, unfortunately, has now ended in a correction.

Indeed, the Vanguard S&P 500 ETF (NYSEARCA:VOO) and the Vanguard Total Stock Market Index ETF (NYSEARCA:VTI) have been rocked, causing some soon-to-be retired Bogle followers to wonder if their equity allocation is a tad too high. How much equity exposure is too much of a risk for a retiree? And is it possible to take too much risk in the world of bonds?

Let’s dive in with Bogle’s cautious (but optimistic) beliefs in mind:

The stock market could return less moving forward. Accept that possibility

Ever since Goldman Sachs (NYSE:GS) remarked on the possibility of a “lost decade” for stocks, many investors have likely shot for riskier, higher-growth, higher-multiple plays to keep the gains going strong.

While it’s certainly possible to achieve above-average results, one may have to take on more risk for the shot to do so. Indeed, if you bet big on tech plays, you could get a chance to top the S&P 500 in the next decade. But if the tech trade sours more than your average S&P 500 holding, you may get even lower returns than the below-average ones served up by the broader market.

Unless you’re a young Millennial with decades to invest, I’d argue being fine with lower returns (for lower risk) is the right move to make. Chasing returns with riskier investments in simply is not the answer in a stock market that could further correct itself.

What about bonds?

Retirees should aim for an asset allocation that fits their risk tolerance. Of course, the 60/40 or 40/60 stock-to-bond allocations are quite popular. But the “right” allocation for you may lie somewhere in the middle. Either way, bonds aren’t 100% safe, as we found out during the 2022 stock and bond market sell-off. Though stocks and bonds tend to move in opposite directions, retirees must be aware of the inherent risk associated with bonds. Some bonds are safer than others — though, they offer less in the way of returns. 

For retirees who chase yield in the bond market, they may think they’re getting better returns in a supposedly “safe” asset class. However, by chasing yield, a retiree could set themselves up to take on far too much risk than they ought to bear for their age. Indeed, higher-yielding bonds can be as risky as stocks.

And for retirees seeking to follow Bogle’s advice of not taking too much risk in retirement, it’s better to stick with a low-cost basket of high-quality bonds — think the Vanguard Total Bond Market Index Fund (NASDAQ:BND) — as they aim to keep fees low and their investment game plan as simple as possible.

The bottom line

Jack Bogle has it right on the money. Near retirees must stop taking too much risk for a shot at better returns. It’s just not worth risking a good retirement for a great one if it means risking having to stay at work for several years longer.

If returns are projected to be lower, the answer isn’t to take more risk for more return. It’s to accept the return given the appropriate risk and plan accordingly until your nest egg is in the right spot.

The post Jack Bogle’s Amazing Advice for Anyone Nearing Retirement appeared first on 24/7 Wall St..