Vanguard's Principles for Investing Success

Focus on the things you can control

Principles for Investing Success

Joel Dickson Principles for investing success video

Vanguard Head of Enterprise Advice Methodology Joel Dickson explains four timeless principles to help investors focus on what they can control.

Four principles for investing success

Goals

Create clear, appropriate investment goals.

Chart shows the changing proportions of savings and investment returns in contributing to an investment goal over time. The y-axis of the chart is labeled “Portion of contribution to investment goal,” with “0%” on the bottom and “100%” on the top. The x-axis is labeled “Goal horizon” and runs from zero on the left to “40-year” on the right, with “2-year,” “10-year,” and “30-year” called out in between. A general arc is shown in the chart, running from the bottom of the lower left side to a little above the midpoint of the right side (at roughly 65%). Pale blue and teal define this arc, with pale blue representing savings and teal representing investment returns. The chart shows that as the goal horizon increases, the contribution to the goal amount from savings diminishes and the contribution to the goal from investment returns increases. Three sets of data are called out along the arc, for the 2-, 10-, and 30-year points along the x-axis, showing the proportion of savings and investment returns at each point. At 2 years, the contribution proportions are 94% savings, 6% investment returns; at 10 years, they are 80% savings, 20% investment returns; at 30 years, they are 51% savings, 49% investment returns.

Balance

Keep a balanced and diversified mix of investments.

Bar chart shows the top 5%, bottom 5%, and average annual returns for different global stock/global bond asset allocations for the period from 1901 through 2022. The vertical axis represents the annual return. The horizontal axis represents asset allocations that move from 100% bonds/0% stocks on the left to 0% bonds/100% equity on the right. Six bars are arranged horizontally, each labeled with its asset allocation and each showing the top 5% (95th percentile), bottom 5% (5th percentile), and average annual returns for that allocation. A double-pointed arrow runs under the bars, labeled “Less risk” on the far left and “More risk” on the far right. The “100% bonds, 0% stocks” bar shows 95th-percentile returns of 21.9%, 5th-percentile returns of –15.3%, and average annual returns of 4.7%. The “80% bonds, 20% stocks” bar shows 95th-percentile returns of 20.6%, 5th-percentile returns of –14.5%, and average annual returns of 5.6%. The “60% bonds, 40% stocks” bar shows 95th-percentile returns of 24.5%, 5th-percentile returns of –17.0%, and average annual returns of 6.4%. The “40% bonds, 60% stocks” bar shows 95th-percentile returns of 25.0%, 5th-percentile returns of –20.8%, and average annual returns of 7.1%. The “20% bonds, 80% stocks” bar shows 95th-percentile returns of 29.0%, 5th-percentile returns of –21.6%, and average annual returns of 7.7%. The “0% bonds, 100% stocks” bar shows 95th-percentile returns of 34.3%, 5th-percentile returns of –21.8%, and average annual returns of 8.1%.

Cost

Minimize costs.

Line chart plots after-cost returns for four portfolios, each with a different level of cost, over time. The y-axis represents portfolio value in dollars. The x-axis represents time in years, running from zero on the left to 30 on the right. Four lines are shown, each of which plots after-cost returns for a different portfolio: one with costs at 0.1%; one with costs at 0.7%; one with costs at 1.3%; and one with costs at 2.0%. As time progresses, the difference in value of each portfolio becomes more marked; the lower the costs of the portfolio, the higher the ending portfolio value. From lowest- to highest-cost portfolio, values at 30 years are as follows: For a portfolio with costs at 0.1%, the value at 30 years is $557,383; for a portfolio with costs at 0.7%, the 30-year value is $465,899; for a portfolio with costs at 1.3%, the 30-year value is $389,846; and for a portfolio with costs at 2.0%, the 30-year value is $317,081.

Discipline

Maintain perspective and long-term discipline.

Line chart shows the importance of maintaining discipline during volatile market events, using the Covid-19 market drawdown of 2020 as a case study. The y-axis represents the portfolio return, running from –10% on the bottom to 50% on the top. The x-axis represents time, running from January 2018 through October 2022. A single teal line plots the returns for a 60/40 stock/bond portfolio from the start of the period to March 2020, at which point the single line diverges into two lines for the rest of the period: A teal line that plots the post-March 2020 portfolio returns where the investor kept the 60/40 allocation, and a brown line that plots post-March 2020 portfolio returns where the investor fled to cash from March 18, 2020 through July 28, 2020. The brown line is markedly lower than the teal line. Three pieces of callout text are shown. On the upper left, one piece of text runs next to an arrow pointing to where the line diverges; it reads “COVID downturn: What if investors moved to 100% cash from the bottom of the market in March 2020 until the recovery in July 2020?” To the right, callout text summarizes the ending portfolio return for each of the two paths. The top callout reads “21% return for investors who kept 60%/40% stock/bond allocation.” The bottom callout reads “–2% return for investors who fled to cash from March 18, 2020, through July 28, 2020.”
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