Getting started - Bogleheads (2024)

FAQs

What is the 4% rule in Bogleheads? ›

The 4% rule is based on a withdrawal of 4% of a 60/40 portfolio at starting point, then withdrawal amount adjusted for CPI each year. It is not based on 4% returns of any given portfolio, i.e. success depends heavily on long-term returns of the equity portion.

Investing philosophy

The Bogleheads approach begins with an investor deciding on percentage allocations to various asset classes, such as U.S. stocks, international stocks, U.S. bonds, etc. The desired allocations are then implemented using low-cost vehicles which are true to the targeted asset classes.

By focusing on low-cost index funds, diversification, and a long-term perspective, Bogleheads strive to secure their financial future through wise and careful investment practices. This philosophy not only aids in achieving financial independence but also fosters a community of like-minded investors.

Bogleheads are passive investors who follow Jack Bogle's simple but powerful message to diversify with low-cost index funds and let compounding grow wealth. Jack founded Vanguard and pioneered indexed mutual funds. His work has since inspired others to get the most out of their long-term investments.

The 10,5,3 rule will assist you in determining your investment's average rate of return. Though mutual funds offer no guarantees, according to this law, long-term equity investments should yield 10% returns, whereas debt instruments should yield 5%. And the average rate of return on savings bank accounts is around 3%.

This is a rule that aims to aid diversification in an investment portfolio. It states that one should not hold more than 5% of the total value of the portfolio in a single security.

Darvas box theory is a trading strategy that involves buying stocks that are hitting new highs and selling when they fall from these peaks. The approach uses "boxes" defined by recent highs and lows to signal entry and exit points, guided by price and volume as key indicators.

XIRR, or Extended Internal Rate of Return, measures the annualized return on an investment portfolio. For mutual fund portfolios, a good XIRR can vary based on market conditions and individual risk tolerance. Generally, a benchmark for a good XIRR is around 15-20%.

A three-fund portfolio is an investment strategy that involves holding mutual funds or ETFs that invest in U.S. stocks, international stocks and bonds. The strategy is popular with followers of the late Vanguard founder John Bogle, who valued simplicity in investing and keeping investment costs low.

The 4-3-2-1 Approach

One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.

What is the 70 30 portfolio strategy? ›

The strategy is based on:

Portfolio management with 70% hedge and 30% spot delivery. Option to leave the trade mandate to the portfolio manager. The portfolio trades include purchasing and selling although with limited trading activity.

It's just a guide, not a hard and fast rule. It comes from a study that tested if a 50/50 portfolio would survive over a 30 year period. It tested every 30 year period it could and found that 4% withdrawal almost guaranteed that you wouldn't run out of money in 30 years.

A Bogle portfolio, also known as a "Boglehead" portfolio, refers to a portfolio that follows the investing principles of John Bogle. This typically involves a diversified mix of low-fee index funds, with allocations across different indexes adjusted for the investor's age and risk tolerance.

The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.

It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.

Retirees who are depending on their savings to fund essential expenses would want to have a conservative approach. However, those who have can withstand more market fluctuations may have more flexibility with withdrawal rates. For those retirees, the 4% rule likely will provide an outdated recommendation.

The 4% rule states that you should be able to comfortably live off of 4% of your money in investments in your first year of retirement, then slightly increase or decrease that amount to account for inflation each subsequent year.