NEW YORK — When every investment around the world seems to be flourishing, it’s easy to get swept up in the excitement of making a quick buck.
Did you see bitcoin has roughly doubled in 2021? And GameStop is up more than 750%? Even vanilla S&P 500 index funds are coming off their best 12-month run since before World War II.
Regular investors have wholeheartedly jumped in, and they’re trading furiously on apps that let them buy and sell stocks easily and for free.
But it’s when everything seems stuck in fast-forward that many market watchers stress stocks are best thought of as investments to be held for a long, long time. For as boring as it sounds, holding an S&P 500 index fund for 10 years has almost always been a winner historically. Holding one for a day, meanwhile, gives nearly a coin flip’s chance at losing money, according to BofA Global Research.
Jack Brennan, who was CEO of fund giant Vanguard from 1996 to 2008, recently co-wrote a book that stresses the importance of taking the long view and keeping portfolios diversified with a mix of investments to lower risk. He talked recently with The Associated Press about “More Straight Talk on Investing: Lessons for a Lifetime.” This interview has been edited for length and clarity.
Q: While you were Vanguard’s CEO, you saw two horrible bubbles pop in the stock market. Are we in one now?
A: I think the bubble risk is out at the margins, not at the core. If you think about housing in 2007-08 or the dot-com phenomenon, which inflated a lot of the broad aspects of the market, that was different.
If you think about SPACs and their total market value, it’s not that big. Bitcoin is not that big. But it abets the idea that trading is easy. It’s those kinds of things that provided the motivation to write the book, to put a very different point of view out there.
Q: What does worry you then, if you don’t see a dangerous bubble out there?
A: The lessons of being diversified and being disciplined are harder to remember when you’ve had a run like we’ve had from March of 2009 to today (where the S&P 500 soared roughly 500%, with a monthlong bear market during that stretch). That’s the major worry that I have.
In financial markets, history does repeat itself. People lose sight of fundamentals, basic principles.
Q: You don’t think stocks are too expensive now?
A: They’re fully valued. That’s why I’m a fan of a total stock market fund as a core holding. You’re going to have some stuff that’s overvalued and some stuff that’s undervalued. If you believe in the broad equity market as the best engine for wealth creation for the long haul, don’t worry about it.
Q: There’s never been a better time to be an investor, with how cheap and easy it is to trade. But you also talk about the downsides of that in the book.
A: There’s a flip side. There’s too much information. It can be too easy to react to that information. That’s why throughout the book, the term “tune out the noise” is so prevalent.
It’s hard to do. It’s harder to do today than 10 years ago, 20 years ago and especially 40 years ago. We went from “Wall Street Week” once a week to financial TV to the internet to social media.
Information is great, and it allows you to get educated if you find trusted sources. But the best investment strategy for most people is to set up a disciplined program, invest regularly in that program, look at it every once in a while, but don’t follow the stock market day to day or week to week or year to year. And that’s counter to the cultural elements of “more information is good.” In this case, more information tempts you to do something, and doing something isn’t always productive.
Q: How often do you look at your portfolio?
A: I look at it once a year, at tax time. I don’t trade.
Q: You really didn’t look in the past year? When the market was having its worst day since Black Monday 1987 and then rocketing higher?
A: No. I laughed with Tim Buckley, who runs Vanguard. I said, “You have to look because it’s your business.”
Professionally, I needed to know, but personally it’s irrelevant. Am I going to load up on stocks because it’s on sale? Or am I going to sell because of emotion? No.
If you try to time the market, you have to be right twice (by selling before the losses hit and getting back in before it’s too late). And if you think you’ve got 20 or 30 years to steward these assets, a 25% drop for the stock market is irrelevant to you. .
Q: In the book, you talk about having trust that financial markets will rise over the long term. But can somebody have as much faith today as 10 years ago, when the stock market looks so much more expensive now?
A: I think so. Almost anybody reading the book has a time horizon of decades. That’s the frame.
Would you rather have started in 1982? Absolutely. But if you believe in the fundamentals of economics that the global economy will grow, you should be confident. The other element is you’ve got a head start today in your ability to invest in a low-cost way that none of your forebears did.