Reflection No. 33

Happy May, everyone! I’ve been doing a little reflecting on the state of Reasoned Reflections, and the structure isn’t quite where I want it to be. So, like any good early-stage venture, I’m switching things up and trying something new.

I subscribe to a lot of newsletters on topics like AI, personal finance, personal growth, venture capital, and everything in between. And I’ve realized the ones I actually read are short, sweet, and to the point.

So here comes my first (and hopefully last) pivot: I’m switching to a 3-2-1 structure to keep things quick and easy.

Three Quick Hits:

• Article: Vanguard is 50!

  John Bogle founded Vanguard 50 years ago with a simple mission to make Wall Street more accessible and keep investing costs low. He believed that by minimizing transaction costs and management fees, investors could keep more of their hard-earned money working for them. This philosophy is still one of the best ways to build wealth over the long term. 

• Tip: Choose low-cost index funds or ETFs—like those with expense ratios under 0.10%—to save thousands over the life of your investments. 

• Quote: “Don't look for the needle. Buy the haystack.” John Bogle 

Two Questions:

• When was the last time you checked how much you’re paying in investment fees and whether that cost is really paying off?

• If simplicity often outperforms complexity, why do we make investing harder than it needs to be?

One Reflection:

REFLECTION No. 33: Index Funds

I - Issue: Should you invest in index funds or mutual funds to build long-term wealth?

R - Rule: Index funds passively track a market index and typically have low fees. In contrast, mutual funds have higher costs as investment professionals actively manage them and try to outperform the market. 

A - Analysis: Index funds are better than mutual funds. Even with all the research and expertise, most mutual funds fail to consistently beat the market over the long run. And worse? You’re paying higher fees for those mediocre results.

Let’s say you invest $10,000 in a mutual fund with a 1% annual expense ratio. That’s $100 a year in fees. It doesn’t sound too bad until you realize that over 30 years, with compounding, those fees can easily cost you tens of thousands in lost growth. By comparison, an index fund with a 0.05% expense ratio would only cost $5 a year on the same investment.

Beyond cost, index funds offer simplicity and peace of mind. You ride the overall market’s growth, which has historically delivered solid returns. And in volatile markets, that simplicity is an advantage as you’re less likely to panic or jump ship. 

For most investors, matching the market with low fees is more than enough to reach long-term goals.

C - Conclusion: Sticking with low-cost index funds is likely your smartest move. Boring often wins in investing.