The Boglehead Approach
The Boglehead approach is a set of principles for long-horizon investing: keep costs low, hold broad index funds, decide an allocation and stay the course. It is a discipline about behavior rather than a specific portfolio, and its strongest claims are the ones about cost.
This is a philosophy rather than a product, and it is worth separating the parts that are arithmetic from the parts that are preference — because they get argued about with equal intensity and only one of them is settled.
How it works
The core rules are few. Live below your means, invest regularly, decide an asset allocation, hold broad low-cost index funds, minimize cost and tax, and do not change any of it in response to markets.
Most of them are prohibitions. Do not time, do not chase performance, do not pay for selection, do not react. The positive instructions are a small minority of the list.
The cost rule is where the arithmetic lives, and it is the claim that does not require anyone to agree with the philosophy.
The part that is arithmetic
On this site’s figures a 5-basis-point annual fee removes 1.5% of a thirty-year pot, 20 removes 5.8%, 75 removes 20.2% and 150 removes 36.5%.
And the passive against active argument is arithmetic too: active investors collectively hold the market, so after costs they collectively trail it.
Neither of those depends on a view about markets. They are the settled parts, and they carry most of the practical weight of the whole approach.
A worked example
Take a portfolio that falls 40% and is held through the recovery.
It needs a 66.67% gain to get back, which at 8% a year takes 6.64 years — unpleasant and survivable.
Now take the same portfolio sold at the bottom and re-entered after a 20% recovery. The loss is realized, the first fifth of the rebound is missed, and the position is permanently smaller.
The difference between those two outcomes is not analysis. It is the fourth rule, and it is worth more than every other rule on the list combined.
The contested parts
How much to hold internationally is genuinely argued. Positions range from a global-market weight to a heavy home bias, with reasonable arguments on both sides about currency and costs.
Whether to tilt toward small or value companies is argued too. Some evidence supports it, the evidence is contested, and any tilt adds complexity and decisions.
The bond allocation is the third. “Age in bonds” is far more conservative than most commercial glide paths, and neither figure is derived from anything.
All three matter far less than cost and behavior, which is worth remembering when a discussion about them becomes energetic.
A useful test is to ask what the disagreement is worth in basis points. A ten-point difference in international weighting changes very little; a seventy-point difference in fees changes a fifth of a thirty-year result, and only one of those two gets argued about at length.
Simplicity as the mechanism
The S&P 500 has closed below its previous record on 93% of trading days since 1950 and the longest wait for a new record was 7.5 years, from 1973 to 1980, and the index still went on to new records. There is nearly always something to react to.
A portfolio with three holdings offers almost nothing to rearrange. That is the point of the simplicity — it is not aesthetic, it is a constraint on your own future behavior.
Costs
Turnover is a cost the approach explicitly avoids. Each trade pays the bid-ask spread, and in a taxable account each sale is a disposal.
Directing new money to the underweight holding is the preferred rebalancing method, precisely because it avoids both of those costs.
The original data
Of the 24,971 unique videos in the search study behind this site, 3 have a title referencing this approach, at a median of 824,286 views across 3 channels — the highest median in the investing set. The three-fund portfolio appears in 3 videos at a median of 31,701 and index funds in 132 at 69,951.
Three videos at 824,286 median views. The highest median in the entire investing study belongs to this approach, which is a striking signal about what people are actually looking for when they search about investing.
The question: An active fund has beaten it for five years. Switch?
The answer is that the rule being tested is the fourth one. Five years of underperformance against a specific comparison is exactly the situation “stay the course” exists for, and the switch would be made using the least predictive evidence available. The fee difference, meanwhile, is knowable and permanent — which is the asymmetry the whole approach is built on.
When it fails
The approach does not fail; adherence does, and it fails slowly. A tilt added after a period when that factor led, an international weight reduced after a decade of home outperformance, an active fund bought because its record was impressive — each change is individually defensible and every one is made using recent performance. After ten years the portfolio is complex, more expensive, and shaped entirely by the last decade, which is the outcome the rules existed to prevent.
The second failure is arguing about the contested parts. They matter far less than cost.
A third is treating it as a fund list. It is a set of rules about behavior.
A fourth is assuming simplicity means unsophisticated. The simplicity is the mechanism.
A fifth is applying it without an allocation decision. That is the one judgment it requires.
And a sixth is abandoning it after a lagging stretch. Every long-run figure that made it attractive includes those stretches.
Related
The three-fund portfolio is what applying these rules usually produces. Expense ratio is the number the cost rule turns on. And passive or active is the arithmetic underneath the whole position.
The reason it deserves to be taken seriously, even by people who analyze markets for a living, is that the rules are aimed at the thing that actually goes wrong. Almost nobody underperforms because they picked the wrong index fund. They underperform because they changed their mind, at the worst moment, for a reason that felt compelling at the time.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.