Vanguard's Jack Brennan: The Best Way to Build Wealth

Employing tried-and-true investing principles is a better strategy to achieve long-term goals than taking a get-rich-quick approach.

Photo of Jack Brennan
(Image credit: Courtesy Vanguard)

Jack Brennan is the former CEO of Vanguard Group and author of More Straight Talk on Investing, an updated edition of the book first published in 2002.

Mobile apps such as Robinhood have made it easy for investors to become active traders in hot stocks, such as GameStop. What do you think of this trend? It’s not wise. The idea that trading is the way you invest your serious money is misguided. It has never been effective. And my own view is it will never be an effective way to do it. Empirical study after empirical study shows that individuals who are active traders underperform buy-and-hold investors.

Bitcoin has soared in value, and lately SPACs—special purpose acquisition companies—have been getting a lot of buzz. Do these investments have a role in individual investors’ portfolios? I think most people should just watch them the way they watch sports: as entertainment. It’s too hard to be a successful speculator or a successful trend follower. Generally, the leaders of the trend are the ones who make money and get out at your expense. You have to ask yourself, Do I understand this investment, and how is it going to enhance my financial security over the next five, 10, 20 or 30 years? If the answer is I don’t know, you should just walk the other way.

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So, if speculation is out, what are the secrets to investing success? First, be knowledgeable and do your homework. Find trusted sources of information. Investing in a stock because an influencer on social media said something isn’t doing your homework. Second, be disciplined and develop good habits. If you have a long-term time horizon, put money away regularly, set a plan, and stick to it. Third, be skeptical and avoid fads. You should assume that most of what you read on social media is not of value. That’s why you must continually filter your information sources. And it needs to be a really fine filter today—more so than in the past. You have to tune out all the noise and stories every day about somebody getting rich. Fads are get-rich-quick schemes, but what they turn out to be for most people is “get poor fast when the bubble bursts” schemes.

Why do you think it’s a bad idea to monitor the stock market on a daily basis? Being overly engaged and paying too much attention to the market will prompt you to think you need to do something. Why the market went down today or what level the Dow is at is irrelevant. What you want to look at is what asset classes will produce the best returns after inflation over time. Historically, in time periods of 10, 20, 30 years, it’s stocks. When I talk to people, the ones with regret will inevitably tell me they reacted to a down day by selling and then stayed out of the market for an extended period of time because there never seemed to be a good time to get back in.

Why do you favor owning funds that invest in a broad stock index? If you’re in these broadly diversified funds, you have a few advantages. If you invest in a total market index fund, you’re getting exposure to virtually every stock that trades in the U.S., which is a great core holding for your family’s wealth. And these funds are unbelievably tax efficient. Low costs are another plus. If you look at the data, it’s difficult for even the best professional money managers to outperform the market due to the drag of expenses and trading costs. When you consider the diversification ben­efits, the tax efficiency and the lower costs, it’s a proven strategy.

Contributing Writer