When legendary Vanguard founder Jack Bogle established the Vanguard Group in 1975, he famously said, “Don’t look for the needle in the haystack. Just buy the haystack.” Turns out he was on to something, as Vanguard today has $10 trillion in assets and serves 50 million individual customers.
But toward the end of his life, Bogle voiced concern about all the money piling up in Vanguard’s Index 500 and other funds mimicking the S&P 500. Turns out the haystack wasn’t as diversified as it was when he originally created the fund. As a market-cap-weighted index, the largest companies steer the ship. Today, seven or so needles comprise over a third of the haystack.
With so many 401(k)s on autopilot, the big tend to get bigger as loads of passengers or cash come aboard regularly in the form of paycheck contributions. Even the total stock market index, which is also cap weighted, is a titanic overloaded with large companies. Yes, it’s been smooth sailing of late, and then some, but good things don’t always last forever.
In times like these, it’s not a bad idea to make sure your margin of safety matches your risk tolerance. It’s been my experience that investors realize their risk tolerance was an intolerance, and it happens after the fact. If you’ve ever been seasick, you know you would do anything to get off the ship. But that ship has already set sail.
When you’re ready to talk, email me at ejsmith@yoursurvivalguy.com.
