Vanguard’s 4 principles for investing success

Read time: 8 minutes

Investing success means different things to different people. Regardless of how you define it, having a sound investment strategy is key. Vanguard’s principles for investing success can help you create your strategy.  

For nearly 50 years, Vanguard has been helping investors achieve their goals with our disciplined, time-tested, and low-cost approach. These principles don’t follow the latest investment fad or change based on the latest economic news. They’re grounded in things that are within your control. They include:

  • Goals: Create clear, appropriate investment goals.
  • Balance: Keep a balanced and diversified mix of investments.
  • Cost: Minimize costs.
  • Discipline: Maintain perspective and long-term discipline.

Let’s take a closer look at each of these.

Goals

Every successful investing journey starts with a set of clear goals. Goals come in all shapes and sizes, from big ones like retirement or college to smaller ones like a vacation or a wedding.

Choosing account types that support your goals

Once you have your goals in mind, you can choose account types that support them.

  • Saving for retirement is one of the most universal goals out there—this is what your employer-sponsored retirement plan is for (along with IRAs).
  • If you’re saving for a child’s education, 529s are popular choices.
  • Individual or joint brokerage accounts are good for general savings goals.

Be realistic

Make sure that your goals are realistic. You need to be aware of any constraints or risks that you may encounter while trying to achieve your goals.

Consider the importance of saving

Keep in mind that both savings and investment returns will play a factor in achieving your goals. For shorter-term goals—like buying a new car—savings is generally the driving force in achieving them.  For longer-term goals—like your retirement—investment returns will play a bigger role.

Balance

Once you’ve defined your goals, the next step is to identify the allocation of investments—also called your asset mix—to help you achieve them.

Consider an asset mix that’s right for you

When considering your asset mix, you’ll need to balance your willingness and ability to take on risk with your desire to achieve your goals. And be aware of the trade-offs between expected returns and the volatility of your investments.

Be aware of the trade-offs

Investments with higher potential for growth, like stocks, are typically more volatile. However, assets that are considered safer, like cash, have the risk of not earning returns large enough to achieve your goals.

Diversify broadly

For longer-term goals especially, think about diversifying broadly across asset classes, like stocks and bonds, and within those asset classes, like sectors and countries. For shorter-term goals, you’ll likely want to stick with safer investments that aren’t as volatile.

If you’re not sure where to start, our investor questionnaire can suggest an asset mix that aligns with your goals, risk tolerance, and investing time frame.

Cost

An important part of successful investing is understanding the commissions and fees associated with buying and selling certain investments. Even small onetime fees have a way of adding up, and they can eat into your investment returns.

The lower your investment costs, the more of your investment returns you get to keep.

Historically, lower-cost investments have outperformed their higher-cost counterparts.

Discipline

Last but not least is discipline. 

Keep a long-term perspective

Discipline means committing to your asset mix, even when the going gets tough and markets turn volatile (after all, what goes down may eventually come back up).

Make a plan to review your goals

But it also means checking your goals every year or two to make sure your asset mix still makes sense for your life. If your goals or situation have changed, you’ll want to reevaluate things.

Maintain a best practice of saving regularly

Finally, it means realizing the importance of saving regularly and, when possible, saving more. It seems like a no-brainer, but it’s not always easy to save more than you originally planned.

Focusing on things within your control

Goals. Balance. Costs. Discipline. These are the principles that have been driving the success of Vanguard investors for almost 50 years. They’re time-tested and enduring—and can help you be a successful investor.

Get help from Vanguard

While these principles can help you be a successful investor on your own, many people want help. See what advice and guidance options may be available through your retirement plan.

Whenever you invest, there’s a chance you could lose the money.

Diversification does not ensure a profit or protect against a loss.