Jack Bogle

Mark Lennihan | AP

Boring investing is making a comeback.

With the rally in meme stocks in the rearview mirror and rising interest rates, retail investors are rediscovering the philosophy that made Vanguard founder Jack Bogle famous. The father of market indices preached low-cost, passive investing that added up over years. Fans refer to themselves as “Bogleheads” and the strategy as “lazy investing.”

They are well positioned for the current market. Timing has proven tricky this year, with eight days accounting for all of the S&P 500’s gains, according to DataTrek. Higher interest rates have hurt technology and growth stocks that have dominated retailers’ portfolios during the pandemic. GameStop, the original meme trade, is down about 85% from its all-time high.

Dan Griffin, a self-proclaimed Boglehead based in Florida, said he has been watching the rally in meme stocks with amusement. The current market situation is proof that his “turtle” investment approach is the right one to build long-term wealth, he said.

“It’s a little bit of vindication,” Griffin told CNBC. “I’m happy being the boring investor, I’m happy being the turtle. While the hare will sometimes win, most of the time the tortoise will come out on top.”

Christine Benz, director of personal finance and retirement planning at Morningstar, said investors are currently gravitating toward higher returns to capture value — another core Boglehead principle.

“Bogleheads invest for the very long term – the idea is that you put money into your account and just grow it, but maybe don’t touch it or look at it for another 30 years,” she said. “The meme stock phenomenon seemed so focused on fitting incredibly well into your portfolio and monitoring your investments – I see the Bogleheads’ philosophy as contradictory to all of that.”

Wall Street is betting on Bogleheads

Brokerage firm Robinhood, once synonymous with day trading, is seeing a similar trend toward higher returns and longer-term thinking.

The company launched retirement accounts this year and offers 3% cashback on cash as it seeks to diversify amid falling trading fees. Robinhood co-founder and CEO Vlad Tenev told CNBC that investors have moved to cash, money market funds and bond ETFs. He noticed that there was more chatter in the Bogleheads Reddit group than in the infamous Wall Street Bets.

“One of the really interesting things we’ve seen in the last few months is the mention and discussion of Robinhood in these traditional passive investing forums, like Bogleheads on Reddit,” Tenev said. “People are building long-term portfolios on Robinhood, taking advantage of better economic conditions and tools to do so.”

Bond ETFs are a way for retail investors to profit from rising interest rates. According to Vanda Research, the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) was the third most-bought name last week after the Invesco QQQ Trust (QQQ) and the SPDR S&P 500 ETF (SPY). It recorded the largest single-day net inflows into the ETF since the firm began measuring it nearly a decade ago.

“Clearly, income-seeking retail investors are taking advantage of the new high interest rate regime, which has been missing from the investment landscape since before the global financial crisis [Great Financial Crisis] “Years,” Marco Iachini, senior vice president of Vanda Research, said in a note to clients. “Some call it ‘T-Bill and chill’.”

Younger investors are even more dependent on fixed income securities than their older counterparts. In its annual study, Schwab Asset Management shows that millennial ETF investors invest 45% of their portfolios in fixed income, compared to 37% for the baby boomer generation.

Even if it’s not a meme stock, switching to fixed income could still be risky.

According to BlackRock, the iShares 20+ Year Treasury Bond ETF (TLT) has seen a $19.8 billion flood of assets this year. If yields rise, funds like TLT will suffer – as bond yields move inversely to prices. This has been the case this year, with the TLT down around 50% from its record high. On the other hand, if yields fall, bond funds are likely to outperform.

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Source : www.cnbc.com

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