{"id":"b4525baf-ee8e-4d71-9385-3f15d92b1095","shortId":"UbhbrC","kind":"skill","title":"common-sense-index-investing-bogle","tagline":"Apply John Bogle index investing rules for low-cost funds, asset allocation,","description":"# The Little Book of Common Sense Investing — Index Investing Skill\n\n**Knowledge source:** *The Little Book of Common Sense Investing* by John C. Bogle.\n\n## Overview\n\nUse this skill to evaluate investment fund choices, portfolio simplicity, cost drag, index fund discipline, asset allocation, and buy-hold behavior using Bogle's common-sense investing framework. It is educational decision support, not personalized financial advice.\n\n## When to Use This Skill\n\nUse this skill when the user asks:\n- \"Should I use an index fund or active fund?\"\n- \"Are these fund fees too high?\"\n- \"How should I think about ETFs, smart beta, or advisers?\"\n- \"What stock/bond allocation is sensible?\"\n- \"Am I overcomplicating my portfolio?\"\n\n## Core Principle\n\nOwn the broad market at very low cost and hold it for the long term. Before costs, investors collectively earn the market return; after costs, the more they pay intermediaries, trade, and chase winners, the less they keep.\n\n## Workflow Inventory\n\n| Workflow | User question pattern | Inputs | Steps | Output | Independent trigger? | Distinct references? | Triage score | Should be subskill? | Reason |\n|---|---|---|---|---|---|---:|---:|---|---|\n| Fund comparison | \"Which fund should I choose?\" | Fees, turnover, strategy, benchmark, tax status | Compare cost, diversification, active risk, simplicity | Fund verdict | Yes | Yes | 3 | No | Primary index-investing workflow. |\n| Cost drag analysis | \"Do fees matter?\" | Expense ratio, turnover, horizon | Estimate compounding drag | Cost warning | Yes | Yes | 3 | No | Same decision report. |\n| Asset allocation | \"How much stocks/bonds?\" | Age, horizon, risk capacity, income need | Apply simple stock/bond discipline | Allocation range | Yes | Yes | 3 | No | Fits the same portfolio policy. |\n| Product skepticism | \"Should I buy ETF/smart beta/adviser pick?\" | Product structure, costs, incentives | Check complexity, trading temptation, conflicts | Use/avoid verdict | Yes | Yes | 3 | No | Same Bogle cost/simplicity lens. |\n\n## Architecture Justification\n\nThe workflows are askable separately, but Bogle's method is intentionally simple: cost, broad diversification, tax efficiency, and patient holding are inseparable. A single-file skill preserves the \"simplicity and parsimony\" rule.\n\n## DIMENSION 1: Broad Market Ownership\n\n**The Rule:** Prefer owning the entire market through a low-cost traditional index fund over trying to select winners.\n\n### Key questions to ask:\n- Is the fund broadly diversified or making a narrow bet?\n- Does it eliminate stock-picking, sector, and manager risk?\n- Is the investor seeking market return or chasing alpha?\n\n### Decision criteria / Checklist:\n- Broad-market exposure.\n- Low tracking error to the intended market.\n- No unnecessary sector, style, or manager concentration.\n- Clear role in the portfolio.\n\n### Warning signals:\n- Fund selection based on recent outperformance.\n- Concentrated funds marketed as safer than they are.\n- Complexity presented as sophistication.\n\n### Agent instruction:\nWhen reviewing a fund, first determine whether it gives broad, low-cost market ownership or introduces avoidable active risk.\n\n## DIMENSION 2: Cost Matters\n\n**The Rule:** Costs are the most reliable predictor of investor outcomes because every dollar paid to intermediaries is a dollar not compounding for the owner.\n\n### Key questions to ask:\n- What expense ratio, trading cost, tax cost, advisory fee, and spread apply?\n- How long will the investor hold it?\n- Does higher cost buy a reliably higher net return?\n\n### Decision criteria / Checklist:\n- Compare total all-in cost.\n- Penalize turnover and tax inefficiency.\n- Treat low cost as a durable advantage.\n- In bonds, apply extra cost sensitivity because expected returns are lower.\n\n### Warning signals:\n- Ignoring small annual fees over long horizons.\n- Adviser recommendations biased toward high-cost products.\n- Performance claims shown before costs, taxes, or survivorship bias.\n\n### Agent instruction:\nAlways run cost analysis before accepting a performance story.\n\n## DIMENSION 3: Reversion and Performance Chasing\n\n**The Rule:** Past fund winners usually revert; chasing them turns a winner's game into a loser's game.\n\n### Key questions to ask:\n- Is the user selecting based on recent performance?\n- Are failed funds excluded from the track record?\n- Is the fund's alpha statistically and economically durable after costs?\n\n### Decision criteria / Checklist:\n- Examine long periods, not hot streaks.\n- Watch for survivorship bias.\n- Prefer repeatable structure over manager story.\n- Assume excess return is rare and competed away.\n\n### Warning signals:\n- Top-quartile fund rankings used as buying triggers.\n- High turnover after disappointing performance.\n- Smart beta marketed as guaranteed outperformance.\n\n### Agent instruction:\nWhen a user cites performance, test whether it is durable, net of costs, and free of survivorship bias.\n\n## DIMENSION 4: Simple Allocation and Holding Discipline\n\n**The Rule:** Decide stock/bond allocation, keep costs low, rebalance, and hold through cycles.\n\n### Key questions to ask:\n- What horizon, income need, and risk capacity does the investor have?\n- Is the portfolio simple enough to maintain?\n- Does ETF trading flexibility tempt speculation?\n\n### Decision criteria / Checklist:\n- Use a simple stock/bond mix appropriate to risk capacity.\n- Favor buy-hold implementation.\n- Rebalance by policy, not emotion.\n- Be cautious with ETFs that invite trading.\n\n### Warning signals:\n- Trading index products as if they were speculation vehicles.\n- Portfolio crowded with overlapping funds.\n- Changing allocation after market moves rather than life or risk changes.\n\n### Agent instruction:\nFor allocation questions, give ranges and rebalancing discipline, not market forecasts.\n\n## Query Response Framework\n\n### Query Type 1: Compare funds\n1. List each fund's exposure, cost, turnover, tax efficiency, and complexity.\n2. Apply broad-market and cost tests.\n3. Identify conflicts or performance-chasing risks.\n4. Give Bogle-style verdict: prefer, avoid, simplify, or needs data.\n\n### Query Type 2: Portfolio simplification\n1. Identify current holdings and overlaps.\n2. Reduce to broad low-cost building blocks.\n3. Propose stock/bond policy and rebalancing rule.\n\n### Query Type 3: Cost or adviser review\n1. Map all explicit and hidden costs.\n2. Estimate compounding drag qualitatively or quantitatively if data exists.\n3. Recommend lower-cost alternatives where appropriate.\n\n## Output Format\n\n```markdown\n## Bogle Common-Sense Investing Review\n**Decision:** ...\n**Verdict:** Prefer index / Avoid active cost / Simplify / Needs data\n\n| Test | Finding | Result |\n|---|---|---|\n\n## Portfolio or Fund Recommendation\n...\n\n## Cost Discipline\n...\n\n## Citations\n...\n```\n\n## Critical Reminders\n\n1. Investors as a group receive market return minus costs.\n2. Broad diversification eliminates avoidable selection risks.\n3. Low cost is a durable edge.\n4. Past performance is not a reliable selection method.\n5. ETFs can be good tools but bad behavior enablers.\n\n## CITATION RULES\n\nEvery substantive Bogle-method claim must include a citation to the original text.\n\n**Quote files:**\n- `cost-matters-quotes.md` — costs, taxes, performance chasing, bond costs, speculative return, survivorship bias, ETFs, and Graham margin of safety.\n- `index-fund-quotes.md` — owning the market, common sense, cost hypothesis, alpha, arithmetic, eliminated risks, reversion, simplicity, and investor underperformance.\n- `investing-wisdom-quotes.md` — buy-and-hold, dividends, allocation, timeless advice, Gotrocks, smart beta, adviser conflicts, and simplicity.\n\n**Citation format:**\n\n> \"Author's exact words here.\"\n>\n> — [*The Little Book of Common Sense Investing*, cited excerpt](https://github.com/simbajigege/book2skills/blob/main/skills/common-sense-index-investing-bogle/quotes/FILENAME.md#ANCHOR)\n\n**Anchor mapping:**\n- `cost-matters-quotes.md`: `#tyranny-of-costs`, `#two-percent-costs`, `#taxes-are-costs`, `#past-performance-no-guarantee`, `#bond-costs-even-worse`, `#speculative-return`, `#survivorship-bias`, `#etf-trading-danger`, `#graham-margin-of-safety`\n- `index-fund-quotes.md`: `#own-entire-market`, `#common-sense-investing`, `#cost-matters-hypothesis`, `#alpha-negative-sum`, `#relentless-arithmetic`, `#we-get-what-we-dont-pay-for`, `#index-fund-eliminates-risks`, `#reversion-to-mean`, `#simplicity-majesty`, `#investments-perform-better-than-investors`\n- `investing-wisdom-quotes.md`: `#buy-hold-prosper`, `#dividends-best-friend`, `#asset-allocation-critical`, `#time-tested-advice`, `#gotrocks-parable`, `#smart-beta-costs`, `#advisers-conflicts`, `#keep-it-simple`\n\n**Rules:**\n- Cite cost-related decisions with a cost anchor.\n- Cite product or behavior warnings with ETF, adviser, smart-beta, or performance anchors.\n- Do not provide personalized regulated advice; frame as educational 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