In 1978, I walked into a Peoples Westchester Savings Bank in Hawthorne, New York, and made the best investment of my life: a vacation club savings account.

Once a week, I deposited a sack of rolled coins into my account. A year later, I cashed it out for summer vacation.

The return on my vacation club? Less than zero. In the late 1970s, inflation raged while bank regulations placed a low ceiling on the interest rates paid by savings accounts. Every dollar I put in was worth maybe 95 cents of “purchasing power” when I cashed out.

But this negative return was a small price to pay for investment lessons that (I hope!) will help me meet ambitious financial goals, such as a secure retirement.

An introduction to Vanguard’s investment principles

Lesson #1: Goals. I had a simple goal—saving money for vacation—which I developed a realistic plan to meet.

Lesson #2: Discipline. The vacation club trained me to accumulate large sums by making small weekly deposits.

The bank recorded my progress in a passbook, documenting the weekly growth in my balance and reinforcing the power of regular saving. Without knowing it, I’d begun to master Vanguard’s Principles for Investing Success:

  • Goals: Create clear, appropriate investment goals.
  • Balance: Develop a suitable asset allocation using broadly diversified funds.
  • Cost: Minimize cost.
  • Discipline: Maintain perspective and long-term discipline.

The vacation club didn’t teach me about balance or cost—I wouldn’t learn those principles until 16 years later, when I read Bogle on Mutual Funds: New Perspectives for the Intelligent Investor. But I absorbed the 2 principles­—goals and discipline—that later helped me make the most of the other 2.

Behavior is the foundation

“Goals” and “discipline” are behavioral principles, the foundation of a successful investment program.

Goals help you identify what you’re trying to accomplish so you can develop a sensible plan to do so. This principle is common sense, but it’s easy to neglect. Have you ever had a conversation with a friend or a family member that went something like the one below?

Friend/Family member: “I’m thinking of investing.”

You: “Great. What’s your goal?”

Friend/Family member: “I’d like to make more money than I’m earning on my savings account.”

Earning a better rate isn’t a goal—at least not one clear enough to be the basis of a plan. But it’s easy to turn “Save $100 for summer vacation” into a plan: Roll up spare change and deposit it in your vacation club.

Discipline is the ability to stay on course through good markets and bad. Even if you articulate a goal and develop a plan to meet it with a balanced portfolio of low-cost funds, you’ll fall short if you can’t stick to the plan during good markets and bad.

In 2007, as U.S. stock prices neared their precrisis peak, investors channeled billions into stock funds. From 2008 through 2009, as stock prices hit generational lows, investors pulled billions out.

Chart displaying 12-month rolling equity returns and net equity flows from 2006 through 2012.


I never grappled with stock market volatility in my vacation club. My inflation-adjusted return remained consistently below 0%. But I developed a robotic habit of saving. Years later, when my investment plan included stocks, the habit was strong enough to counter any temptation to abandon it during periods of market upheaval.

New alternatives

I don’t think I’d recommend a vacation club to anyone today. The financial services industry has created more convenient alternatives. I can make my own potentially higher-returning vacation club with weekly electronic transfers to a money market mutual fund.

Even so, I confess to gratitude and nostalgia for the vacation club’s rituals and passbook. The returns were terrible, but the behaviors it helped cultivate have proven invaluable.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • Diversification does not ensure a profit or protect against a loss.