Michael Jordan's statue is outside the Chicago Bulls' United Center Stadium. Willie Mays Jr.'s statute is on the grounds of the San Francisco Giants' AT&T Park. They are tributes to game-changing careers, both for their teams and for their leagues.
Jack Bogle is another game changer. His bronze likeness is on the campus of Vanguard headquarters in Valley Forge, Pennsylvania, testament to his pioneering role in bringing low-cost investing to the masses.
It's nearly 40 years since Bogle pushed long and hard to get Vanguard to introduce the first low-cost index mutual fund. At the time, some people dubbed it Bogle's Folly. Now, there's now more than $1.7 trillion invested in U.S. index-based funds and exchange-traded funds, according to the Investment Company Institute. Over the past 12 months, inflows into such passive funds were almost five times as great as those going into actively managed funds, according to Morningstar, Inc.
The 85-year-old Bogle recently took time from another busy day at the office to talk about where he's investing, and how investors — and the advisers they work with — can strive for better outcomes. An edited excerpt of the conversation:
You've often reminded investors that what's done well in the past probably won't do well in the future. So for a patient investor with a long horizon, where should they be investing today?
I like the U.S. The U.S. is the most productive country in the world. It is the most rapidly growing of the industrialized nations, other than Switzerland. We still have plenty of problems, but we're much better than France, Britain and Germany. And we don't even want to talk about Italy and Greece. And importantly — people forget this too quickly — we have the most established government and legal institutions.
(Related link: Bogle's 6 Best Books for Investors)
When you look at global market capitalization it's true that the U.S. accounts for about 48 percent and other countries 52 percent. But the top three markets outside the U.S. are the U.K., Japan and France. What's the excitement about there? Emerging markets have great potential, but have fragile sovereigns and fragile institutions.
I wouldn't invest outside the U.S. If someone wants to invest 20 percent or less of their portfolio outside the U.S., that's fine. I wouldn't do it, but if you want to, that's fine.
Have you ever invested in international markets?
Not really. Other than when I had small amounts when we launched [Vanguard] International Growth and the [Vanguard] International Index fund, I had small investments in both. It's hard to believe that the differences in returns over the long term will be huge. That's just not what we have seen for the most part. Why take the currency risk?
OK, but U.S. stocks have more than doubled since their low in March of 2009. So what about valuation? Shouldn't we be less enthusiastic about U.S. stocks?
It would be nice to only invest when valuations are low. Moments of great depression in stock values are a great time to buy. You can't invest at 2009 valuations today. So what are you going to do? You have to invest at today's valuations. You can't not invest now. Choose to not invest and you are ensuring you will have nothing 40, 50 years from now.
You're investing for a lifetime. A 40-year-old probably has a 50-year life expectancy. That's what you're investing for. I am an indexer. That's well known. I'd keep it simple and have my money in the S&P 500 or a broad market index, and the rest in the in a bond index.
Speaking of bonds, you've no doubt seen the strong flows into the next generation of bond funds: non-traditional, unconstrained or whatever else they're being called. The explicit message to investors: Your core, intermediate-term high-grade bond fund isn't going to cut it given where yields are now, and at a time when we face a secular rise in interest rates. Has the argument for sticking with a core bond fund changed?
For me it hasn't. But the great marketing powers in this industry are fast to promise something they can't deliver. They are promising better returns without talking about the risks many of these portfolios are taking.
