Bogleheads® Conference 2017 - John Bogle Q & A
00:00:00.000 | [ Silence ]
00:00:13.020 | >> Please give another very warm welcome to Jack Bogle.
00:00:19.000 | [ Applause ]
00:00:33.560 | >> Thank you very much.
00:00:34.860 | That's probably quite enough applause.
00:00:38.720 | But I thank you.
00:00:40.640 | It's been wonderful to be with you.
00:00:41.820 | And I asked Mel to move me into the early spot this morning
00:00:46.660 | because I'm trying to be a good family man.
00:00:50.220 | Yes, there is a family out there.
00:00:52.000 | And its prime member is my wife.
00:00:54.740 | And every year, we sign up for the Philadelphia Orchestra,
00:00:58.260 | Friday afternoon concerts, and we do about six.
00:01:01.220 | And one of them happens to be this afternoon.
00:01:03.320 | And I just -- you must understand that I did not want
00:01:06.020 | to say, "Eve, there's something more important than going
00:01:08.060 | on -- than going to the concert with you."
00:01:10.100 | It's being with the Bogleheads.
00:01:11.600 | And she would probably file papers for divorce.
00:01:14.540 | [ Laughter ]
00:01:16.540 | Immediately, if not giving me maybe a chance to redeem myself.
00:01:20.060 | So it's great to be with you here again.
00:01:22.260 | I've had a wonderful time with you.
00:01:25.040 | That book signing was so much fun because I had a chance
00:01:27.200 | to talk to many of you
00:01:28.120 | about whether you were having a good time or not.
00:01:30.320 | And for reasons that are beyond my contemplation,
00:01:33.360 | everybody seems to be having a good time here.
00:01:36.340 | I just can't imagine it.
00:01:38.240 | But I'm glad you are.
00:01:41.120 | And I'm glad you had a good time.
00:01:42.540 | Several people told me they had a good time.
00:01:44.460 | Over at Vanguard yesterday.
00:01:46.380 | And the management part.
00:01:48.540 | People who actually work for Vanguard.
00:01:50.940 | And so we're going to just do a little Q&A here.
00:01:54.520 | And take it away, Mel.
00:01:56.680 | >> The most asked question, a number of people asked this.
00:02:01.760 | So I'll put this up at the top.
00:02:03.140 | If you remember last year at the conference, you were asked
00:02:07.160 | about Vanguard Target Retirement Funds
00:02:09.720 | and the Life Strategy Funds.
00:02:11.560 | And why they are using Investor Class Shares instead
00:02:14.620 | of the Admiral Class Shares.
00:02:15.880 | You said you didn't know, but you look into it.
00:02:19.000 | What was the outcome?
00:02:20.100 | >> Oh, they have decided to use the Admiral Shares.
00:02:25.860 | That's an answer I made up at the moment.
00:02:27.880 | Mike, do you know the answer to that?
00:02:29.860 | Is Mike here?
00:02:31.320 | Where are you, Mike?
00:02:32.100 | >> Why the Target Day Funds use Investor Class Shares?
00:02:37.440 | >> Yeah. Or do they?
00:02:38.660 | >> Yes, they do.
00:02:39.560 | We now have institutional price shares in addition
00:02:42.920 | to the original Target Day Funds for larger account balances.
00:02:47.680 | But as to why the decision was made to use the Admiral Shares.
00:02:52.820 | Basically, those are under an attempt
00:02:56.040 | to serve smaller account counts.
00:02:57.780 | The idea was if you're just starting out,
00:03:00.540 | you would use the Target Day Fund as your portfolio grows.
00:03:03.960 | It becomes more complicated.
00:03:05.160 | You probably, we would expect a lot of investors
00:03:07.760 | to diversify individual funds.
00:03:10.740 | >> Well, one of the things a lot of us have been pushing is
00:03:15.040 | that these are nicely diversified portfolio
00:03:17.680 | in a single fund that rebalances automatically.
00:03:20.320 | And now we're not talking about necessarily small investors.
00:03:24.800 | I agree that people might start with it.
00:03:26.980 | But we're also pushing simplification in when you get
00:03:31.980 | into your retirement years, both for your heirs and your spouse.
00:03:36.360 | And the life strategy
00:03:38.520 | and the Target Retirement Funds are an ideal fund to hold that.
00:03:42.940 | So you could have people with $100,000.
00:03:46.140 | You could have people with a million dollars in there.
00:03:48.000 | So it's nice when you have the two sets of shares.
00:03:52.380 | I understand you can't have it.
00:03:53.800 | But you do have it with the institutional class shares.
00:03:56.700 | So why aren't the institutional class shares offered
00:04:00.300 | to us regular folks?
00:04:01.980 | >> Yeah, so now what I'm hearing is there's an appetite for --
00:04:04.380 | >> Oh, definitely.
00:04:05.220 | >> -- a big fund with ample pricing.
00:04:07.680 | >> Exactly, exactly.
00:04:09.280 | And the same is true for the life strategy funds
00:04:11.880 | because, of course, the Target Retirement Funds have a changing
00:04:18.120 | thing, but once you get the Target Retirement income,
00:04:20.320 | it's fixed.
00:04:21.620 | It's not going to move.
00:04:22.460 | And people might not want that allocation.
00:04:27.000 | They may want one of the life strategy allocations,
00:04:29.780 | which remain the same.
00:04:33.080 | So I think that there's an appetite
00:04:35.780 | for both the Target Retirement and the life strategy funds
00:04:40.160 | at the admiral rate, whether they're called institutional
00:04:43.100 | or what.
00:04:43.480 | And as I -- say again?
00:04:47.140 | Mike said that they do have an institutional class,
00:04:52.980 | but most institutional class is offered to large companies.
00:04:56.580 | Is that right, Mike?
00:04:57.340 | Yeah, and not to us regular investors.
00:05:00.920 | So we have to choose the investor class shares.
00:05:06.080 | But Mike said that normally, and there's a lot of truth to it,
00:05:11.960 | a lot of people in 401(k)s and that start
00:05:16.080 | out with a life strategy fund or a Target Date Fund,
00:05:19.060 | and that's a great way to start because they're small investors
00:05:23.920 | and they can still get a nicely diversified portfolio
00:05:29.560 | in a single fund, rebalances automatically.
00:05:32.080 | But the problem is, is that we're --
00:05:36.720 | we have been pushing -- not pushing, but telling people
00:05:40.600 | that there's nothing wrong with holding one fund.
00:05:42.760 | You don't have to -- you don't have to hold total stock market,
00:05:46.760 | total international, total bond, total --
00:05:49.260 | you can instead have a single fund because when you do that,
00:05:54.320 | you have to rebalance yourself.
00:05:56.340 | You also would normally want to get more conservative as you age.
00:06:01.940 | But in the case of the -- some investors are learning
00:06:07.540 | that they don't want to do this when they retire or they don't
00:06:12.600 | have to worry about tax efficiency in a IRA or a 401(k).
00:06:18.900 | So a lot of investors can have hundreds of thousands
00:06:23.320 | or even millions of dollars in the single fund
00:06:26.200 | when they want to -- especially when they retire,
00:06:28.400 | want to simplify things.
00:06:29.900 | And so there could be -- in addition to the small investors,
00:06:34.180 | there could be very large investors.
00:06:36.960 | So I don't have any problem with putting a $100,000 minimum
00:06:41.160 | or something like that on the funds,
00:06:43.860 | but I think that they should be available
00:06:45.500 | to us regular investors who have qualified for whatever balance
00:06:50.980 | that they set for those funds.
00:06:53.660 | And as I said, that was the most requested thing.
00:06:56.760 | Last year, people were asking about it.
00:06:58.580 | Jack said he'd looked into it, and now, this year,
00:07:02.080 | everybody wanted to know what the result was.
00:07:03.960 | So, yeah.
00:07:05.640 | >> Let me just add a couple of comments about target date funds
00:07:10.440 | because I do talk about them at some length,
00:07:12.240 | and about the whole idea of balance, rebalancing,
00:07:15.180 | steady balance throughout your life in the last two chapters
00:07:19.560 | of the book that I guess just about everybody here owns.
00:07:23.140 | The new book.
00:07:24.120 | So this isn't a plug for the book
00:07:25.800 | because you already got it.
00:07:28.720 | But it is not at all clear that there is a better strategy.
00:07:33.220 | Is a target date fund based on your age and retirement date a
00:07:37.200 | better investment than, let's say, you deciding that you want
00:07:39.540 | to be in a life strategy fund at one level of risk or another?
00:07:42.800 | Isn't that not at all clear that being in a balanced index fund,
00:07:46.420 | which we started back in 1992 or '93, which is just straight 60/40
00:07:51.140 | for all investors all the time,
00:07:52.560 | it's not clear that target date funds will give you better
00:07:55.320 | returns than that.
00:07:56.060 | We just don't know.
00:07:58.280 | Nobody knows.
00:07:59.240 | There is no guaranteed success in this business.
00:08:04.340 | You just take your chances.
00:08:05.820 | And so, I conclude in the book that I'm talking
00:08:10.940 | about asset allocation, how a lot of it is very intuitive.
00:08:13.840 | I'm not so sure we need to go from 60.1 back to 60
00:08:19.440 | to rebalance, and I'm not even sure that you have
00:08:21.680 | to go from 70 to 60.
00:08:22.980 | But maybe when you get to 80, you should go back
00:08:25.460 | to 65 or something like that.
00:08:26.980 | I just don't know.
00:08:27.860 | It all depends.
00:08:28.700 | There's no rule that is going to get you through there.
00:08:31.780 | And then, you have to take into account when you look at history
00:08:35.940 | that bonds used to yield a lot more than stocks.
00:08:40.500 | And that was a good reason.
00:08:43.060 | So, you come to your retirement and you want more income.
00:08:45.980 | Not everybody does, but most people do.
00:08:48.960 | And so, you've got a much bigger portion
00:08:51.460 | in bonds that will pay you income.
00:08:53.040 | And that's one of the principles of the target-date funds.
00:08:55.820 | But it isn't the case anymore.
00:08:57.820 | You know, I'm using a future return.
00:09:00.040 | Well, let's talk about yield.
00:09:01.380 | I'm using a yield on bonds of about 3% for the next 10 years,
00:09:05.720 | and that's just based on a very simple division
00:09:09.760 | of your bondholders into 10-year treasury notes,
00:09:14.140 | yielding about 2.2%, and a corporate bond fund yielding
00:09:21.340 | about, I think, about 4%, and you end up with a 3% return.
00:09:25.460 | And so, that's pretty much what you're going to get.
00:09:27.940 | Not the old 8, not the old 9, not the 15 that we got
00:09:32.640 | in Paul Volcker's era.
00:09:33.820 | Imagine that, 15%.
00:09:35.480 | I mean, shooting fish in a barrel.
00:09:37.340 | If you'd bought a zero-coupon treasury,
00:09:39.020 | nothing would have been better.
00:09:40.800 | So, I think we can say safely that it would be very hard to talk
00:09:44.600 | about the bond market and say
00:09:46.220 | that in the future nothing could possibly be better
00:09:48.020 | than a 3% return.
00:09:49.180 | I don't believe that.
00:09:49.960 | So, it's very much intuitive.
00:09:52.480 | I think, I almost hate to say this,
00:09:55.760 | but people should relax a little bit about the precision
00:09:58.200 | of all this, or about the certainty of all this.
00:10:00.360 | There's no certainty in investing.
00:10:02.920 | And I had this letter that is in the book,
00:10:07.220 | and I wrote to a young man who was worried
00:10:08.760 | about all the problems in the world, and he was trying
00:10:13.200 | to set his asset allocation.
00:10:14.580 | And so, you know, I said to him, you know, sir, young man,
00:10:20.160 | just as much about whether we're going to have a nuclear war
00:10:25.500 | as I do, or as anybody does, you know just as much
00:10:29.160 | about whether global trade is going to completely crash,
00:10:31.820 | which is kind of in the cards,
00:10:33.280 | but it may happen and it may not.
00:10:35.060 | You know as much about the effects of global warming,
00:10:38.340 | or as we're now supposed to call it, climate change,
00:10:40.240 | as anybody, make your judgment about that,
00:10:43.040 | and I can't help you with that.
00:10:44.500 | And, you know, racial divisions in the country,
00:10:47.400 | gap between the rich and the poor,
00:10:49.560 | how is that going to be reconciled?
00:10:50.840 | Nobody knows the answers to that,
00:10:52.900 | and yet that's an important part
00:10:54.440 | of what the market will hold in the future.
00:10:55.840 | So, I said, as for me, I'm invested 50% in stocks,
00:11:02.480 | stock index funds, and 50% in bonds, either our munis
00:11:06.800 | in my personal account or my corporate indexes or total,
00:11:12.160 | but not so much total bond market indexes,
00:11:14.040 | intermediate term in length, and I spent half, I said 50/50,
00:11:20.800 | and I spent half of the time worrying about why I have
00:11:23.560 | so much in stocks, and the other half of the time worrying
00:11:26.640 | about why I have so little.
00:11:28.800 | [ Applause ]
00:11:33.820 | >> Let's call that the investor's dilemma,
00:11:36.240 | and I think from that applause, for which I thank you,
00:11:38.640 | I think everybody is in the room, as I said, that said,
00:11:41.460 | oh yeah.
00:11:42.300 | >> No doubt, Jack.
00:11:44.440 | This question is from Dan Wickenhauser.
00:11:47.640 | He said, did you take an active role in the financial literacy
00:11:51.060 | of your children and/or grandchildren, and if so,
00:11:54.040 | how would you recommend
00:11:55.280 | that a parent start this process today?
00:11:57.440 | >> Well, you know, that's really a good question,
00:11:59.800 | and somebody mentioned it yesterday,
00:12:01.700 | but giving their kids a stock that they could watch,
00:12:04.320 | that kind of thing, and believe it or not,
00:12:06.080 | I did that with my oldest son.
00:12:08.860 | I bought him four stocks, probably five shares of each.
00:12:12.000 | I can't remember the names of all the stocks now,
00:12:14.300 | but he put them on, he got these little decals and put them
00:12:17.780 | on his lampshade so he wouldn't forget to track them,
00:12:21.000 | and it got him very interested in the stock market,
00:12:23.980 | and that's the way to get your kids interested,
00:12:26.280 | but when it comes to investing, burn the damn lampshade.
00:12:30.660 | And I don't know how one reconciles that gap,
00:12:36.520 | and it's sort of the fun of investing versus the fun
00:12:39.480 | of not having a needy retirement, and, you know,
00:12:42.680 | one is long-term in nature, one is short-term in nature,
00:12:45.400 | one you can watch every day and see good things
00:12:47.900 | and bad things happen, one is roughly
00:12:51.020 | like watching the grass grow.
00:12:52.720 | And so I don't really have a good answer to that.
00:12:56.320 | I have given my grandchildren, in little trust accounts,
00:13:00.680 | which their parents will only be trustees for,
00:13:02.980 | balanced index fund, and I do it year after year.
00:13:06.960 | I'm not sure that's the perfect choice.
00:13:08.620 | Obviously, if you go back 20 years, 25 years,
00:13:11.640 | I should have put 100% in S&P 500,
00:13:15.140 | and I should have leveraged it, to be honest, but, you know,
00:13:19.540 | I'm just not into that.
00:13:20.480 | I don't want to look at it, I don't want to think about it,
00:13:22.000 | I want to send the check in at each year end in my ability
00:13:25.220 | to make gifts that aren't taxed, get it out of my estate.
00:13:28.840 | And so they have had an education in the balanced fund,
00:13:32.960 | and there's a pretty good section
00:13:35.200 | about what we call the Bogle model in the book,
00:13:38.920 | and it shows how the balance, the Bogle model is basically,
00:13:44.540 | based on the balanced index fund, was in the top,
00:13:49.220 | did better than the top decile of college endowment funds.
00:13:53.820 | The top decile of college endowment funds
00:13:56.600 | in the last 10 years, 5 years, 3 years,
00:13:59.300 | and probably 1 year, I can't remember.
00:14:01.580 | Wasn't that, yeah, and they had maybe, let me guess,
00:14:09.720 | a 1.25% margin, and we didn't have any geniuses running it.
00:14:13.980 | We had some genius who said balanced index is a good idea.
00:14:18.240 | I think I can remember who he was.
00:14:19.560 | [ Laughter ]
00:14:21.940 | >> Jack, this next comment/question is,
00:14:25.820 | I'd be interested in what his views are when he looks
00:14:28.280 | at his lifelong accomplishments.
00:14:30.300 | Does he ever sit back and realize how many people he has
00:14:33.520 | impacted for the better,
00:14:34.760 | how much he has impacted the investment industry?
00:14:37.760 | These impacts are huge, and I wonder what it must be
00:14:41.160 | like to contemplate your accomplishments.
00:14:46.240 | >> Well, when a question like that comes up,
00:14:49.560 | one is always called on to quote Sophocles,
00:14:53.620 | which I'm about to do.
00:14:56.660 | [ Laughter ]
00:14:59.100 | One must wait until the evening to enjoy the splendor of the day,
00:15:04.280 | and my evening is not here yet, so I'm not really enjoying,
00:15:08.360 | ready to enjoy the splendor of the day.
00:15:10.260 | [ Applause ]
00:15:15.600 | And yet, and I mean, I do get a lot of enjoyment about,
00:15:23.700 | you could see this yesterday, I feel badly about it, actually,
00:15:27.140 | maybe a little too much ego, a little too much pride in some
00:15:31.660 | of the things I showed you yesterday, but it was kind
00:15:34.000 | of my year, and I thought, hell, brag about it.
00:15:36.160 | [ Laughter ]
00:15:38.160 | And it's not a good idea, I know that,
00:15:40.700 | and that's why that quote I gave you at the end
00:15:43.280 | about how minuscule we all are in the vast context
00:15:46.480 | of space and time, so you kind of come down to earth,
00:15:50.120 | and you also have a lot of lives.
00:15:52.060 | You have a family life, you have a community life,
00:15:55.260 | you have a business life, and you have a, I mean,
00:15:58.600 | I would say I have a ministry.
00:16:00.040 | I'm much more interested in the intellectual side
00:16:04.860 | of this business than I am in the business side
00:16:07.040 | of this business, and indeed, that article I wrote
00:16:09.980 | for the Financial Analyst Journal, their request
00:16:12.760 | of what I mentioned yesterday, profession versus business,
00:16:16.820 | professional values versus business values in finance,
00:16:20.120 | is to try and strike some balance
00:16:23.440 | in all these things you do, and I, you know, we, we, my wife,
00:16:28.640 | I think I'm bereft of humility.
00:16:31.260 | [ Laughter ]
00:16:33.740 | Did you follow that all right?
00:16:35.700 | And there is, there is something to that, but I've tried
00:16:39.820 | to handle what I, I don't want to make this too personal,
00:16:43.800 | but I just, this is, this is really weird,
00:16:49.380 | and I may be overexpressing a little bit, but I just want
00:16:53.160 | to be the same kind of kid I grew up as.
00:16:54.960 | I don't want to change.
00:16:56.340 | I had high values.
00:16:57.940 | I tried to set a good example.
00:16:59.440 | I took responsibility.
00:17:00.540 | I worked hard, and tried to do things the right way
00:17:04.280 | to help the community and the investor
00:17:06.380 | and anybody else I was working with,
00:17:08.660 | and that's good enough for me, and, you know, when I look at some
00:17:12.100 | of those monkeys, for the want of a better word,
00:17:14.220 | that are in the Forbes list that I talked about yesterday,
00:17:17.060 | you know, I have no envy.
00:17:19.380 | They all have more money.
00:17:20.460 | No, I don't give a damn, not a damn,
00:17:22.640 | and we have all we need, so I'm not embarrassed in that score,
00:17:27.480 | and, you know, I've done my best to live a good life.
00:17:30.400 | I've made some errors along the way, but I do like, I mean,
00:17:36.340 | I get letters from shareholders, this is a more direct answer
00:17:38.860 | to your question, Mel, I get letters
00:17:40.640 | from shareholders pretty much every day to the point
00:17:43.720 | where if I hadn't gotten one in the morning,
00:17:45.140 | when noon comes, I say, "Emily, do you want to check the inbox?"
00:17:49.180 | And so that's good enough for me,
00:17:56.180 | and the letters I've written are incredible.
00:17:58.720 | They're beyond belief in their generosity,
00:18:02.160 | in their appreciation, and, you know,
00:18:05.580 | little things, little things mean a lot in life,
00:18:07.880 | and I just got a letter in response.
00:18:09.900 | This was not even an investment letter.
00:18:11.100 | This fellow said he had talked to me, he's a man, I think,
00:18:15.580 | about 60, he had talked to me, he was scared, he thought he had
00:18:18.500 | to get a heart transplant, and he called me up to talk about it.
00:18:21.960 | What am I supposed to say?
00:18:23.040 | I'm not going to talk to you, so I talked to him
00:18:25.400 | and encouraged him to do it, told him some of the challenges
00:18:27.600 | and difficulties, and how great it can work out,
00:18:30.200 | and he got his heart, and it's working fine,
00:18:32.360 | so I got a letter from him.
00:18:33.620 | Well, that's nice, you know, if you can do something nice
00:18:36.600 | for another person, for God's sake, do it,
00:18:40.060 | and to quote what I said yesterday
00:18:42.720 | from someone you'll probably remember, "Do it now,
00:18:45.320 | for we shall not pass this way again."
00:18:47.860 | >> And a follow-up on that, Jack,
00:18:51.100 | what would the next Jack Bogle be looking to change?
00:18:55.820 | Is there something that is ripe for a revolution
00:18:58.820 | that we will see over the next 40 years?
00:19:02.700 | >> Well, that's a good question.
00:19:04.200 | I don't think so.
00:19:06.300 | The index revolution comes kind of out of nowhere,
00:19:10.180 | comes out of an unwillingness of Wall Street
00:19:15.500 | and the mutual fund industry to change in a way
00:19:18.100 | that favors the investor, and that's just bad economics
00:19:21.380 | and bad business, but the mutual fund industry,
00:19:24.920 | particularly Wall Street too, has been able to get away
00:19:27.800 | with this fraud, if you will, I don't mean to speak too sharply,
00:19:32.480 | because the market keeps going up, and I use a number
00:19:36.380 | for something like this, if you started in, let's say,
00:19:41.260 | 40 years ago, 30 years ago, 84, what is that, 30 years ago,
00:19:45.620 | and had gotten the index return of around 11 or 12 percent,
00:19:50.640 | you'd now have, I think, around $75 for each dollar you put in,
00:19:55.720 | $750 maybe, and for the investors
00:20:01.840 | that got 5 percent, he's got maybe $400.
00:20:07.720 | He thinks to multiply his money four times,
00:20:10.780 | it's something like that, and instead of eight,
00:20:13.360 | or whatever the number is, I don't have the numbers clearly
00:20:16.120 | in mind, but that's the kind of difference there is,
00:20:17.740 | and he thinks he's in heaven, my God, I've got four times
00:20:20.500 | as much money as I had at the beginning,
00:20:21.880 | my investment advisor must be a genius,
00:20:24.100 | my mutual fund manager must be in the greatest business
00:20:26.740 | in history, but he has lost most of that return.
00:20:31.020 | Those kind of returns are not going to be with us
00:20:33.980 | for a long, long time, and indeed,
00:20:37.200 | given the perverseness of this business, the only way we're
00:20:42.000 | going to get those kind of returns again is
00:20:43.780 | if we get a good, solid market decline.
00:20:46.180 | Think about that, and particularly you
00:20:48.700 | who are still putting money to work regularly,
00:20:50.440 | what do you want today?
00:20:51.720 | You should look for a big 50 percent decline, and, you know,
00:20:55.840 | you keep investing at lower and lower prices, so this idea
00:20:59.100 | that the market has to go up, big news in the paper,
00:21:02.260 | a new high yesterday, the Dow went up, I think,
00:21:04.960 | two one-hundredths of one percent.
00:21:06.880 | Well, I mean, that doesn't sound like big news to me, so it's,
00:21:12.260 | I think, I think we, it's an, what we have done is
00:21:19.620 | to do the right thing in an industry that refuses to change
00:21:23.140 | and put the stockholder at the top
00:21:25.940 | of the food chain instead of at the bottom.
00:21:28.200 | And that's not going to happen twice.
00:21:30.340 | >> The next one is a complaint, Jack.
00:21:34.020 | >> Good.
00:21:35.080 | >> It says, "Ask him why he doesn't put a proper link
00:21:39.780 | to Bogleheads on his, the Bogle e-blog web page.
00:21:43.420 | His link leads to this forum.
00:21:45.660 | His link to this forum retains the name diehards.org.
00:21:50.680 | A search for his site for Bogleheads returns nothing.
00:21:54.280 | Perhaps he is too modest?"
00:21:57.180 | >> Wait a minute, I didn't get the question.
00:22:00.600 | Are you saying I used diehards.org?
00:22:02.340 | >> Yes.
00:22:02.900 | >> How could I do that?
00:22:04.160 | >> Ask Mike.
00:22:05.220 | [ Laughter ]
00:22:08.460 | >> Mike, it never happened, did it?
00:22:12.460 | >> I'm sorry, Mike.
00:22:13.380 | I didn't ask the question, I just read it.
00:22:16.920 | >> No, no, it's just an example
00:22:18.560 | of the incredible modesty I have.
00:22:20.140 | You've not observed it.
00:22:21.320 | [ Laughter ]
00:22:23.320 | >> Now, the next thing is, a comment says,
00:22:26.180 | "Since Mr. Bogle is a hero to people here on Bogleheads,
00:22:29.240 | I was wondering who your heroes are."
00:22:31.560 | >> Well, I've been asked that question more than once
00:22:35.760 | and so I don't have to agonize over the answer.
00:22:39.160 | You know, in the world of business today, you know,
00:22:44.120 | certainly Warren Buffett has to be on that list.
00:22:45.980 | If you want to look at our competitors, I think Dodge
00:22:48.920 | and Cox is the best because they're in the,
00:22:50.620 | they're not always going to do well, of course,
00:22:52.740 | but they're in the business of, in the investment business,
00:22:55.720 | not in the marketing business.
00:22:56.840 | And that's a big distinction, all no-load funds
00:22:59.160 | and that kind of thing.
00:22:59.860 | If you want to go back in history,
00:23:01.800 | long before the recent popularity boom,
00:23:04.800 | Hamilton has always been my favorite.
00:23:06.600 | And when I read the Chernow book,
00:23:10.080 | he was my favorite before I even read Ron Chernow's book.
00:23:12.840 | And I didn't want to have 1,000 pages,
00:23:15.900 | I would have bought Chernow's new book on U.S. Grant.
00:23:19.520 | It was just too heavy for me.
00:23:21.900 | And I think I'd rather read the book than look
00:23:24.500 | at it on my iPad.
00:23:25.760 | So certainly Hamilton there.
00:23:28.220 | Benjamin Franklin, his sayings are quoted a lot
00:23:31.420 | and they're very much like mine.
00:23:32.900 | In terms of more contemporary, I still am, I'm not going
00:23:38.180 | to say this one because it would get political.
00:23:39.920 | And I wouldn't want to do that.
00:23:42.360 | I've always thought Woodrow Wilson was one
00:23:45.000 | of the great presidents.
00:23:45.840 | He did go to Princeton.
00:23:46.800 | But he was an idealist, an idealist
00:23:53.320 | that obviously fell a little bit short, if not a lot short,
00:23:55.860 | in his racial decisions, decisions to remove blacks
00:24:00.520 | from the federal government back in 1912 or '13, I guess 1915.
00:24:06.760 | And that was a shameless thing.
00:24:09.460 | But I think if we examined the history,
00:24:11.660 | we'd see there was horrendous political pressure on him
00:24:13.860 | to do that kind of thing.
00:24:16.140 | And I don't think he dreamed it up himself.
00:24:17.480 | But he did give, and here's a good one
00:24:19.820 | for Woodrow Wilson, gave women the vote.
00:24:22.620 | At least signed the final amendment to the Constitution.
00:24:26.600 | And so I like Wilson.
00:24:28.620 | And young people at Vanguard will often ask me,
00:24:32.760 | "What's the secret?"
00:24:34.320 | And this is a Hamilton kind of comment.
00:24:37.940 | And I say, "Well, look, there isn't any secret."
00:24:41.600 | I said, "You have assets that I don't have
00:24:43.840 | and I have liabilities that you don't have.
00:24:46.040 | And just make the most of your assets
00:24:48.320 | and minimize your liabilities and you'll do fine."
00:24:51.160 | But I said, and these words, almost exact words are
00:24:53.580 | in the Hamilton play, and that is, "Work a little harder,
00:24:57.300 | work a little smarter, be a self-starter."
00:24:59.460 | And that's what I've been telling them long before Lin
00:25:02.920 | Manuel's magnificent musical came out.
00:25:05.340 | So I don't know what to add to that.
00:25:09.020 | And oh, above all, above all, Walter Morgan, my hero.
00:25:17.200 | I met him when he was 50 and came over to see him
00:25:21.820 | for his 100th birthday.
00:25:23.380 | And what I had done, my second book, Common Sense
00:25:29.280 | on Mutual Funds, was in the process of coming out,
00:25:32.020 | but I didn't have a book to show him.
00:25:34.440 | So I got the publisher to give me the cover
00:25:39.000 | and the dedication page was dedicated to Mr. Morgan.
00:25:42.780 | And then a page which was like the whole book was printed
00:25:46.300 | in blue because Wellington Fund was the first,
00:25:49.240 | it was a very staid business back in the '30s.
00:25:51.760 | And Wellington used to distinguish themselves blue,
00:25:55.140 | prospectus, prospectus printed in blue.
00:25:57.740 | So that was in his memory too.
00:25:59.180 | And he saw all that.
00:26:00.320 | And, you know, he gave me my first break.
00:26:03.560 | He turned the company over to me when I was 35 years old.
00:26:07.680 | He was, in many, many ways, a better person than I was.
00:26:13.380 | He had a more balanced life.
00:26:15.220 | He was a fisherman and a hunter, had a place up in the country
00:26:17.900 | and I guess trout fishery, fisherman and deer hunter.
00:26:23.260 | And had his setters and pointers, dogs.
00:26:29.620 | And so, and he really didn't want to, he said later on,
00:26:35.860 | he turned the company over to me I think when he was about 62.
00:26:38.900 | And he said later on, you know, I wish I'd stayed longer.
00:26:44.140 | But he also said, in a magazine that was published probably
00:26:48.640 | in the '90s, that hiring me was the best decision he ever made.
00:26:53.060 | So with all the turmoil that came with it, he was pleased
00:26:58.520 | and I was pleased and I dedicated myself
00:27:02.200 | to fixing the Wellington Fund.
00:27:03.580 | Very few people know this story.
00:27:05.000 | It's in my book, Investment Versus Speculation.
00:27:09.240 | And fixing the Wellington Fund was the highlight of my life.
00:27:13.660 | I had to fix it for Walter Morgan and it was not difficult.
00:27:16.820 | You know, I'm not known for some investment genius,
00:27:19.400 | but all we did was get rid of an investment moron,
00:27:22.640 | if you forgive the expression.
00:27:24.320 | And it's amazing, you look like a genius.
00:27:26.220 | So, you know, that would be the most of him.
00:27:30.800 | >> Jack, I'd like to interject something here
00:27:33.340 | when you were talking about Walter Morgan.
00:27:34.920 | I remember at the first conference in Miami,
00:27:38.860 | I had the job or the pleasure of driving you
00:27:42.700 | from the hotel over to Taylor's for our first conference.
00:27:46.000 | And I thought to myself, "What on earth am I going
00:27:48.880 | to say to this guy?"
00:27:49.860 | And during the conversation, I kept calling you Mr. Bogle
00:27:54.620 | and you kept saying, "Call me Jack."
00:27:56.540 | After the conference, when I was bringing you back to the hotel,
00:28:00.580 | you were telling me about Walter Morgan, your mentor.
00:28:03.300 | And you said, "I had a hard time calling him Walter."
00:28:06.480 | And I said--
00:28:07.560 | >> Hard time, I couldn't do it to his face.
00:28:11.100 | >> And I said, "Now, you know why we have a hard time calling
00:28:13.820 | you Jack."
00:28:15.140 | >> It's an older generation thing.
00:28:18.060 | >> This was discussed quite a bit, and there's a lot
00:28:23.940 | of argument on this among the Bogle heads.
00:28:27.160 | Says, "Mr. Bogle, what is your opinion on Bitcom?"
00:28:31.640 | Bitcoin, I'm sorry.
00:28:36.100 | >> Bitcoin, Bitcoin.
00:28:37.260 | Well, of course, I'm something of an expert in that field.
00:28:40.320 | And we're bringing out a Bitcoin fund.
00:28:44.780 | The management didn't want to do it, but given my standing
00:28:52.160 | in the community, they do it to be offered soon.
00:28:55.500 | It's-- I think it's honestly ridiculous.
00:28:58.320 | It's a currency.
00:28:59.480 | How does a currency, you know, how does a dollar going
00:29:02.380 | to be worth $4 the next day?
00:29:05.060 | It's speculative.
00:29:07.820 | I don't fully understand this blockchain technology
00:29:10.480 | as they call it.
00:29:11.000 | I did have dinner when I was at the CFA or something.
00:29:15.400 | Yeah, it was a CFA, a speaker's dinner.
00:29:17.840 | And the professor from the University of Georgia
00:29:20.580 | who's really expert on all this, the blockchain technology.
00:29:23.560 | And so, he sent me his stuff, but I haven't had time
00:29:27.340 | to read it, but I'd say, "Don't go there."
00:29:30.560 | Can I be clear?
00:29:32.440 | [ Laughter ]
00:29:35.140 | >> This is from Lady Geek.
00:29:37.140 | The question says, "At last year's Bogo Heads Conference,
00:29:41.140 | you predicted that over the next 10 years,
00:29:43.060 | stocks gross return would be 4%, bonds would be 2.6%.
00:29:48.100 | Your slide presentation, pages 49 to 52,
00:29:51.740 | which only Lady Geek could remember.
00:29:54.600 | [ Laughter ]
00:29:56.900 | It's one year later, are you still on track?"
00:29:59.100 | >> Well, no, I'm not on track.
00:30:01.460 | Let me be honest, I mean, I'm not sure what that means,
00:30:04.440 | one year into a 10-year forecast,
00:30:06.660 | but it means the returns will be much lower than they have been.
00:30:09.860 | But I want to emphasize this.
00:30:11.680 | I have never thought or said that this theory of the sources
00:30:17.880 | of returns, stock returns come from dividend yields,
00:30:20.880 | stock returns come from earnings growth,
00:30:23.960 | and we add those two together,
00:30:25.500 | and that gives you investment return.
00:30:27.420 | And then stock returns get enhanced or reduced,
00:30:31.540 | by valuation changes.
00:30:32.820 | If the PE goes from 20 to 30, you get another 7% a year.
00:30:36.260 | If it goes from 20 to 10, you lose a 7% a year
00:30:39.700 | over the next decade.
00:30:40.560 | And those things are not really predictable.
00:30:43.700 | So we rely on history, I do, I think it's 10 years for one
00:30:49.660 | and 30 years for the PE.
00:30:51.500 | And so when I say, as I do this year, 4% and 3% before costs are
00:30:59.040 | deducted, I say, if you don't like my prediction,
00:31:02.860 | make your own, and just think about how easy that is.
00:31:08.180 | And the dividend yield is 2%.
00:31:10.140 | You can't change that, and I can't change that.
00:31:12.320 | The earnings growth, I'm using 4,
00:31:16.260 | and you can say it's going to be 8.
00:31:18.540 | I don't think you're going to be right,
00:31:20.300 | but you're entitled to say that.
00:31:21.760 | So all of a sudden, you're at 10, 8 and 2, and you say,
00:31:26.140 | I think the valuations are going to go
00:31:27.560 | from 25 times earnings to 30, and that's going
00:31:30.400 | to take the 10 to, let's say, 12.
00:31:31.900 | Just don't give me the 12 without telling me
00:31:35.540 | the components.
00:31:36.360 | There's a discipline here.
00:31:37.920 | When someone says, I think the market's going
00:31:39.640 | to do 10% a year, just tell me, please, where it comes from.
00:31:43.480 | And right now, my predictions are not looking very good.
00:31:48.060 | Not predictions, really, but reasonable expectations.
00:31:51.660 | And I'd much rather, I guess just constitutionally,
00:31:56.700 | be on the low side than the high side, but the math is the math.
00:31:59.900 | Now, I could have said I expect more earnings growth,
00:32:02.520 | and I probably would have been wise
00:32:05.380 | to have put 7% earnings growth instead of 6.
00:32:09.460 | I'm sorry, instead of 6%, instead of 4 or 5%.
00:32:13.520 | But we'll see.
00:32:14.640 | There's a lot of time to go, and happily,
00:32:16.900 | with this 10-year forecast, I won't be around to know whether
00:32:20.940 | it's right or wrong.
00:32:21.700 | >> Well, we hope you are, Jack.
00:32:24.460 | >> Not too much.
00:32:26.460 | >> And she made a comment that you're a Phillies fan,
00:32:30.080 | and wanted to know if you think the Phillies are going
00:32:32.240 | to turn it around.
00:32:33.020 | >> Well, I certainly was a Phillies fan.
00:32:37.280 | >> Was, okay.
00:32:38.280 | That answers the question, Jack.
00:32:40.900 | >> But they have, I mean, it's just amazing to me.
00:32:43.580 | Everybody else seems to produce an Aaron Judge
00:32:46.120 | or somebody like that, and the Phillies don't.
00:32:48.520 | And I don't know if it's their farm system or what,
00:32:51.400 | and I think their management is top-heavy.
00:32:54.080 | They've gotten this young quant right out of,
00:32:55.740 | what was the Billy Bean movie, Mike?
00:32:59.420 | What was it called?
00:33:02.580 | >> Moneyball.
00:33:03.560 | >> Moneyball.
00:33:04.140 | I had a good story about the investment,
00:33:05.620 | and that was a fun movie.
00:33:06.580 | But it's, we're in the quantitative era in baseball,
00:33:13.280 | and people are trying to pick and choose
00:33:15.140 | and look at little numbers.
00:33:16.020 | And that will help some teams for some time,
00:33:18.580 | and other teams, well, that's just like the investment business.
00:33:21.340 | And as soon as somebody says there's a winning strategy,
00:33:24.360 | everybody else does it, and it's no longer a winning strategy.
00:33:26.860 | This is all so simple.
00:33:28.180 | And so, the Phillies, I don't know, hope springs eternal.
00:33:33.760 | >> And this next question is from Victoria,
00:33:37.440 | who's sitting right next to Sue.
00:33:38.800 | She said, "Jack, what are your favorite topics
00:33:41.720 | in the Bogleheads Forum?
00:33:43.020 | And conversely, do any topics
00:33:46.240 | on the Bogleheads Forum concern you?
00:33:48.120 | I.e., do you think any topics do more harm than good
00:33:51.920 | for the average investor?"
00:33:54.200 | >> Well, let me first be honest.
00:33:55.660 | I have to work every day,
00:33:57.520 | and that means I don't see the Bogleheads every day.
00:34:01.660 | I mean, the amount you have on there, the number of hits,
00:34:04.160 | number of comments are so vast that I just,
00:34:08.040 | I cannot be a subscriber.
00:34:09.760 | I kind of count on Mike if he finds anything that's, you know,
00:34:13.040 | relative to what we're doing, he and I are doing.
00:34:15.260 | And, you know, he'll tell me about that.
00:34:18.540 | But as for topics, I mean, I think it's fair game,
00:34:21.120 | and there's no such thing as a bad question.
00:34:23.360 | There's just a bad answer.
00:34:24.900 | And so, I think the Bogleheads has been a huge asset,
00:34:29.280 | enormous asset at Vanguard.
00:34:31.580 | There's nothing like it out there in the world.
00:34:33.900 | I read somewhere that it's the most popular investment website
00:34:37.380 | of any kind, not just, you know, put together of common ownership
00:34:41.660 | and common values, but any website that's there.
00:34:45.940 | So I'd love to see it.
00:34:48.300 | I usually send to Taylor stuff that might be of interest,
00:34:51.840 | but we kind of miss a lot of those.
00:34:53.220 | I don't send enough of my stuff down,
00:34:54.740 | and he can decide whether to publish it,
00:34:56.680 | or Mel can decide whether to publish it or not.
00:34:58.580 | So, but I do look at it, and I do look at the number
00:35:02.680 | of comments about what I've said.
00:35:04.200 | And, you know, if I said something really stupid,
00:35:07.000 | I take those comments to heart.
00:35:08.800 | You know, you can learn a lot from your mistakes,
00:35:11.360 | and so I try to do that.
00:35:13.940 | So congratulations to all of you on having a really,
00:35:16.980 | really good, really, really good website.
00:35:19.400 | And think of the number of investors that you helped,
00:35:22.380 | and it's the objectivity that counts.
00:35:24.800 | You know, you're not getting paid.
00:35:26.260 | You've done it, and it works, and so that's a huge service
00:35:31.080 | and a huge part of Vanguard's growth.
00:35:32.420 | I mean, I can't give you chapter and verse, but probably,
00:35:35.160 | I don't know if we're doing $350 billion a year.
00:35:39.780 | God knows how much comes from the bogleheads,
00:35:42.560 | and then people that look at your site.
00:35:45.760 | But it's a great asset to have in the element, you know,
00:35:50.320 | people talk about the index fund as being a great example
00:35:53.800 | of the democratization of investing.
00:35:55.700 | And you put the democratization right first,
00:36:00.460 | so it's the democratization of commentary and all that,
00:36:04.120 | and as well as the, you know, principal use of index funds,
00:36:08.000 | one way or the other, or low-cost funds is fine.
00:36:11.520 | And so, I think that's all I can say.
00:36:16.320 | >> Well, I did point out to Vanguard
00:36:18.540 | when they showed the slide that showed the growth comparison
00:36:23.920 | of Vanguard to, Fidelity, I think, was second,
00:36:26.980 | and they were going neck and neck, Vanguard slightly ahead.
00:36:31.200 | 2007, Vanguard shot up like a rocket, Fidelity stayed
00:36:35.880 | down here, and I pointed out that in 2007 was
00:36:38.720 | when the Bogleheads Forum was founded.
00:36:40.440 | [ Laughter ]
00:36:42.440 | And they acknowledge, the people,
00:36:45.640 | the Vanguard people do acknowledge the fact
00:36:47.780 | that we drive a lot of business there, and that's one
00:36:49.940 | of the reasons why they treat us the way they do.
00:36:52.560 | >> Well, maybe that's why they ran that thing
00:36:54.900 | about airline preferences on their website.
00:36:57.500 | >> This next question is from Rick Tawani.
00:37:02.540 | Could you please comment on the differences and benefits
00:37:05.740 | of investing in different kinds of index funds?
00:37:08.680 | For example, cap-weighted,
00:37:10.500 | fundamental-weighted, and equal-weighted.
00:37:13.140 | >> There is nothing like cap-weighted indexing.
00:37:20.800 | It gives you the entire market return.
00:37:23.900 | It doesn't care about sectors.
00:37:25.580 | It doesn't care about managers.
00:37:26.840 | It doesn't care about styles, and in the long run,
00:37:29.720 | we know as a fact that it's very difficult for investors
00:37:33.320 | to capture the market return.
00:37:35.160 | As a group, they can't, and so I go with cap-weighted totally.
00:37:39.480 | It also is kind of self-executing
00:37:42.020 | because people write, you know, if these hot stocks,
00:37:46.000 | whatever they call them, shag stocks or something, sag, rag,
00:37:49.840 | what's it called, Mike?
00:37:50.560 | Bang, bang, bang.
00:37:52.860 | [ Laughter ]
00:37:54.860 | When they fall apart, the index, boom, will be over.
00:38:01.340 | But the reality is that other funds own those same
00:38:05.080 | fang stocks, actively managed funds,
00:38:06.580 | in almost the exact proportion as the index fund does.
00:38:09.580 | There's just no grounds for that kind of complaint.
00:38:12.140 | So, and it's not like we're driving
00:38:15.340 | up the price of Amazon if we buy it.
00:38:17.600 | We're not a big factor in that market
00:38:19.700 | because we aren't turning the portfolio over.
00:38:22.600 | It's just investing new money.
00:38:23.720 | And so it seems to me quite clear that that kind
00:38:29.280 | of indexing is best.
00:38:30.220 | You will find in equal-weighted a kind of temptation
00:38:35.000 | because it's equal-weighted, you don't have to,
00:38:38.220 | it requires a lot of work to adjust it
00:38:40.600 | and keep everything equally weighted.
00:38:43.380 | And every once in a while, including the recent era,
00:38:46.900 | equal-weighted has done better than cap-weighted.
00:38:51.640 | But it doesn't represent anything but a new way
00:38:54.800 | of looking at the market.
00:38:55.780 | And sometimes it will do better, and sometimes it will do worse,
00:38:59.120 | and sometimes it will do a lot better,
00:39:00.780 | and sometimes it will do a lot worse.
00:39:02.520 | So it's just the non-predictability
00:39:06.700 | of the returns on the equal-weighted portfolio,
00:39:11.280 | relative to the total market.
00:39:13.100 | It's going to get people thinking I should have done this,
00:39:15.960 | I should have done that, I'm going to get out of this,
00:39:17.800 | get out of that, when those things happen.
00:39:20.140 | And so the temptation to change is always great.
00:39:23.760 | As for the value, I always thought that whole thing was kind
00:39:28.180 | of nutty, if you forgive the expression.
00:39:31.400 | And we had my sort of friend Rob Arnott brought
00:39:36.980 | out this rappy 1,000 fund, and it was based
00:39:41.400 | on industry fundamentals-dividend yields,
00:39:43.900 | earnings growth, book values, even number of employees,
00:39:47.240 | things like that that are pretty durable.
00:39:48.640 | And he's had a very erratic record,
00:39:51.660 | very high volatility relative to the 500,
00:39:55.600 | and is probably a hair behind the 500 as we speak today.
00:40:01.080 | It was very, very close, he's been ahead a lot of the time,
00:40:03.920 | but now he's been behind, and now he's calling for a crash
00:40:07.940 | in fundamental indexing.
00:40:09.360 | And I don't think that can happen either.
00:40:12.780 | I mean, the guy's a little bit of a nut, and he wrote an article
00:40:19.760 | about him in the Wall Street Journal.
00:40:21.060 | This is a little anecdote,
00:40:22.920 | and the journal reporter called me, a big article actually,
00:40:25.860 | and she said, "Well, how do you sum up your feelings
00:40:29.220 | about Rob Arnott?"
00:40:29.920 | And I said, "I just wish I was as sure of anything
00:40:33.760 | as he is of everything."
00:40:35.620 | [ Laughter ]
00:40:38.920 | And damned if that wasn't the closing line in the article.
00:40:42.180 | [ Laughter ]
00:40:43.700 | And I heard from one of his associates that he loved it.
00:40:46.200 | He loved it.
00:40:47.160 | [ Laughter ]
00:40:48.660 | What to be said.
00:40:49.300 | So, you know, fashions come and go, and we'll see a little bit
00:40:54.120 | more of this in the cash flows as the year goes on and comes
00:40:57.620 | to a conclusion in probably next year.
00:40:59.200 | But all this talk about value being better than growth,
00:41:04.180 | this year the growth index is up 22 and a half percent,
00:41:07.400 | and the value index is up by 10 and a half percent.
00:41:10.140 | So that kind of thing happens.
00:41:12.340 | Call it reversion to the mean, and that's a fundamental thing.
00:41:17.360 | You saw the charts yesterday, and it's always, in my opinion,
00:41:22.380 | it's always going to happen.
00:41:23.920 | There is no such thing as a permanent solution,
00:41:26.180 | a permanent formula, a permanent way to get rich
00:41:29.480 | and just enjoy the market return.
00:41:32.760 | And you may do better somewhere else.
00:41:35.040 | I have no reluctance to say that, but you don't want
00:41:39.480 | to bet your financial future on odds.
00:41:41.940 | You know, I got a 1 in 10 percent chance,
00:41:44.360 | 1 in 10 chance of beating the S&P.
00:41:47.120 | Why would anybody take that?
00:41:50.960 | So I'm very comfortable as life has gone on
00:41:53.760 | and almost everybody has adopted the S&P or the cap-weighted,
00:41:58.700 | market cap-weighted by total market capitalization
00:42:01.720 | and methodology, anyone serious about the business.
00:42:04.320 | But there are a few kind of outcast, outliers, I should say,
00:42:08.440 | that do the total stock market.
00:42:10.800 | Right now it looks pretty good.
00:42:11.800 | I mean, do the equally weighted.
00:42:13.880 | So, you know, choose whatever you want,
00:42:16.540 | but I think if you're investing for a lifetime,
00:42:18.820 | there is no better way to do it.
00:42:22.200 | And I will editorialize at this point, and I'm starting
00:42:25.160 | to write more about this.
00:42:26.120 | I did it to the CFA, too.
00:42:27.580 | Just think about this for a minute.
00:42:30.320 | You're a mutual fund buyer, and you buy the best managers
00:42:33.160 | that are around, looking at past performance,
00:42:34.920 | which is not only useless, but counterproductive.
00:42:37.900 | And we know you start this at 25, and you're going
00:42:42.280 | to be investing for the next 75 years.
00:42:45.420 | Someone 25 years old will have a life expectancy of 100 years.
00:42:50.580 | So what happens in the next 75 years?
00:42:52.460 | Mutual fund, you buy three funds or four funds, good funds,
00:42:56.580 | good performing funds, and one,
00:42:59.460 | the average portfolio manager lasts eight years.
00:43:01.540 | Not 75, eight.
00:43:03.460 | And the average fund, well,
00:43:05.600 | 50 percent of them go out of business every decade.
00:43:08.080 | So that's 50 percent, and 50 percent, and 50 percent,
00:43:11.380 | and 50 percent, and then 25 or something at the end.
00:43:13.760 | And so you're going to probably own, we have no way
00:43:17.180 | to calculate this, but I think we use,
00:43:19.200 | when I gave these examples, that you'll have, let me say,
00:43:22.800 | 35 different managers in your lifetime.
00:43:24.640 | What is the possibility that 35 managers,
00:43:29.900 | some of whom have gotten fired for bad performance,
00:43:31.940 | some of whom brought in new managers who clean
00:43:35.300 | out the portfolio at great turnover cost, some of which come
00:43:38.900 | and some of which go, none of them are going to live
00:43:40.520 | for 75 years, more than their present age,
00:43:43.780 | and what are the chances that that large number
00:43:47.020 | of managers can conceivably outperform someone
00:43:51.860 | who is smart enough to pick no portfolio manager
00:43:54.840 | at the beginning with the guarantee
00:43:56.900 | that his fund will still be run
00:43:58.480 | by the same non-portfolio manager at the end?
00:44:00.860 | Think about that.
00:44:01.820 | So lifetime investing is what we should all be thinking about
00:44:06.140 | and not being paid so much attention
00:44:08.400 | to what happens every day, every minute, every week.
00:44:10.800 | And listen carefully to Jim Cramer
00:44:14.760 | to get the best advice we can.
00:44:16.680 | [ Laughter ]
00:44:18.700 | A little aside on that, the first Bogo Heads conference was
00:44:23.060 | at the Miami Herald Making Money Seminar.
00:44:25.320 | Jack was the keynote speaker
00:44:27.660 | and followed immediately by Jim Cramer.
00:44:30.580 | Jack made his usual buy the market,
00:44:34.900 | own the market, low cost.
00:44:36.420 | Jim Cramer came up, forget everything that guy told you,
00:44:40.560 | I'm going to give you 10 stocks that won't miss.
00:44:43.680 | Everybody's writing down, running out to make the calls
00:44:46.480 | to the broker and that was right before the tech wreck.
00:44:49.880 | And his stocks, basically I think 8 out of 10 went
00:44:54.160 | out of business and the others lost 70%.
00:44:56.740 | So right after that, if I recall, he confessed
00:45:02.360 | that Jack was right, buy index funds.
00:45:04.640 | But that was right before he got the gig banging things
00:45:08.740 | on the TV show and found
00:45:11.920 | out he could make more money doing that.
00:45:14.520 | And even more, this one happened to be in Florida too.
00:45:17.160 | I used to do kind of a speaking circuit thing
00:45:18.860 | and I could make a couple of bucks.
00:45:21.760 | I would no longer run well at Vanguard full time.
00:45:24.840 | And so somebody, I guess it was in Florida, said, oh,
00:45:34.720 | it was a money game kind of thing and you had all these,
00:45:40.120 | this ring of investment advisors around there
00:45:42.860 | and one guy saying gold is the only way
00:45:44.960 | and somebody else is saying gold is the only bad way.
00:45:47.720 | And then so how do you, if you want growth without risk,
00:45:52.300 | here's how to get it and on and on around.
00:45:54.740 | They were all just big phony things.
00:45:56.700 | So when I got up to speak, I said to this nice audience
00:46:00.280 | of normal human beings, probably an audience very much
00:46:02.320 | like this one, and Taylor Laramore happened
00:46:04.040 | to be in the audience.
00:46:04.840 | And I said, you know, the first advice I'm going
00:46:07.760 | to give you is don't pay any attention whatsoever to anyone
00:46:10.500 | who has an exhibit here.
00:46:11.520 | [ Laughter ]
00:46:15.780 | >> Well, I remember the comment at the end.
00:46:19.320 | >> I'm looking over at the guys sponsoring
00:46:22.360 | out of the corner of my eye.
00:46:23.300 | He didn't look at all happy and Taylor dropped me a vote
00:46:27.180 | and he said, I'm going to guess you're never going
00:46:28.780 | to be invited to be back again.
00:46:30.040 | But, you know, if that's the price you pay
00:46:32.940 | for telling the truth, what's to be said?
00:46:36.060 | And it's an opinion.
00:46:36.880 | I can't really swear it's the truth.
00:46:38.340 | But the best advice is don't listen to all the stuff
00:46:41.040 | that you see on the billboards.
00:46:42.060 | >> Yeah, that was the money show in Orlando and I remember
00:46:45.440 | after that when Jack said, I don't know why they invite me.
00:46:51.100 | They know what I'm going to say.
00:46:52.380 | [ Laughter ]
00:46:54.680 | >> Jack, the next question is someone wants
00:46:58.540 | to ask your thoughts on two active vanguard funds,
00:47:02.000 | Wellesley and Wellington, and their roles have held as part
00:47:05.340 | of a retiree's or accumulator's asset allocation.
00:47:08.900 | It seems many indexers here do hold these active funds
00:47:12.880 | and would be interested to get Jack's perspective.
00:47:15.980 | >> Well, as I said yesterday, I've never done this kind
00:47:22.220 | of analysis but I am sure it is correct for Wellesley.
00:47:26.700 | But for Wellington, it is 98 percent indexed.
00:47:30.500 | It tracks the return, the source
00:47:33.380 | of its returns are determined 98 percent by the combination
00:47:36.940 | of 65 percent S&P 500 and 35 percent corporate bond index.
00:47:42.660 | And I guess the Bloomberg,
00:47:44.820 | Barclay-Bloomberg Corporate Bond Index.
00:47:46.960 | So it's an index fund and I like that about it.
00:47:51.720 | I like the fact that the big change I made in the fund
00:47:54.760 | when it was run, it's kind of a terrible story,
00:47:57.220 | when the Boston guys took over,
00:47:59.220 | they put a man named Walter Cabot.
00:48:02.200 | Bostonians love each other.
00:48:04.140 | That was an aside, in charge of the Wellington fund.
00:48:10.780 | He ran it for 10 years.
00:48:12.160 | He left the equity ratio normally at about 65 percent top,
00:48:16.560 | kept 83 percent, 83 percent totally out of the funds mandate
00:48:21.200 | at the high in the market of course
00:48:23.260 | and then watched it collapse with everything else,
00:48:25.680 | particularly because he put a lot of junk in it,
00:48:27.200 | the stocks of tomorrow.
00:48:29.160 | And in Mr. Cabot's 10-year tenure,
00:48:32.980 | it had the worst record of any balanced fund.
00:48:37.080 | And what you have to understand about this business,
00:48:39.660 | it is just as hard to be the worst fund on the list
00:48:43.420 | as it is to be the best fund on the list.
00:48:45.000 | I mean, there's a lot of randomness here.
00:48:47.280 | So he went on and so he was basically an abject failure.
00:48:52.280 | And so where did he go from there?
00:48:57.400 | He was named the treasurer of Harvard University
00:49:00.560 | and the president of the Harvard Management Company.
00:49:02.340 | Only in Boston.
00:49:05.600 | >> Do you think the higher profit potentials
00:49:13.400 | of large U.S. companies in domestic markets will continue
00:49:17.380 | at the expense of foreign and new domestic competitors?
00:49:20.800 | >> Well, I don't really know how to answer that
00:49:24.860 | because these old dichotomies really don't exist anymore.
00:49:28.920 | We know that half of the revenues and half of the earnings
00:49:32.600 | of U.S. corporations come from non-U.S. sources.
00:49:35.960 | And so you already have an international fund there.
00:49:40.560 | And the question, I mean, let's call it 50 percent.
00:49:43.100 | It's different.
00:49:43.800 | You don't have the same currency problems and all that,
00:49:46.220 | or currency value variations if you own foreign stocks.
00:49:52.180 | And by the way, I should say this.
00:49:53.740 | I don't know how many people know it, but I want
00:49:57.100 | to have a chance to mention it.
00:49:58.120 | And as last year, there is no question.
00:50:02.020 | I'm glad Mel didn't ask one.
00:50:03.220 | There's no question that gets asked more of me
00:50:05.820 | than why don't I favor international stocks?
00:50:08.760 | And I've explained it over and over and over again.
00:50:12.700 | And now when somebody asks it, I say, I hate that question.
00:50:16.300 | You might as well be honest.
00:50:18.800 | But last year, this year that we're going through right now,
00:50:23.820 | foreign stocks have done exactly the same,
00:50:28.180 | non-U.S. stocks have done exactly the same as U.S. stocks
00:50:31.660 | of about 14 percent until you get the weakness
00:50:35.820 | in the U.S. dollar, which has added 10 percent
00:50:38.860 | to those returns.
00:50:39.700 | So when you look at the international returns
00:50:42.680 | and non-U.S. returns, you will see 24 percent.
00:50:45.240 | But understand that those things are not fundamental
00:50:49.480 | in local currency terms,
00:50:50.720 | the way the markets are actually performing before you
00:50:53.180 | get into currency is identical.
00:50:56.180 | So there are a lot of things that go into this.
00:50:58.940 | And I always thought currency risk was a reason not
00:51:02.320 | to own international or non-U.S. funds.
00:51:05.000 | But I don't really object to it.
00:51:06.500 | But it's gotten to the point, I think the article was
00:51:10.460 | on CNBC maybe, Mike, the thing about my feelings
00:51:14.460 | on international.
00:51:15.060 | And oh, you didn't see that.
00:51:17.620 | You always wonder.
00:51:18.120 | It's six pages.
00:51:20.620 | Six pages.
00:51:22.720 | Of explaining my international position.
00:51:26.560 | And, you know, it's very logical.
00:51:28.340 | Could be wrong.
00:51:29.700 | I'm not saying that.
00:51:30.540 | You can always be wrong.
00:51:31.460 | But it points out that I don't say you don't need donors.
00:51:35.100 | You just be aware of these risks.
00:51:36.440 | A lot of returns in the U.S. companies are already
00:51:39.900 | international companies.
00:51:41.120 | That currency risk is a big thing.
00:51:44.540 | That institutional kind of risk.
00:51:46.500 | And these are how these things change.
00:51:48.780 | I'm not allowed to get into politics,
00:51:50.780 | but the fact of the matter is we used to look
00:51:52.660 | at the United States as having the strongest institutions
00:51:55.340 | in the world, governmental institutions, court institutions,
00:51:58.280 | or other kinds of institutions
00:52:01.160 | that change our lives here for the better every day.
00:52:03.820 | And, you know, the government institution is shaky today.
00:52:09.440 | Everybody knows that.
00:52:10.380 | I used to ask, have we lost --
00:52:13.080 | one of the risks is will we lose the ability
00:52:16.120 | to govern ourselves?
00:52:17.080 | I think you could argue that we're giving that a good shot.
00:52:20.860 | But that's politics, so I won't pursue it.
00:52:23.100 | >> Well, Jack, I guess I can throw the rest
00:52:26.060 | of the questions away since you don't want anything
00:52:28.040 | on international --
00:52:28.780 | >> No, I'll be glad to repeat my usual patois.
00:52:33.140 | >> This is a little twist on it.
00:52:35.120 | He says, in Bogle on mutual funds,
00:52:38.760 | you explain why international investing has risks and state
00:52:41.920 | that perhaps investors should keep their money in U.S. stocks.
00:52:44.820 | It concerns me that virtually no other passive investing author
00:52:49.400 | is worried about the same risk that you identify.
00:52:51.960 | Why do you think these risks are ignored
00:52:54.700 | and international investing is being touted as crucial
00:52:58.300 | for maximum diversity?
00:52:59.680 | What is behind this?
00:53:01.340 | >> Well, first, I have never given a damn
00:53:05.420 | about what anybody else thinks.
00:53:06.860 | >> We knew that, Jack.
00:53:07.820 | [ Laughter ]
00:53:10.500 | >> And I pay attention and I listen to the arguments.
00:53:13.280 | That may be a little strong form of my feeling.
00:53:15.860 | But they're entitled to their opinion and it may be right.
00:53:19.580 | And as this article that I just cited mentions,
00:53:23.100 | and this is true, I say this whenever I write about it.
00:53:28.860 | When I first said this, you don't need the international,
00:53:31.360 | any non-U.S. stocks.
00:53:32.520 | It was 1994 in my first book.
00:53:34.740 | I was on the record.
00:53:35.480 | You don't need them.
00:53:36.440 | If you're going to have them because of these extra risks,
00:53:38.480 | stop at 20 percent, no matter what the market weight is.
00:53:40.820 | And so in the next 20 years, some 25 years almost,
00:53:47.200 | and the non-U.S. are up about, let me say, 300 percent
00:53:51.080 | and the U.S. is up 800 percent.
00:53:52.420 | So this is a brilliant prognostication.
00:53:55.100 | I hear a little applause there.
00:53:56.860 | And yet, I quickly acknowledge the fact that the U.S. has done
00:54:02.040 | so well for so long in this relative sense may easily mean
00:54:06.180 | that we'll have some reversion to the mean.
00:54:07.520 | I always talk about that.
00:54:08.440 | And it could mean that one doesn't really know.
00:54:11.500 | So just take all of the-- don't take my word for it.
00:54:15.600 | Take it and make your own decisions.
00:54:17.460 | But I do think that you don't want
00:54:20.460 | to get carried away with unknown risks.
00:54:24.780 | And then I use this other example.
00:54:26.480 | And they talk about Disney.
00:54:27.920 | And that is, when you talk about non-U.S.,
00:54:31.860 | think about what non-U.S. means.
00:54:34.920 | Don't just take it for granted.
00:54:37.800 | The largest non-U.S. market is the United Kingdom.
00:54:41.100 | The second is Japan, and the third is France.
00:54:45.040 | Now, the U.K. with Brexit and all is not
00:54:49.560 | in a particularly productive economy.
00:54:50.880 | I would bet that our GDP would grow faster
00:54:53.480 | than theirs in the next 25 years.
00:54:54.940 | Japan, very structured society, population shrinking,
00:54:59.920 | or aging population, tsunamis every few years.
00:55:04.480 | It doesn't seem to me to be a place
00:55:07.320 | that will do better than the U.S. And France, my God,
00:55:11.460 | they don't go to work there.
00:55:12.460 | They're having a big fight again.
00:55:13.540 | [ Laughter ]
00:55:15.560 | So, if you're French, I'm sorry.
00:55:20.100 | [ Laughter ]
00:55:22.100 | But they have very strong labor protections in France.
00:55:26.800 | There's no question about this.
00:55:27.720 | And the idea of the new Macron, I guess, administration is
00:55:32.580 | to reduce those protections
00:55:33.680 | and have a more competitive framework.
00:55:35.260 | And labor is revolting.
00:55:37.180 | You know, they have a, I think it's a 35-hour maximum week
00:55:41.420 | or something like that.
00:55:42.720 | And, thank God, I work 35 hours and a half a week.
00:55:45.680 | Not now, but I used to.
00:55:48.380 | >> Jack, this next one is a little embarrassing.
00:55:52.640 | It says, "A friend of mine is a successful salesman
00:55:56.900 | for Northwestern Mutual in Omaha and continues
00:56:00.880 | to push insurance financial products.
00:56:03.100 | I have told him time and again that I'm not interested
00:56:06.800 | and I'm now a bogey head.
00:56:09.020 | Three fund, low expense, index investor, full discloser.
00:56:14.040 | His comeback was stating, 'Good news.
00:56:17.000 | Jack Bogle is a Northwestern Mutual customer.'"
00:56:19.740 | Is that true or is that--
00:56:21.720 | >> Yes, it's true.
00:56:22.680 | [ Laughter ]
00:56:24.680 | I mean, let me tell you the truth of the matter.
00:56:26.440 | As a young married man, I wanted some insurance in case.
00:56:30.420 | I quirked, passed, went, so whatever the--
00:56:35.300 | but don't use the word died, please.
00:56:37.860 | And so, I bought a $10,000 policy for Northwestern
00:56:42.820 | because it was clearly a mutual company
00:56:45.020 | which was probably the best company in terms of relationship
00:56:48.120 | of rates to premiums and for $10,000.
00:56:53.680 | And I think maybe there was a companion policy I bought later
00:56:59.440 | on which is a tie on to that which maybe was another $8,000.
00:57:02.560 | So, yes, and I still kept it.
00:57:05.740 | So, I had $18,000 with the Northwestern Mutual.
00:57:08.460 | I mean, confession is good for the soul.
00:57:10.720 | I hope that doesn't--
00:57:11.680 | [ Laughter ]
00:57:15.580 | >> Well, are you getting royalties
00:57:17.340 | for them using your name, Jack, as a sales tool?
00:57:19.840 | >> No, but you know it's going to happen.
00:57:21.280 | You know it's going to happen.
00:57:22.720 | >> OK. Besides contracting for a term like policy,
00:57:30.080 | is there any reason to invest in an insurance product?
00:57:34.700 | >> Well, when you get beyond term--
00:57:36.580 | and all term is not the same, by the way.
00:57:40.160 | You want to pick that very, very carefully,
00:57:41.640 | but there's some perfectly good term policies.
00:57:43.560 | Sure, there's a place for an insurance product.
00:57:45.860 | For people that, you know, they have modest means,
00:57:48.680 | they're very dependent on--
00:57:50.760 | their family is going to be very dependent on their earnings.
00:57:53.580 | They don't have a lot of savings put aside.
00:57:55.120 | And it's an expensive way to save, but it's immediate.
00:57:58.760 | You know, you invest the difference and it's--
00:58:03.260 | it just is a perfectly intelligent thing to do,
00:58:08.120 | just so long as you don't get ripped off.
00:58:10.600 | And I'd say there's such a thing about--
00:58:12.520 | and the hidden cost in insurance and particularly
00:58:15.360 | in variable annuities are just an outrage.
00:58:17.520 | And so then it's not a good investment.
00:58:20.300 | It's a terrible investment, but there are things
00:58:22.820 | that are more important like your livelihood.
00:58:24.560 | And when you get into things, my experience or maybe intuition,
00:58:28.800 | when you get into something that gets complicated,
00:58:32.040 | it's really hard to maintain.
00:58:35.300 | So, you're buying term and investing the difference
00:58:38.760 | and, you know, it's complex and, you know, if you forget
00:58:42.980 | to invest a couple of times and your term policy lapses or--
00:58:47.140 | there's so many things that can go wrong
00:58:49.180 | that I think the strategy in the abstract is fine,
00:58:53.060 | but in the implementation, just make sure you do what you're
00:58:55.980 | intending to do and buy from a good company.
00:58:58.320 | And there aren't very many of them.
00:58:59.700 | I'd say Northwestern is still a pretty good company.
00:59:01.620 | >> This one said-- first of all,
00:59:04.480 | this was in almost every question.
00:59:08.620 | It says, "Mr. Boyle, thank you for all you've done
00:59:10.800 | for the little guy," and I just didn't want to repeat it over
00:59:14.540 | and over again, but it was in almost every response.
00:59:17.520 | "If I were to include Social Security as part
00:59:20.800 | of my fixed income, what would be wrong
00:59:23.340 | with holding the balanced index fund for life?
00:59:25.880 | My plan is to put it in this one fund and never look back."
00:59:31.200 | >> Nothing.
00:59:31.660 | >> OK.
00:59:32.920 | >> That is nothing would be wrong
00:59:35.540 | if you missed the beginning of the question.
00:59:36.800 | >> This one, again, repeats, "Thank you for all you've done
00:59:42.140 | in order to help the individual investor.
00:59:44.060 | Thank you for providing that constant reinforcement
00:59:49.020 | through your books and interviews that allows me
00:59:51.120 | to feel confident with my investment strategy.
00:59:53.420 | Taken into consideration, you're often quoted aging bonds
00:59:58.200 | as a starting point in determining one's fixed income
01:00:01.560 | asset allocation as well, as there is less need
01:00:05.740 | or willingness to take risk as we age."
01:00:08.800 | >> Well, in the abstract, that's probably true,
01:00:12.580 | but it's a rule of thumb and it depends on so many things.
01:00:16.100 | First, it depends on including Social Security
01:00:18.880 | as a fixed income position, which it clearly is.
01:00:21.600 | And as long as it holds up, it's a fantastic--
01:00:24.180 | and we all just got-- everybody in the room just got it--
01:00:26.640 | everybody that's on Social Security got a 2% raise.
01:00:29.880 | And, you know, that's not a bad year.
01:00:32.080 | And so it's inflation hedged by and large.
01:00:35.180 | And the government is not going to go out of business.
01:00:37.840 | It can be fixed.
01:00:38.600 | I'm reminded of a panel, a joint interview I was doing
01:00:43.020 | with Paul Volcker some years ago.
01:00:45.160 | And I said that-- they were talking about Social Security
01:00:48.240 | and I said, "The fixes are so easy,
01:00:50.280 | you wouldn't even notice them."
01:00:51.720 | And I said, "If you would just make Paul and I the two czars
01:00:58.240 | of the new Social Security system,
01:01:00.000 | we'd get it fixed in a day."
01:01:01.620 | And Paul looks up at me and says,
01:01:03.920 | "Couldn't we fix everything?"
01:01:05.920 | [ Laughter ]
01:01:11.180 | >> Jack, I know you have to get out.
01:01:13.840 | So we're going to let you out on time.
01:01:17.220 | I want to let you know that we ran out of meaningful tokens
01:01:22.740 | of appreciation for your-- for the annual events.
01:01:26.560 | So we decided to create one.
01:01:28.260 | I know recently in conjunction with the Forbes Award
01:01:33.340 | that you won, you mentioned Founders Mentality.
01:01:36.680 | And we thought we'd pick up on that
01:01:39.520 | and we'd create something to commemorate this.
01:01:43.680 | As you know, many memorable events happened here
01:01:47.760 | in Philadelphia and pictured on the left
01:01:50.860 | of this are the founding fathers at Independence Hall
01:02:00.940 | in Philadelphia and on the right is a picture of you.
01:02:05.780 | And the title is Visionary Founders.
01:02:10.320 | And you certainly fit that to a T, Jack.
01:02:13.000 | And thank you for all you've done.
01:02:16.160 | [ Applause ]
01:02:45.660 | >> Well, thanks guys.
01:02:55.080 | We all need strength to carry on, I underscore the all.
01:02:59.320 | And these couple of days with you have given me enough strength
01:03:03.420 | to go on for as long as I'm able.
01:03:06.780 | I'm not going to go on forever.
01:03:07.920 | And there will be a time when your mind starts to go.
01:03:12.860 | It happened to a lot of my friends.
01:03:14.340 | They died, we lost three good friends in the last two weeks,
01:03:16.980 | about my age, one a little older, one younger.
01:03:19.440 | So that happens and it's part of life.
01:03:21.680 | But I'm going to try and go on as long
01:03:24.820 | as I can responsibly do it.
01:03:26.080 | And responsibly be fair to my family.
01:03:28.560 | And I'm still trying to make my family life a little bigger part
01:03:32.780 | of my regular life.
01:03:33.660 | I do take those couple of months off in the mountains
01:03:36.980 | in the Adirondacks in the summer.
01:03:38.300 | But I found out that when you've been at Vanguard for 30 years,
01:03:44.500 | you get eight weeks vacation.
01:03:47.380 | So I've been there for 65, so I may just go up there
01:03:55.800 | and stay there, but it's a thrill to be with all of you.
01:03:59.140 | God bless you and God willing, I'll see you all next year.
01:04:02.140 | Thank you.
01:04:03.100 | [ Applause ]