ó John Clifton Bogle works in a sunny office lined
with books, piles of newspapers and research, paintings
of Napoleonís battles, and Frederic Remington cowboy
sculptures. At 87, he has slowed down only a little.
used to work from 6 a.m. to 6 p.m., but I donít do
that anymore," said Bogle, who was ready to greet a
reporter at 9 a.m. sharp at Vanguard headquarters in
inventor of the index fund is retired from actively
running the investment-management company he founded
four decades ago, but he heads the Bogle Financial
Markets Research Center on Vanguardís campus.
hard at work, too, is his philosophy that few active
money managers can beat the stock market, and that low
fees make the difference over the long term. This year,
Vanguard is approaching $4 trillion in assets, with $1
billion a day in new inflows.
puts it well ahead of Boston rival Fidelity and just
behind BlackRock, prompting an envious Wall Street firm
to dub indexing a form of socialism.
of Sept. 30, Vanguard managed more than $3.8 trillion in
global assets, offering more than 350 funds to more than
20 million investors worldwide.
Bogle said, combines "two great, but totally
simple, ideas, which together have paid off. One is
structure, the mutual structure of Vanguard; the other
is the overall index strategy. Everything depends on
cost in an index fund. The only way you can deliver the
cost is run a mutual company."
expenses for an actively managed mutual fund run to
about 2 percent annually. Investors can avoid that by
using low-cost index funds ó an idea Bogle
proselytizes as often as he can.
spoke recently at the studios of Philadelphia WHYY radio
station in conjunction with a new PBS documentary on the
savings crisis in America, "When Iím 65,"
which aired nationally earlier this month. Sponsored by
the Investor Protection Institute and the Pennsylvania
Department of Banking and Securities, "When Iím
65" examines Americansí shortfall in savings, and
new ways of living and working in retirement.
suggests fixing Social Security: first, by raising the
tax on both employers and employees; second, by raising
the taxable wage base, to perhaps $150,000 or more; and
third, obviously, by raising the retirement age, with
some exceptions for those who do manual labor.
amazingly easy. All thatís needed is political
will," he said.
Security passed in the 1930s. People were dying much
earlier, and yet that 65-year age has still stood.
Today, the service economy in America is far bigger, and
people like me sit on our hindquarters all day. Those
three things you could do that would not affect a lot of
understands that if 40 percent of Americans have no
savings, "you canít force people to save when
they have to eat. They have to survive on Social
is a superb way of running an economy. But it also
unfortunately has a tendency to vary the benefits
widely. Thatís why we have this two-class society: the
1 percent and the 99 percent. The disparity in income is
deeply regrettable. I donít know what we do about it
2008 financial crisis is responsible for todayís low
interest rates, which "enriched the 1 percent, and
the aftermath Ö has hurt 75 percent of Americans who
save. We (at Vanguard) brought out a money-market fund
back in 1980 that yielded 15 percent back then on an
annualized basis. Today, thatís around 0.2
wonder how Middle America and Main Street are getting by
at all. Itís abnormal to have (rates) at these
interest rates have been abnormally low, stock returns
have been abnormally high. When asked whether that could
continue, Bogle noted that "the average return for
the S&P has been 9.5 percent. Thatís the average
for 25 years."
Iím saying maybe 6 percent: 2 percent from dividends
and 4 percent earnings growth, going forward. Thatís
the reality. I could be wrong easily!
divide market returns into two components: dividends and
earnings growth. If dividend yields average 2 percent
today and earnings growth 4 percent, thatís a 6
percent investment return. So thatís it. Thatís what
corporate America will give us."
mutual fund company has a huge cost advantage, he said.
"If the market produces 6 percent a year, you get
5.95 percent after fees from an index fund, and 4
percent, minus 2 percent fees, if youíre an active
manager. It doesnít mean managers are stupid, theyíre
been in a remarkable period, a bull market of 40 years.
It doesnít go on forever."
forecast returns of 7 percent a year, but Bogle said
they wonít be that high in the future.
pensions total about $3.5 trillion out of $24 trillion
in retirement savings. Corporate plans have to assume
something that doesnít have the company put in too
much money, otherwise that lowers earnings.
my book ĎThe Clash of the Cultures,í I show that
corporations mostly use a 7.5 percent return assumption.
But today, stocks yield 2 percent and bonds yield 2
percent, as well.
are they getting the rest? They put money in hedge funds
and private equity, and assume both of those give 20
percent return. Is there anyone who thinks thatís
going to happen?"
use the same kind of assumptions, he said, "funding
pensions from a tax base that would have to increase
likely vote against that. So states are facing lower
returns and greater longevity. And the payments are
protected often by constitutions."
assets (IRAs, 401(k)s, 403(b)s) represent just $8
trillion out of $24 trillion in retirement savings.
are totally unaware of the value of starting
early," Bogle said. "When you start at 25, you
start saving $5,000 a year, it makes a huge difference
due to compounding. You can capture the market return
with an index fund. It sounds commercial, but I donít
think it is. I have no interest in this place getting
any bigger. Isnít $3.8 trillion enough?"
STORY CAN END HERE)
a wide-ranging conversation, Bogle answered questions
about how he paid for college: "I had a scholarship
to Princeton, and I worked 40 hours a week, selling
tickets at football season and as a waiter for a year or
so. I didnít have any debt when I got through college.
I worked vacations, I worked all the time."
about his personal savings and investments now,
including with John C. Bogle Jr., who works in finance:
"Yes, my older son founded Bogle Investment
Management. Heís assiduous. He has 100 longs and 100
shorts, so he runs a true Ďhedgedí fund.
he has one long auto stock, he has one short. Heís
been able to deliver returns averaging 6 percent
annually. Itís all algorithms. Ö I invested a small
amount in his small-gap growth mutual fund when he got
started, as a show of confidence. Heís done very
else is in Bogleís portfolio?
own two portfolios. My largest single asset is my
retirement plan here, which is tax-deferred, of course.
My personal portfolio is somewhat different, but theyíre
dominated by index funds. Iím about 50-50 stocks and
bonds. Stocks are all indexed."
Wellington Fund was his first holding. "I still own
it. Itís my legacy investment, itís what I owe to
(Wellington founder) Walter Morgan," who gave Bogle
his first job.
Fund is about 96 percent indexed. We donít call it
that. But the reality is thatís the amount of the fundís
return explained by the market averages. Itís 65
percent S&P 500 and the other 35 percent is the
Barclays Corporate Bond index. Iíve held it the entire
also owns Vanguard Total Stock Market Index Fund and
Vanguard 500 Index Fund. On the bond side, he owns
Vanguard Intermediate-Term Investment-Grade fund, which
holds mostly corporate bonds, and Vanguard Limited-Term
Tax-Exempt Fund, which holds mostly municipal bonds.
regrets? He has a few, he said.
specialty funds we (at Vanguard) introduced around 1983.
I was going to do it better than Fidelity. Everything I
did for marketing reasons I regret. You should only do
it because itís a sound investment idea.
started Vanguard Specialized Portfolios, which is gone
now. Specialty portfolios were an abject failure ó
except for Vanguard Health Care Fund. Out of the chaos
came one of the great funds in our history."
author of about a dozen books, said there are plans to
update his 2007 "The Little Book of Common Sense
new version will be out in 2017 with some info on
retirement investing and asset allocation, the 10-year
anniversary of its publication. Iíd like to do another
new book, a historical look at where Vanguard came from,
probably my last."
regularly hears from shareholders, he said: "Yes,
my favorite is a letter from a waiter who worked at the
Hilton. He wrote to say thank you, that he immigrated to
the U.S. and started saving in the Vanguard S&P 500
get at least one letter a day," Bogle said.
"Most are handwritten. And I try to answer every