John Bogle, Vanguard’s Founder, Is Too Worried to Rest

The following is an excerpt from an article in 

The New York Times
Sunday, August 12, 2012

John Bogle, Vanguard’s Founder, Is Too Worried to Rest

By JEFF SOMMER

VANGUARD, the penny-pinching mutual fund company founded by John C. Bogle, has become a colossus. Its index funds — once derided for not even trying to beat the market — are now the industry standard.

And after at least six heart attacks and one heart transplant, Mr. Bogle has managed to witness this triumph. “It’s all a kind of a miracle,” he says in a booming baritone. “It’s really nice that I’m able to see this happen in my own lifetime.”

With this kind of medical history, any other man of 83 might simply enjoy his success. But not John Bogle. He is still on a mission, as outspoken as ever and nearly as vigorous — thanks, he says, to the heart of a younger man. He’s not done yet.

“It’s urgent that people wake up,” he says. Why? This is the worst time for investors that he has ever seen — and after more than 60 years in the business, that’s saying a lot.

Start with the economy, the ultimate source of long-term stock market returns. “The economy has clouds hovering over it,” Mr. Bogle says. “And the financial system has been damaged. The risk of a black-swan event — of something unlikely but apocalyptic — is small, but it’s real.”

Even so, he says, long-term investors must hold stocks, because risky as the market may be, it is still likely to produce better returns than the alternatives.

“Wise investors won’t try to outsmart the market,” he says. “They’ll buy index funds for the long term, and they’ll diversify.

“But diversify into what? They need alternatives, bonds, for the most part. What’s so frightening right now is that the alternatives to equities are so poor.”

In the financial crises of the last several years, he says, investors have flocked to seemingly safe government bonds, driving up prices and driving down yields. The Federal Reserve and other central banks have been pushing down interest rates, too.

But low yields today predict low returns later, he says, and “the outlook for bonds over the next decade is really terrible.”

Dark as this outlook may be, he says, people need to “stay the course” if they are to have hope of buying homes or putting children through college or retiring in comfort.

He is still preaching the gospel of long-term, low-cost investing. “My ideas are very simple,” he says: “In investing, you get what you don’t pay for. Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course. And they won’t be foolish enough to think that they can consistently outsmart the market.”

Still, because the market and the economy are deeply troubled, it’s time for action on many fronts, he says: “We’ve really got no choice. We’ve got to fix this system. All of us, as individuals, need to do it.”

That’s the message of his latest and 11th book, “The Clash of the Cultures: Investment vs. Speculation” (Wiley & Sons, $29.95). It offers a scathing critique of the financial services industry and updated guidance for investors. “A culture of short-term speculation has run rampant,” he writes, “superseding the culture of long-term investment that was dominant earlier in the post-World War II era.”