Jack Bogle on Index Funds, Vanguard, and Investing Advice

very happy to be here with Jack Bogle in the headquarters of both Bogle Research Center right here in your office in Valley Forge Pennsylvania and Jack it's so great to be able to sit down and spend another last time we ran on about an hour and 15 minutes I think so I probably won't try to keep you that long but it's great to see you again and have a chance to talk to you about what's going on with Vanguard and your work well there's a lot going on it's a it's a it's a real delight to see you again and to salute you on the work you're doing for the investors out there we were saying at lunch and we'll start out with the give you an opportunity to try and manage manage an ego which is difficult for all of us as human beings well I'm not for me but for everybody else well I don't think that there is anyone in finance that is either had as big of an impact or as beneficial and impact on the world in history then the work that you've done and the work that Vanguard's done I mean if you if you want numbers you know the numbers better than anyone but three and a half trillion dollars under management the lowest fees really by far in the category a completely transparent set of tools and solutions that really teach somebody the principles of how to make money and and how to think intelligently about investment who else has delivered that to that scale in finance in history well I mean I guess I'd say not very many people but for a very definite reason and that is most people in this business are trying to make money for themselves rather than for their shareholders and so they're not focused on giving the shareholder the best break and if you think about it at all deeply you realize that the more I stock markets nothing reflects the returns earned by investors by Investment America the corporation's of the country the public corporations and they have earnings they pay out dividends they reinvest the earnings in the business that's where the value is created you access that value you access that value through investing so then the question is they've created corporate of marys created this kind of value what comes down to an investment America and the answer is exactly what they earn except that it's then the question is how is it allocated between Wall Street the financial system and Main Street the people who invest and the allocation to Wall Street is the objective of this business because everybody is in Wall Street and what we should be doing is working and what we have been doing here at Vanguard is putting the investor first and innovating for the investor and not for ourselves and that trying to keep costs as low as we can which is rock-bottom that's been the idea from the very beginning of Vanguard because a mutual company doesn't have a private owner out there and or a public owner and so we have no one to serve but the shareholder can you think of an analogy in the business world or anywhere in life for the index fund and for the way that Vanguard approaches business for somebody who's watching this and is very new to finance is there a food business or is there a leader or is there a concept inside or outside of business that you think is a nice analogy for Vanguard and the index fund I don't think there really is and the reason is that capitalism is about creating capital for the capitalists if that's not too many capitals in one sentence and not creating they know they have to provide value Adam Smith 1776 the sole role of the producer is to serve the consumer and in this business its dollars and cents the more one gets the less the other gets in yeah and an innovative company you can create more and more value you can reduce prices but you're always making money yourself that's what capitalism is the incentive to get rich if you will and you know I'm doing fine but I don't own Vanguard I've never owned a share of Vanguard and but I've been paid a nice salary and what decent salary and nice bonus when I was running the place so I'm not complaining but I just don't have and never will have that kind of wealth but most people in this business have gotten because they've charged their investors too much for what they're worth hmm can you really lay make it very clear what the mutual structure is for Vanguard just for somebody who doesn't doesn't understand it is this a not-for-profit you is it a collective house it's set up yeah well first let me contrast it with the the typical mutual fund system and the typical mutual fund system is an entrepreneur some kind back at the beginning creates as a company creates a company that forms mutual funds and that company runs the mutual funds and gets paid for it and that's the way any company starts nothing no matter with that that is conventional the difference in the mutual fund industry is when that little baby the needs all that parental care grows up he doesn't need the care anymore but some of these funds are a hundred years old what most other years old and they still have that parent watching over them and taking money away that's too long you know the child matures the child grows up the child goes off on its own and vanguards contribution is essentially recognizing that and saying okay you own the company the kid the incentives are all gone you can do that pretty easily so again who is you that owns the company you as the shareholders of our mutual funds you buy a mutual fund and you are a essentially a shareholder an owner of anger yeah just to give you each step now here's your fund it's run by Vanguard and you own Vanguard and Vanguard also runs a whole bunch of other funds and we allocate the cost among those funds there now probably a hundred and sixty-five of them so the costs are allocated and depending on the funds own cost depending on competition depending on fairness things like that so some judgment involved but we still run this place for you know give or take twelve basis points twelve 101 percent and the average mutual funds specifically runs straight average not weighted about a hundred and twelve so we save you one percent a year ninety percent yeah I need four percent plus lower and what does that amount to over a long periods of time because I think the average what person who's maybe sitting down with her accountant sees well it's one point one 2% or its 0.12 percent that's nothing that's not going to be a game-changer for me and my investment career I might as well pick this this one that I believe in most even if it's one percentage point higher in fees but what's the consequence of that at those two funds perform the same over 25 or 50 years well the consequence of that is it's the one with the that's indexed a dollar will produce about $30 at 7% and the one that's not indexed you're paying 2% the dollar we created about $10 at 5% that's the 7 - the 2 so that means that you put up 100% of the capital you've taken 100% of the risk and you've gotten 33% of the return and Tom if that sounds good to you I've got a bridge at some real estate and that that can not it's not a big extrapolation to say that that can cost an individual who's regularly saving hundreds of thousands of dollars over their lifetime yeah they would probably pick a number I used I think in the financial analyst journal just taking this through to its conclusion that a typical retiring investor putting in a certain amount of month and growing with salary you know would have maybe four hundred and fifty thousand dollars at the 5% level on it as a retirement plan and maybe six hundred and fifty thousand in the indexed plan that's just the math it is in arguable there's no way around it I call it after Justice Brandeis the relentless rules of humble arithmetic you cannot avoid the math cannibal though even though the industry has attempted to its highs but what I'd like to do is to hear you if you could give the simplest Vanguard like index fund like financial game plan for somebody who's over 50 now of course each of us has all these individual factors of what decisions we've made but the average person over 50 how simple what is the simplest 10-minute solution or half-hour solution to getting Vanguard returns well I'll give you a simple solution but the one thing we know about the average is unlike Wobegon like Wobegon you know they're a whole lot of people that are here and here and here and the average is here so in essence nobody's average you're all a little bit of above average or a little bit less than average you may have greater risk you may have greater income requirements you may have greater financial ambitions that are willing to take risk to accomplish them but in all those cases the lower the price you pay for owning the stock market on the bond market the better off you are now I have talked about a rule of thumb and I want underscore it's a rule of thumb a place to begin thinking about having your bond position equal your age so in your 20 you'd be 80% bonds that's a rule I would not April 3 because 80% stocks and I wouldn't dream of telling somebody to move their first investment to be 80% the stocks they should be a hundred percent in stock you know in the first year maybe they'll put away a thousand dollars that's a drop in the bucket compared to the value of their career and the value of what the investments will ultimately be and by the same token I'm at least at these interest rate levels all come in on that in a second I wouldn't dream of telling everybody who was 87 say that with pride and enthusiasm to be 87 percent in laws I am NOT mmm-hmm approximately 50/50 mm-hm and so a lot depends on your own requirements and this rule of thumb first of all very important for people to think about and that is just about everybody that you're gonna be talking about every investor you're talking about also has social security and that has a capitalized value what is that the size of that asset pool you would need to create the returns you get in your monthly Social Security check probably three hundred fifty thousand dollars so if you have seven hundred thousand dollars and three hundred fifty thousand at Social Security and you put a hundred percent of your stocks into that so it's 350 in stocks three fifty in this bond like investment and you're 50/50 so take that into account if you have a pension from a local government or from a corporation that's not going to go bankrupt I quickly add you should add that in and what you're trying to do when you retire which I am gonna do someday I think you're gonna fail like that you're gonna fail at that would not be my first failure but when you do that you want to ensure a monthly flow of income so don't watch the market just make sure your portfolio is producing income and will continue to produce income so you get your Social Security check every month you set up your mutual fund to counter your index fund account for a monthly payment you can do that and just you want those payments to be stable and with respect to Social Security and the and the fund alike will grow a little bit over time dividends are an extremely important part of this and you know ever since the 30s which were a terrible time early 30s in the Great Depression when dividends probably got cut 75% just let me have one period of time not that long ago well we're almost lands were cut by I think about 25% and that was from 2008 to 2009 when in the financial crisis the banks had to eliminate their dividends and but it's a line like this with this one bump in it so I think you can count on that under any foreseeable circumstances to which I quickly and there are a lot of unforeseen circumstances out there but there is a lot of cash on the balance sheets of corporate America to suggest that the dividend is pretty secure yeah exactly payouts are low they're probably running the long-term payout is probably fifty five sixty five percent of earnings and now they're paying maybe 35 to 45 percent of earnings I want to go back to something you mentioned a minute or two ago about the importance of fees and really looking at what you're paying for that return that's being created by corporate America or corporations around the world and then the fee that is the one interruption for you to actually getting that return would you suggest then that somebody who's going through and evaluating a mutual fund to purchase and there are sites and service like Morningstar and others that have all of the ratings and reviews and they tell you about the manager and all the rest would you say that the best thing that someone could do would be to remove all of those factors and just rank them by fee and by the ones that have the lowest fee with if you could do that without looking at anything else obviously you'd end up with a number of Vanguard funds because your fees are averaged 0.12% but is that a good is that a better methodology than the average person is using to pick a mutual fund I'm tempted to say and we'll say asked Morningstar they say that they're sophisticated rating system works almost as well as simply rating the funds by cost Wow so they have entered the confessional booth we've been happening for you over a 1 decade after another which next financial provider is going to enter the confessional booth well the problem with that is this industry is run for the managers they're the ones that put up the capital to start the management company there's the ones that sell out to financial conglomerates and today you know we have among the 50 largest mutual fund groups we have one mutual fund company that would be Vanguard we started the company 42 years ago and Vanguard meant leader in a new trend and we have failed as a leader 42 years of success and we have yet to find our first follower think about that so they're gonna have to eventually the you know my name is true I mean isn't we were talking before about Blackrock isn't every fund company out there putting an index fund out there don't you have everyone following you well Blackrock has been able to do know specifically the ETF exchange-traded fund business is basically Blackrock Vanguard in the State Street and then totally dwindles off the traditional index fund business the kind I started back in in the 1975 underwriting in 1976 is Vanguard has eighty percent of that market fidelity struggling along as ten and three or four other firms do the remaining 10% so and it did women people hide it for example tea rope right has some index funds they're very good but they charge a quarter of 1% a year plus a quarter of 1% compared to five one hundred seven percent you could say they're overcharging the investor by 20 basis points and I would say that's a way of looking at it for what it really says is if you just if it's all the same to you give us your active management business and don't buy our index funds because they make more money at that this is capitalism at work as I said before isn't there a company that maybe is analogous not perfectly to the zero sum that you that you outlined for finance in a company like Costco when I think of Costco I think that that's the closest thing that I associate with Vanguard in business sure well we we use that Costco my wife does you pay the flat annual subscription and everything else is marked down too but they still are a public company that wants to make money and there's nothing the matter with that I just try to get this through people's heads there's nothing the matter with doing that the problem is in the financial business value and costs are reversed sides of the same coin when you go into Costco or anything else you can think of there's a value in your mind you buy a Mercedes Benz you got a lot of value out of driving no I don't know why anybody would get any great pleasure out of that but maybe it's pride maybe they think mercedes-benz is a new star somewhere in the sky I don't know but you can't directly associate the cost with the value but in the mutual fund business its how the returns are divided up between the marketplace and the investor so this is a hard business to do it in without giving up your profits Costco is not gonna give up theirs mm-hmm that's the power of George Norris tarjay mm-hmm which is my family name for target a couple principle principles of investing questions warren buffett at some point has said it turns out to be true of Motley Fool data as well Warren Buffett has said that if he had never sold a stock since he was 11 years old he would be a lot wealthier in Berkshire Hathaway shareholders would be a lot better off we looked at all of our investment results of the Motley Fool if we had never recommended a sale the overall net returns would be better particularly if you factor in cap capital gains taxes and the time and energy and emotion of trying to figure out when to sell something and buy something else does that align with how you think of Vanguard do you think the best thing that somebody could do if they came in at 25 years old for their first Vanguard account in their 401k or in an IRA if they just bought and said well you know I saw this interview and Jack said I should just never sell that no matter what happens out there in the world just keep adding money and never sell is a good principle I'm sure that's right and then you want to be sure you're on a broad-based index fund and I would say traditional index fund you can buy a vanguard ETF exchange-traded fund for the S&P 500 it's part of the same identical portfolio the 500 portfolio we have here which is largely owned by traditional index fund holders and to a smaller extent maybe 20% owned by education traded fund same product more or less the same price and if you hang on to it doesn't matter what you do so you hang on and I'll give you one little example the lawyer for the underwriters in our initial underwriting in 1976 one of the greatest flops in the history of Wall Street the underwriting or the lawyer was a lawyer not only underwriting excuse me question and we had a 40th anniversary lunch the other day and not too many of them left they don't seem to be quite as parties as you know who and he said that he bought a thousand shares he wanted this tragic underwriting tiny it was like an 11 million dollar 11 million and what would the expectations well he did the what he said was you know we were sure we could do 250 million mm-hmm and then we got a pretty good chance at 200 million looks like 150 million is in the bag and if we reach just a little bit more strongly we'll get to 100 million and 50 million want to be Duck Soup and I know we could get 25 million in the check comes in and that's 11.3 and so he felt badly about did then he'd made a nice fee I guess from it and so he bought a thousand shares at fifteen dollars put in fifteen thousand and he brought a statement to the meeting that's great he's held it ever since and he has paid any taxes out of his own pocket income taxes and at the outset we had a few more capital gains taxes but not very many and I don't think we paid a capital gain distributions I don't sell anything for probably 10 year 20 years now something like that and I'll ask you fifteen thousand dollars in 1976 what they have today okay I'm gonna say that he has fifteen thousand dollars I know you're supposed to be asking the questions I'll say he has a hundred and six thousand well what a great guess come I'm way off darn it now of course I'm Way off I'm not even close no nine hundred and thousand dollars yeah nine hundred and three we're gonna edit that out edit your plaque I'm by saying nine hundred give or take three yeah that's that's brilliant the best guest I've ever heard well I remember reading about Shelby Davis I don't know whether you knew Shelby Davis senior they get big giver to Princeton University okay yes okay your alma mater in stocks and yes he and he he had started with fifty thousand and he came up with a principle I should never sell because the worst thing you can do is lose a huge winner yeah saving yourself from losses is minus a hundred at worst and that's rare but if you miss the huge great long-term winners and he turned fifty thousand dollars and he was did twenty four percent a year of course he used margin but he died with nine hundred million dollars from that fort forty five years later so well I feel really sorry for I think about it could have been a video exactly that's so close what what about risk how do you assess risk if if we're now saying Oh put your money in let it ride add to it over time start with fifteen thousand you find yourself forty years later you're gonna have nine hundred thousand dollars or something approximating that depending on how the overall market does in the next forty years but what about larger risks what risk could reasonably threaten that in the next forty years or are you telling your grandchildren in their 20s now just go with this game plan well I do for my grandchildren they can change it when they get they don't really know how much money I put a way for him over all these years and I always put it in balanced index fund sixty percent S&P 500 or total stock market I should say and sixty percent total Baltic Sea Singapore yet you said last time we talked that anyone watching could put all of their money into that one fund and make it their sole investment sure to our life now it's conservative and it protects you against your emotions because when the market goes way down stock market goes way down the bond market actually usually goes up a little bit under that circumstance so the the we have investors have behavioral problems and they panic if their if their account goes down 50% an account like this probably goes down 32 or 3% so you don't get exposed to the worst of it there's no question than 100% stock portfolio will do better in the long run I mean that's just the numbers as stocks will return over the long run not every 25 year period but probably 3 out of 4 stocks will return more than bonds there will be the highest returning investment because they have a higher risk now what is risk let me tell you what it is not it is not volatility we use volatility to measure risk you know if the market goes up let me say when we're down 25% and you own the market that's what you do if you want to reduce the volatility and a balanced fund you know you maybe go up or down 15% and if you want to get an extremely aggressive fund maybe up and down 40% but it's symmetrical and fairly symmetrical and so that's a way of measuring but it's a short-term thing in a long term the risk is you may lose one hell of a lot of money if you started buying stocks in 1919 or 1920 or 1918 you were doing fines for 1929 and then you lost 90% of your money in an all-stock portfolio and it took you another 15 years to get back to even or something yeah actually a little more than just about right just about right 15 years mid 40s and so those kind of risks are big risks and the risks that we can't measure there are risks that come from things like what is the probability that our society will collapse what is the probability that with all the undercurrents that are going on in American society between the haves and have nuts nots and he has the Serperior larger races and the minorities those those gaps are very wide and I'm I'm deeply concerned do we may get in some real trouble and that's why I describe myself as so conservative that I'm liberal I want to protect our society and therefore I want to protect those segments of society that haven't been treated fairly the best of our ability and then there are the known risks like nuclear war worldwide disease plague kind of thing religious uprisings the things that we know about and worry about today and then as my fellow Princetonian Secretary of Defense Donald Rumsfeld says those are the known unknowns and what about the unknown unknowns and of course since there are unknown we can't comment on that mmm about that but none of those unknown unknowns or none of those big risks cause you to change your investment approach I guess because the assumption is if the market goes down 90% on the Bogle family portfolios that there are so many other problems in the world it's probably not going to be make a break thing for you that your stock portfolios know as a wise man once said if there's nuclear war it won't matter a hell of a lot where they own stocks or bonds it's going on society is going it's frightening think about and I think that given the enormity of these kind of risks that I've described on the unknown risk that we really don't know ever you know we don't know what they are which is kind of frightening but invest you must as I've said to people probably on television or interview this kind of thing the one way to assure the value of your retirement plan is zero is to not invest a penny and zero is guaranteed so you have to put your money to work in the extreme circumstance you know even cash is not gonna help you it's not gonna be anything any good if they nuclear bombs start going off the frightening fragile world that we live in so you can sit and worry about it every day and you know in certain respects if you like to worry it's good thing to worry about but you kind of have to get on with your game prepare for the future I hope that those extreme risks don't come home to roost I want to give you three one-liners that I've heard from investors in the last six months six years since we started the Motley Fool throughout life you'll hear lines like this and I'd like your quick reaction to each of them stock market is just a big gambling machine and it's probably raid too so I don't invest in the short-term the stock market is a casino that's correct in the long run it is not a casino it's the machine for compounding interest and returns which as Einstein said is the greatest miracle in financial history I tried to convince Daniel Kahneman the Nobel Prize winner that the market is more predictable in the long term and he was he wasn't really buying it well you know that's like everything else of all the Pens the idea that what is totally unpredictable in the short run is more predictable in the long run is a little insane when you think about it but there are internal dynamics to the market they will prevail as long as the nature of our society prevails that is corporations serving consumers serving corporations serving government will make money and if they innovate if they become more efficient if they have a lot of entrepreneurship on their side and if they're technologically welcome well qualified even leaders they will do fine but there's always that big if that hangs over and any investor that disregards that big if is making a big mistake you know I think about it but do i crawl into a hole and take my money with me such as it may be I'd be more worried about someone digging up the grave and taking it away from me while I'm lying down there next one is when it comes to investing I just give my money to my friend Frank over at name your big Wall Street bank I don't really know what they're doing but ooh such a friendly person I sure that they're taking care of my finances for me I mean the huge majority of people don't want to deal with this subject it's like dentistry for them and if they can outsource dentistry they're gonna be very happy to do so and they turn to their college friend or a friend of a and who happens to work in a big firm and has been trained to be very friendly with them and they're just gonna hand the money and and say please don't lose it Frank and I trust you look at the numbers how is Frank doing for you how is he done for his other clients why is he trading all the time because that's good for him and not good for you so you should basically this is not a this is not a personal matter about finding a friend as they say in Washington you know this Tom if you want a friend in Washington get a dog and you wouldn't do this with your dog and I don't think you should do with your friend either these are honest people by and large they don't really realize that the more they trade more that you trade the less way you do so activity is essentially the curse of Wall Street if there's no activity in Wall Street there is no money in Wall Street every day all those mmm 30 trillion dollars of stock that's trade changes hands something like that [Music] one person's buying one person selling it creates no value it's just value from A to B or from B to a and this the system of Wall Street takes its cut out of the middle so the gambling and the casino comes up again you know the croupier is of wall street like the croupier is of Vegas as it's called I believe it's Las Vegas he said and you know they all the betters that bet read and all the betters that bet black or equal and but they don't divide up the returns because there is the croupier and he's got this rake then he pulls his off the table so love Frank buy him a drink every once in a while encourage him to tell you the latest jokes which you would probably do if he was the broker but think about investing is a long-term thing that doesn't involve any trading whatsoever mmm I wanted to talk a little bit about leadership started Vanguard and have been here at this organization for decades as an investor looking out the world I observe and I think there is data to show that companies that are run by their founder in the public markets end up doing better than the markets average on turn on get better than markets average return you have Howard Schultz to Starbucks you know you have gates at Microsoft all those years Buffett and Berkshire so what do you think why have you remained with Vanguard all these years I mean you set it up the system that you created is running and scaling probably I don't know if it's to greater dimension than you ever expected or not of course it is so what is it that's driving you at 87 my grandfather went to work every day until he's 94 and what's causing you to come to work every day well I love helping the shareholders I really do I hear from them literally every day to the point where if I haven't gotten a nice shareholder let everybody knew and I will say Emily Inc you could check the inbox and they keep you going and our crew here keeps me going I spend a lot of time with them and spend an hour with each just one on one with each award for excellence winner I did probably three anniversaries last week I go and so to celebrate with the 35th anniversary for example happen to be a woman and so they have all the staff there so I get to talk to a whole bunch of people and try and sure that this legacy of the kind of firm that we want to have based on those Quaker values service efficiency economy patience well not so much patience patience they're not for me and so it's carrying on the mission with your child and you know the you couldn't run the company or not running as they are but you're still the father of the firm you're still the founder of the firm's you mentioned and so you keep that spirit alive and try and use what is left of you to a lot of what's left of your life might be a little happier formulation to help the people you've been helping all these years and you know I'm not starving to death you know I haven't fill up a nice little amount of capital and be embarrassment to tell you how what it was we have enough to coin the phrase of the name of one of my books and we don't need anymore things and my wife is not a spendthrift at all we're agonizing about we have a fairly large charitable budget and agonizing about where it all goes right now and so we we we kind of choose up give a lot of money away and a lot for me and we love doing that too so it's been good in every way and you know a name and reputation is something you can't quite take with you but you certainly can't take the doremi with you too uh as my brother-in-law died before I did he was a year or so younger said if you can't he made a lot of money in this business by selling their company a couple times investment advisory company he said you can't take it with you I'm not going but he went anyway what do you think of succession here you know I know that there's over the next 50 years maybe there's an effort to D mutual eyes the company or the the mutual I think of Albert Barnes the Barnes museum state of Pennsylvania and you wouldn't have thought that his trust could be penetrated but it was so how do you set things up and with the greatest chance of playing at playing out your vision well I think it actually speaks for itself the shareholders know how well they've been served they increasingly understand what we mean by a mutual company they certainly know what we mean by low-cost and if you were gonna de mutual eyes you'd have to pay them something and it would be complex it would be contra to the system and for all our concerns about protecting it there's never been any more successful company in this business than we have been in terms of total money generated the only difference is that is generated for our mutual fund shareholders and not public shareholders our financial glamorous an old mutual fund management or anything of the like so the money's going on the right place it's right there without him Smith was the principal role of the manager is to share used to serve the shareholder we all know that and it's a great business strategy you know it's it's frightening to think a billion dollars a day think about that coming in here we used to have a party every billion dollars at the beginning and I'd make a speech I don't know that I could really make you'd be partying every day well yet 240 because I'm counting business names I mean might as well be clear on this and you know my voice is a little can't really do that probably every day hello I'd give it a try but I think the perpetuation of this system it has been so successful that it would it would be almost inconceivable almost inconceivable for anybody to recommend that it be changed and inconceivable for the shareholders to vote in favor of it you know we can't just arbitrarily do what these shareholders or in fact our owners so I I think it is not good not very likely to happen and I don't want to think about turning over in my grave it does or just say be sure and bury me face up so when I scratched my way out I'd be going on the right direction I've got a couple crazy ideas and thoughts for you and I want to hear what you think about them one of them is with all of the last time we talked you talked about the index fund being a truly disruptive disruptively innovative creation I also now see in the technology trends you know all the conversations about artificial intelligence autonomous cars that drive us wherever we want is Vanguard really the organization and are you the person that created the first robot robotic expression of investing to a world where it's possible that your 19 year old grandchild may have all of their money managed for them by technology they simply enter their basic data questions that they need to answer and then a car a financial car drives all their financial decisions going forward through algorithms and personalization and automation well you know I think they put a cloak of complexity over a system of great simplicity you know the big Robo advisors betterment and wealthfront aren't doing all this trading as though they're giving you a decent asset allocation and one of their claims is I've never seen exactly how it works but how to be very tax efficient you know you get a capital gain here you need capital loss there and that's probably something to that but I can't imagine it's that big and certain override the initial experience is setting an asset allocation you I don't think well I shouldn't say that I will say this some people really need that some people really need a hand-holding and you don't get that in Robbo everybody needs a little help and asset allocation but you can figure it out it's not very complicated but I mean will Vanguard 15 years from now will I be able to type in my information and even though my life may change it just navigates with my life based on the questions that I'm answering on the first day of every year well not a lot changes in your life you know when you get older you're probably should have more bonds and less stocks that's that's this age rule that we've talked about but the fine-tuning of this the ID you need a robo to tell you whether it'll be 60% in the stocks or 61.3 or sixty seven point eight or seventy it's just silly you know you should probably be 60 or 70 or maybe 60 or 65 or 70 and adjust to that over time you know you don't mean if you think you know cutting it by ten percentage points let's say from 70% stocks to 62 think you can do that as the market reaches a peak and then get back in when the market reaches the interim a lot of mistakes were made just crazy well I guess what I'm really trying to get at is do you think technology is going to displace I mean in a way Vanguard has you have three three and a half trillion dollars under management in 16,000 employees any other company that in financial services that had three and a half trillion under management would have many more employees than that because of the systems that they created haven't you created a Quaker a Quaker ish system of so much efficiency that could roll in to financial advice and financial planning with tools that make it easier and easier for somebody to do this like they're at an ATM machine rather than sitting in a chair with somebody we do Robo here and it's by far the largest such call it Robo I guess in the industry like 35 or 40 billion dollars and wealth fronts and betterments are probably maybe 10 billion between them and so we have a natural market here for people that need that service or think they need that service and it's a little more costly because we do have a representative you can call on you have a name that you can know and talk to and whether people are using it a lot I just don't know enough about what's going on there at the moment but so you can do that here if you want to a lot of people think they need that but on the other hand a couple of years ago I was doing an informal survey of the Bogle heads about 225 of them come in here every fall and listen to me for a painful amount of hours for them not for me I love doing it and they're a wonderful group of people and I said how many of you have Advisors raise your hand nobody not one mm-hmm why give up that 1% mm-hmm what about indexing the private markets is that possible it would be it would be a really legit accounting thing to do but to basically find a way to get equity in by capitalization and private companies and allow people to own that well you there's really no I mean I guess you could sort of index that but I don't know how you get your hands on the private market stocks I mean Kohlberg Kravis he's not gonna give it to you and I guess Roberts I don't think he's around anymore but you know you won't be able to access it's private so you can't buy that you know your 5% of that particular private placement so and I'm not sure how good all that is anyway you know the private thing that's going through in great times there's a lot of leverage in that system and right now that with interest rates at these levels where they've been for quite a few years makes it very cheap to borrow and leverage a private company and it looks like rolling awful long it's so easy when times are good when times are bad like Texas utilities you know that's fifty five billion dollar I think privatization and it's failed everybody lost their money there's no easy way this is a hard business so the the best way to win is to own everything and hang on to it through Warren Buffett's favorite holding period and Warren Buffett as you know puts his money where his mouth is and has his trust for his wife ninety percent invested in the S&P fog bank guards S&P 500 index alone what do you think can be done to get more women to invest around the world when you look at most investment companies when you look at the demographics of brokerage accounts I mean the first thing you see is that women actually outperform men because for a variety of reasons but the data seems to suggest that they're trading quite a bit less that's exactly right and that's maybe they don't have as big an ego and believe that they can they can make a better decision next time or I think it's a matter of you know women catching up generally with the idea of investing because the breadwinner has always been traditionally been the husband that's now radically changed and here at Vanguard I think roughly 50% of our crew members and 50% of the managers and 50% of the next level up or women and so the distinction is is kind of vanishing and I think that's good what about children in investing did your kids grow up with you giving them investing principles and they put a little savings aside well me what I do is I do it for them I don't I don't get into those into that you know I put away money to educate them and then of course I was making enough money to educate them later on so they all have Vanguard balance index fund and in a trust and how much is in it and I've basically am the type of parent that was much more concerned about them observing what I actually did rather than what I said so and the two boys are in the investment business and at least one of my daughter's is totally knowledgeable about it she's always the treasurer of his school or whatever she's doing she's very active young woman well not so young should be 60 this year what does that make many I don't want to get into it but I've never said now we're gonna talk about lessons maybe I should have sometimes I wonder but it's more osmosis can we close with a story maybe that comes to mind of a client a vanguard customer that's memorable to you maybe a story of a great of a great Vanguard employee that comes to mind and then a story in your memory of your times here that stands out so three three short narratives of a client that's been delighted I don't know if you've ever come across the concept of conscious capitalism or you've heard that term but the idea being you really have to be transparent and serve all of the stakeholders of your organization if if it gets imbalanced and one is getting a much better advantage than the other things will wobble and that structure will start to fall you'll lose the integrity of your organization so in a consciously capitalistic way can you tell a story of a great client story a great employee story in a story from your experience well I've got so many I don't know where to begin let me try the client I'd been in correspondence over the years when the airline pilot who'd retired and I said look keeping reinvesting your money put a lot of money over a lot of time to add to it if you can and don't peek that's the one rule I want you to because if you peek don't ever open a 401k statement till you retire you better have a cardiologist standing by because you're gonna go into a dead thing you might even have a heart attack you're gonna have so much money so he retired and wrote me about ten years later and he said dear mr. Bogle I peaked and you were right and thank you and thank you sure yeah employee story when you probably you probably saw a good example of that at noon when a young man that worked for me Jim Norris then I mean he was young men worked for me for six years and he now runs our international operation and I was always into detail and I'll tell you this funny story about Jim which is I think he even tells he used to wear this really lousy looking suit to work and you know it's kind of nubby and the coat was square down here maybe double-breasted it's the worst looking thing you've ever seen and I don't want to get into that but I called him into the office late one day and I said Jim we live in a very unfair world we are judged by how we look and Jim were also judged by what we wear and it's a very unfair world I know that but I think it's very important you dress well when you're here every day and I want you to get rid of that damn suit and he said well I if I'm having a client meeting that day or in any kind of meeting with my fellow crew members I wouldn't wear that suit and I said no Jim you don't get it never wear that suit get rid of the suit I don't know if you I mean I'm sure you know and now he runs our entire day wearing a scarf and he was very stylish he dress or throat or what the st. Joe's is worried about the college st. Joseph's College here and the st. Joseph's University I guess it is and those were the president of the university and they financial be paid there in the cafeteria so in the galley thank you yeah and the third one was a story of your own my favorite story is this was funny it came up in this video did that they did of me on Saturday night and it shows these three BOGO boys I had a twin brother and 2e and we were cavorting down at Bay head New Jersey and we looked really young you know Bermuda shorts and all that kind of thing sneakers and you know we didn't have those funny things kids wear today with the talk song kind of things on their feet you know what do you call them flip-flops flip-flops those rocks pretty pretty pretty say and so is a picture of the three of us taken there and my older brother was 37 and my twin brother and I were 35 and I was always the youngest looking at one of the bunch and so I look really really young in that picture and it happens that's the exact age I was when mr. Morgan called me into his office and said Jack I want you to take over the company and I want you to do whatever it takes to solve the problems we're facing and I immediately thought boy you sure picked the right man to do that ha very self-confident too self-confident maybe and did well I thought to do one and after a long string of unusual events including my firing out came Vanguard so that's the kind of memorable at age 35 turn in my life I could give you another one which is after I got my heart transplant you're pretty shaky that first couple of minutes when they come out of the anesthesia and my doctor said do you remember the first thing my surgeon said you remember the first thing you said when you saw me and I said no I didn't remember saying anything he said you said get me a pad and paper which really links back to close to your love of Alexander Hamilton yep and his use of the written word use of the written word you tackle all sorts of problems and challenges and attempt to teach and persuade and influence and you've been doing that in this room and at this company for well I mean 65 years 65 years it's amazing for someone 55 to be able to do all that when they're 65 well that's your heart that's not your heart I started 10 years before I was born well and he'll be continuing for another 50 years after you're gone whenever that happens well I'm not going there's there gonna be no different disappearance than the Bogle Research Center at Vanguard I feel confident of that because of the ideals that you were presenting to the company too but won't they have to change the name I don't see why they would do that how about the Alexander Hamilton Jack we'll research I'd like it thanks very much jack thank you something fun to talk to you

Channel: The Motley Fool

Views: 188,953

Rating: 4.922225 out of 5

Keywords: Stocks, Investing, Invest, How to Invest, stock picks, stock news, Stock Market, stock market news, investing 101, dividend stocks, stock, investor, Wall Street, investors, investing ideas, finance, business, investment plan, fool.com, The Motley Fool, jack bogle index funds, jack bogle investing advice, jack bogle vanguard, is vanguard a good investment, why index funds are better, index funds for beginners, why vanguard is the best

Id: MLgn_kVKjCE

Length: 51min 13sec (3073 seconds)

Published: Thu Jan 17 2019