Jack Bogle: Volatility is NOT Risk

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 15,000 you find yourself 40 years later you're gonna have nine hundred thousand dollars or something approximating that depending on how the overall market does in the next 40 years but what about larger risks what risk could reasonably threaten that in the next 40 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 away for him over all these years and I always put it in balanced index fund 60% S&P 500 or total stock market I should say and 60% total bollocks 64 yeah 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 about 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 in the the we have investors have behavioral problems and they panic if they're if they're our account goes down 50% an account like this probably goes down 30 2 or 3 percent of so you don't get exposed to the worst of it there's no question that 100 percent 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 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 long-term the risk is you may lose one hell a lot of money if you started buying stocks in 1919 or 1920 or 1918 you were doing fine through 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 in 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-nots knots and the has the superior larger races of the minorities those those gaps are very wide and I'm I'm deeply concerned that 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 done 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 a hell of a lot with the own stocks or bonds let's go on society is going it's frightening think about and III think that given the enormity of these kind of risks that I've described on the unknown risk that we really don't know her you know we don't know what they are and 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 going to help you it's not going to be anything any good if they're nuclear bombs start going off so 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 you [Music]

Channel: Investor Talk

Views: 8,796

Rating: 4.9055119 out of 5

Keywords: Jack Bogle, Investing, Stocks, Risk, Portfolio, Diversification, Philosophy, Vanguard, Business, Investments

Id: AcXTdSL1F7I

Length: 5min 38sec (338 seconds)

Published: Mon Jul 15 2019

Reddit Comments

[u/gtaguy_]

Legandary man....thanks for sharing

[u/mdecav]

Very valuable info. I can’t stop staring at the fingers on his right hand.

[u/Diplomatt_]

I wanna be that with it at that tender age

[u/abcxyd]

Risk is multifaceted and volatility is just one measure.

[u/MerryWalrus]

Volatility is not risk.

But it's the closest objective measure there is to it and good luck convincing someone you're not making things up if you disregard it. Doubly so if the implied volatility of related derivative position isn't aligned either.

[u/Bromskloss]

I'm not sure I think he made the distinction clear enough. He says that risk is the possibility that you may lose a lot of money, but surely, you can do that due to market movements that are described as volatility.

[u/EQHeadquarters]

Insightful. Dovetails interestingly with this article by Two Century Investments on volatility vs risk which, tldr, "risk is what one fails to prepare for adequately"

[u/sh0t]

I agree with Mr Bogle.

I make a distinction between risk and uncertainty.