MARIA: WELCOME BACK. OUR NEXT GUEST IS A LEGEND IN THE INVESTING WORLD, JACK BOGLE FOUNDED THE VANGUARD GROUP IN 1974, TURNING IT INTO THE LARGEST MUTUAL FUND COMPANY IN THE WORLD. THE VANGUARD 500 INDEX THAT BOGLE STARTED AND CREATED IN 1975 WAS THE FIRST LOW-COST INDEX MUTUAL FUND DESIGNED FOR THE AVERAGE INVESTOR. JACK NAMED BY FORTUNE MAGAZINE AS ONE OF THE FOUR GIANTS OF THE 20th CENTURY IN THE INVESTIGATIONMENT INDUSTRY. INVS INVESTIGATIONMENT INDUSTRY. INVM INVESTIGATIONMENT INDUSTRY. INVN INVESTIGATIONMENT INDUSTRY. INVT INDUSTRY. HE'LL TALK TO US ABOUT HIS NEW BOOK. JACK BOGLE IS WITH US THIS WEEKEND. THANKS FOR JOINING US. >> MY PLEASURE, MARIA. ALWAYS. MARIA: LET ME START OFF WITH NEWS OF THE WEEK. THIS WEEK WE LEARNED THAT HOUSEHOLD WEALTH REACHED A MILESTONE, JACK, $100 TRILLION. AMERICANS WEALTH SURPASSED $100 TRILLION MARK FOR THE FIRST TIME EARLY THIS YEAR, WHICH IS AN INCREDIBLE NUMBER AND THAT HAS TO DO WITH STOCK INVESTING AND THE PRICE OF THE HOMES. JACK BOGLE, YOU ARE THE PIE MERE IN THIS BUSINESS. WHAT HAS CHANGED SINCE YOU STARTED VANGUARD? >> I GUESS I WOULD START BY SAYING EVERYTHING HAS CHANGED. THE MUTUAL FUND BUSINESS IS A TOTALLY DIFFERENT BUSINESS. IT'S NOW PROBABLY 70% OF THE CASH FLOW, SOMETIMES 100% OF THE CASH FLOW IS GOING INTO INDEX FUNDS, WHICH ISN'T EXIST WHEN I STARTED VANGUARD ALL THOSE YEARS AGO. AND INDEXING IS UP TO I THINK AROUND 45% OF MUTUAL FUND, EQUITY MUTUAL FUND ASSETS. SO IT'S BEEN A REEVE SO IT'S BEEN A REVVE SO IT'S BEEN A REVOLUTION, INDEXING HAS, AND IT'S CHANGED THE NATURE OF HOW PEOPLE LOOK AT INVESTING. AND MOST IMPORTANT OF ALL, IT'S MADE PEOPLE START TO THINK ABOUT COST. COST IS EVERYTHING IN THIS BUSINESS. BECAUSE WHEN YOU THINK ABOUT IT, WHERE ARE RETURNS GENERATED FOR WE INVESTORS. THEY'RE GENERATED BY CORPORATE AMERICA. THEY EARN MONEY, THEY PAY DIVIDENDS, THEY REINVEST THE REMAINED NER THE BUSINESS AND THAT'S WHERE VALUE IS CREATED. THE FINANCIAL MARKETS ARE THE WAY WE ACCESS THAT VALUE. BUT THE FINANCIAL MARKETS DON'T GIVE US ALL OF IT. THEY TAKE THEIR SHARE FIRST AND THEN GIVE US WHAT'S LEFT. BEING WE INVESTORS. SO ANYTIME YOU CAN SHORTEN THE GAP, BRIDGE THE GAP, MINIMIZE THAT GAP IS A GOOD THING FOR THE AMERICAN INVESTORS. MARIA: YOU MAKE A GREAT POINT ABOUT COST. PEOPLE ARE NOT FOCUSED ON THAT UNTIL YOU PUT IT FRONT AND CENTER WITH SUCH LOW FEES AT VANGUARD AND NOW YOU'VE GOT INDUSTRY OF INDUSTRY TRYING TO COPY VANGUARD, WHETHER IT'S THE INDEX INDUSTRY OR BROKERS TRYING TO TAKE TEAR FEES DOWN. IS THIS A RACE TO THE BOTTOM, JACK, IN TERMS OF HOW LOW FEES ARE GONE? >> WELL THAT'S REALLY A GREAT QUESTION, MARIA. MOST OF THE FEE COMPETITION IN TRUTH IS IN THE ETF, EXCHANGES TRADE AND FUND AREA, BECAUSE THAT'S WHERE A LOT OF THE ACTIVITY IS, A LOT OF THE CASH FLOW IS. AND THE COMPETITION IS MODERATE FOR ACTIVELY MANAGED FUNDS AND REALLY VERY LIGHT FOR WHAT I CALL TRADITIONAL INDEX FUNDS, TES, INDEX FUNDS, TIFs, I SHOULD SAY, INDEX FUNDS OF THE TYPE I STARTED IN 1975 THAT ARE BOUGHT AND HELD TOGETHER FOREVER. LET ME EXPLAIN IT THIS WAY. WE CHANGED THE BUSINESS, THE INDEXING BUSINESS FROM AN INDEX PASSIVE INDEX HELD BY PASSIVE INVESTORS TO PASSIVE INDEXES HELD BY ACTIVE INVESTORS. A LOT OF TRADING GOING ON IN ETF LAND AND THAT'S NOT SUCH A GOOD THING. THAT'S WHERE THE COMPETITION IS, BECAUSE YOU CAN MAKE MONEY STARTING A LITTLE COMPANY, I CALL THEM FINANCIAL BUCCANEERS, TRYING TO FIND A LITTLE HOLE THAT NOBODY ELSE HAS FILLED, A LITTLE NICHE IF YOU WILL. AND IN THE OTHER -- THERE'S NOT MUCH APPETITE IN THE TRADITIONAL INDEX FUND BUSINESS FOR LOWER COST BECAUSE, AS I SAY, OFTEN SAID, THE PROBLEM WITH INDEX. FUNDS IS ALL OF THE DARN MONEY GOES TO THE INVESTORS. AND THE MUTUAL FUND BUSINESS IS A BUSINESS THAT IS PEOPLE COMING TO THE FUND BUSINESS TO MAKE MONEY FOR THEMSELVES AND THEIR MANAGEMENT COMPANIES. THEY WANT TO MAKE MONEY FOR THEIR INVESTORS, SURE. BUT THE MORE THE MANAGEMENT COMPANY TAKES TWB LESS THE INVESTOR MAKES. MARIA: AND THAT'S THE ISSUE. A LOT OF PEOPLE DON'T REALIZE THAT. THE FIRST QUESTION IS HOW MUCH IS IT COSTING YOU. THE MONEY IS COMING OUT OF YOUR RETURNS. JACK, HOW DO YOU ANSWER THE CRITICISM -- I SAW IN YOUR INTERVIEW RECENTLY ABOUT THE CRITICS OF THE INDEX FUND TODAY SAYING THAT YOU'RE NOT ALLOCATING CAPITAL PROPERLY. IT'S BECAUSE THE BIGGEST STOCKS MAKE UP THE BIGGEST PERCENTAGE OF MOST OF THE INDEXES, MIKE VOFT, 3.2% OF THE S&P 500 AND WALMART IS HALF A PERCENT. NEW MONEY MEANS THAT THE LARGE STOCKS TAKE A PROPORTIONATELY MORE MONEY THAN OTHER STOCKS. SO IS THAT DESTABILIZING? >> THAT'S NOT ONLY NOT DESTABILIZING, MARIA, IT'S NOT TRUE. IN OTHER WORDS, IF WE HAVE 4% OF ASSETS IN ALPHABET OR GOOGLE, WE PUT 4% OF OUR NEW MONEY INTO THAT. IF WE HAVE HALF A PERCENT IN WALMART, AS YOU SAID, WE PUT HALF A PERCENT, IT DOESN'T CHANGE THE EQUATION. WE'RE INVESTING BASED ON THE MARKET VALUES OF THE COMPANY. AND WHEN THE PRICES GO UP, THE PRICES GO UP IN THE REGULAR MARKET, IF YOU WILL, BY INDIVIDUAL INVESTORS, BUT THEY ALSO GO UP FOR THE INDEX FUND. MARIA: OKAY. >> RISING PRICES CREATES ZERO
