Investment guru John C. "Jack" Bogle, in his last major interview, warned savvy investors that the seemingly endless current volatile stock market isn’t a safe place right now for anyone.
Bogle, whose family’s struggles during the Great Depression led him to pioneer low-cost investing and to found Vanguard Group, now the world’s biggest mutual fund firm, died on Wednesday at the age of 89, Vanguard said.
Bogle late last month told Barron’s investors should prepare for 2019 by decreasing exposure to stocks and increasing investment in defensive strategies, such as fixed income securities like bonds.
“Trees don’t grow to the sky, and I see clouds on the horizon. I don’t know if and when they’ll arrive. A little extra caution should be the watchword,” he told Barron’s late last month.
In that final interview, Bogle explained that such “clouds” include large amounts of sovereign and corporate debt, the “great upheaval” in global trade, and “the mystery of Brexit, which will be very disruptive to the world trade system. Those things add up,” he said.
“It’s time to really be thinking how much risk you want to have,” he warned.
“If you were comfortable at a 70% to 30% [allocation to stocks and fixed income], under these circumstances you’d like to go back to 60% to 40% or something like that,” to provide more flexibility, he said.
Bogle did not believe investors for the long term should try to pull completely out and time the market, which he said is “a really dumb strategy.” Instead, he said it’s time “to really be thinking how much risk you want to have” and make some defensive moves.
“If I had a big liability in a year, I’d get prepared for it right now,” says Bogle. “You want to be able to fund it without pressure.” But for a long-term goal, such as retirement? “Keep investing, no matter how frightened you are.”
Despite ill health, Bogle was a vital presence through his later years as he pressed for reforms in corporate governance and fund administration, Reuters explained.
He often mixed sharp rhetoric with a wry sense of humor and established a reputation as a curmudgeon in his industry, at times at odds with Vanguard executives who eventually stripped him of much of his power within the organization.
Still Bogle, known widely as Jack, kept deep professional friendships and maintained a loyal following through his books and public speaking appearances. Some termed themselves “Bogleheads” in his honor and spread online his messages of thrift and investments in low-fee funds.
Even as Bogle’s health declined in his later years he remained a combative public presence, arguing that larger fund companies had grown too focused on their own profit rather than serving as stewards of their clients’ interests, including pressing corporations for better governance.
To be sure, Bogle wasn't shy in offering an often controversial investment opinion:
- Earlier in December, Bogle warned that investors need to re-examine their portfolios to make sure they have enough exposure to bonds to protect against what the investment legend calls an “unstable U.S. federal government” and a “Brexit debacle.” At that time, he told the London Financial News: “Investors are not paying nearly enough attention to the risks that could affect our markets: an unstable U.S. federal government, a Brexit debacle, and a U.S. stock market that remains at relatively high valuations.
- In November, Bogle warned that his own creation was getting dangerously big. The father of the index fund wrote in an opinion piece for The Wall Street Journal that it’s probably only a matter of time before they own half of all U.S. stocks. The "share of corporate ownership by index funds will continue to grow over the next decade" and warns that it is "only a matter of time until index mutual funds” cross the 50 percent mark. “If that were to happen, the Big Three [Vanguard, State Street and BlackRock] might own 30 percent or more of the U.S. stock market — effective [voting] control,” he wrote. “I do not believe that such concentration would serve the national interest,” he wrote.
- In October, Bogle said he didn't sink his cash into foreign stocks because he fears that maybe “they're undervalued because they're riskier.” Bogle told Morningstar that he does truly believe in buying American. “I'm just a great believer in a U.S. portfolio because we're the most entrepreneurial nation, we've got the soundest institutions, financial and otherwise, or have had in the past, governance is pretty solid, in the past at least, and a well-diversified economy,” Bogle said.
- In September, he urged investors to always remain "in" the stock market. He said that investors shouldn't try to time the market. "Never, never, never be in or out of the market. Always be in at a certain level," he told CNBC. Bogle explained that many investors sold their stocks when markets took a severe fall during the 2008 financial crisis, and these people missed out on all or part of the market's dramatic rebound since then, CNBC.com explained. "It shows you when you act on the emotions of the marketplace you're making a big mistake," he said. "Stay the course, don't let these changes in the market, even the big one [like the financial crisis] … change your mind and never, never, never be in or out of the market. Always be in at a certain level," he said.
- In May, Bogle predicted the once-flourishing growth in exchange-traded funds will stall and “a lot of ETFs will go out of business along the way.” Bogle said at the time he feared ETFs are purely speculative, encouraging selling at the bottom and buying at the top. The evolution of the index fund has created ETFs, which entice investors to trade, instead of hold for the long term, Barron’s explained. The turnover in ETFs alarms him: 785% in the 100 largest, versus 144% for the 100 largest stocks, Barron’s reported. “The difference between traditional index funds [what he calls “TIFs”] and exchanged-traded index funds are like night and day,” he told Barron’s.
- In April, Bogle said he hadn't seen such a difficult and tumultuous trading environment in his 66-year career when asked about last year's seemingly endless market volatility. "I have never seen a market this volatile to this extent in my career," Bogle told CNBC. "Now that's only 66 years, so I shouldn't make too much about it, but you're right: I've seen two 50 percent declines, I've seen a 25 percent decline in one day and I've never seen anything like this before," he said.
- In December 3017, Bogle wasn’t optimistic about the state of U.S. pensions over the next decade. He thought a conservative portfolio of bonds will only return about 3 percent a year over the next decade, and stocks won’t do much better, with a 4 percent annual gain over a similar period. This is “totally defeating” for pensions, which “are not going to be able to meet their 7.5 percent or 8 percent obligations,” Bogle said in a Bloomberg Radio interview that aired Thursday.
- In an exclusive October 2012 interview with Newsmax TV, Bogle warned that pension funds, and even customers who invest in them, aren’t prepared for the realities of investing in a low-return world.
- In November 2017, he urged investors to ignore cryptocurrencies. “Avoid bitcoin like the plague. Did I make myself clear?” Bogle, founder of Vanguard Group Inc., said in response to an audience question at a Council on Foreign Relations event in New York. “Bitcoin has no underlying rate of return,” said Bogle, 88, who started the first index fund in 1976. “You know bonds have an interest coupon, stocks have earnings and dividends, gold has nothing. There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it.”
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