Once derided for his index funds, he now finds those kinds of funds are the mutual fund industry's bedrock.
John Bogle, founder of Vanguard, a mutual fund company, at the company's offices in Malvern, Penn., Jan. 25, 2012. After at least six heart attacks and one heart transplant, Bogle has managed to witness a triumph with his company, which was once derided for not even trying to beat the market with its index funds that are now the industry standard. (Jessica Kourkounis/The New York Times) -- PHOTO MOVED IN ADVANCE AND NOT FOR USE - ONLINE OR IN PRINT - BEFORE AUG. 12, 2012. --
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, Bogle has managed to witness this triumph. "It's all 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? He says this is the worst time for investors that he's 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," 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 as risky as the market might 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."
During the financial crises of the last several years, he said, 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.''
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."
Too much money is aimed at short-term speculation -- the seeking of quick profit with little concern for the future. The financial system has been wounded by a flood of so-called innovations that merely promote hyper-rapid trading, market timing and shortsighted corporate maneuvering. Individual investors are being shortchanged, he writes.
He advocates taxes to discourage short-term speculation. He wants limits on leverage, transparency for financial derivatives, stricter punishments for financial crimes and, perhaps most urgently, a unified fiduciary standard for all money managers: "A fiduciary standard means, basically, put the interests of the client first. No excuses. Period."
Bogle sometimes disagrees with current Vanguard management, but he remains proud of the company he created. Index funds are ever-more popular, and Vanguard is gushing money, torrents of it. Thanks largely to its various index funds, Vanguard, based near Valley Forge, Pa., pulled in a net $87.7 billion in cash this year through June, excluding money market funds. That's nearly 40 percent of the cash flow of the entire mutual fund industry.
Burton Malkiel, the Princeton economist and author of "A Random Walk Down Wall Street," said: "Index funds are so popular now that it's easy to forget how courageous and tenacious Jack Bogle was in starting them. They were called Bogle's Folly because all they did was replicate the returns of the market. But, of course, that's a great deal. In the academic world, many people saw the wisdom of this -- but Jack is the guy who actually made it happen."
Bogle also tried to ensure that Vanguard funds would always be inexpensive to buy and hold. While Vanguard is his baby, he has never had an ownership stake in it, aside from the shares he holds in its mutual funds. Vanguard fund shareholders own the place collectively because he planned it that way.
"Strategy follows structure," he says, explaining that with no parent company or private owners to siphon profits, Vanguard can keep costs lower than anyone else. "The only way anyone can really compete with us on costs is to adopt a mutual ownership structure," he said. "I've been waiting all these years for someone to do it, but no one has."