John Bogle talk about retirement savings, investing, and indexing

Written April 24th, 2013

When John Bogle speaks, I like to listen. His simple, straightforward approach makes sense to me and has proven itself over time. As most people already know, he’s a big proponent of using index funds (which I like), a big proponent of rebalancing (which I like), and a big proponent of long term investing rather than speculating (which I like). Where we disagree 

is whether there are opportunities to stay out of trouble by following his advice even more closely. For example, Bogle often mentions that some parts of the market are always overvalued and some undervalued. On average, value stocks, beaten down stocks, low P/E stocks, etc. tend to be the ones that are undervalued. Couldn’t we, as investors, just invest in an index fund that holds the “value” portion of the market rather than the entire market? Bogle’s response is that sometimes growth will outperform, so don’t try to time it or play favorites. My comeback is that if investors are aware and comfortable with underperformance in the short term, they will be rewarded by sticking to Bogle’s states long term holding philosophy of an index with the comfort of knowing that value will revert (up) to the mean, while growth will revert (down) eventually as well.

In this recent interview, Bogle once again makes the point about fees (is anyone doing the research still convinced that hedge funds are a good asset class?), the challenges of retirement savings, and more. While I don’t agree with everything he says (e.g. I don’t want a new federal agency to monitors and limits which funds go into retirement accounts), it’s worth reading:

Interviewer: A lot of people would say: “Well, that’s boring. I can do better. I know an adviser who is making good returns, and if I go with that guy or that woman, I’ll do better.”

Bogle: Returns do not persist. … The good markets turn to bad markets; bad markets turn to good markets. Funds with hot performance, say Magellan, they peak. …

I’ve got a chart of about the eight most popular funds of the modern era. … They peak and then they fall, but you fall in love with them at the peak. Nobody falls in love with them when they’ve done nothing.

So the system is almost rigged against human psychology that says [if] something has done well in the past, it will do well in the future. That is not true. That is categorically false.

The high likelihood — there’s never a certainty in this — a high likelihood is when you get to somebody at its peak, he’s about to go down to the valley. The last shall be first and the first shall be last.

Relevant ETFs: SPY, IWM, AGG