New Jack Bogle Interview

[AdrianC]

Jack Bogle interview on the Masters in Business podcast 3/11/16. Well worth a listen.

http://www.bloomberg.com/podcasts/masters_in_business

[Seppia]

Big thanks for sharing

[NinetyFour]

Thanks.

[Rubic]

Wonderful audio!   Jack is a national treasure and it was a pleasure listening to his insights throughout the interview.

[misterhorsey]

Thanks for sharing. Great listen.

I wish Australia had an equivalent figure who could give such definitive advice! 

His advice to US investors to not bother with international exposure is well reasoned.  Non-US mustachians are better off getting US and international exposure however.

[Woody Viet]

Thought this might be interesting for everyone too

https://www.aqr.com/library/words-from-the-wise/words-from-the-wise-jack-bogle

[CRG]

Thanks for posting. Listed to it today during my commute and it was great.

[Holyoak]

Just gonna post this...  Thanks, it was a great interview, and thank god for Jack Bogle!...  Keep sticking it to high cost, low return investing.

[steveo]

That was good.

A couple of things that I disagreed with Bogle were:-

1. ETF's. I only use ETF's. They are cheaper than the fund options that I have available to me. Why not save more on fees. I also only use Vanguard ETF's.
2. Having all your money in the US. I'm Australian and the Australian market is much more concentrated so I like to have some international diversification.

Jack Bogle though is a legend. He really changed the investment world for investors. His common sense approach is something that I basically completely agree with.

[nobodyspecial]

A couple of things that I disagreed with Bogle were:-

1. ETF's. I only use ETF's. They are cheaper than the fund options that I have available to me. Why not save more on fees. I also only use Vanguard ETF's.
2. Having all your money in the US. I'm Australian and the Australian market is much more concentrated so I like to have some international diversification.

He said his objection was to people trading in/out of ETFs during the day, not buying and holding as MMM. I think that outside the US you can only buy Vanguard ETFs and not their mutual funds.

He specifically said that the US-only plan was for Americans - and the risks of holding foreign assets were political and currency, so those would be good reasons for holding US stocks as a non-American.

But I must say that his argument against holding non-US stocks seems disingenuous.

He said in the interview "if you had market cap weighted the world in the 90s you would have held 50% Japan and you would be sorry", but this is exactly the argument for an index fund. How is it different from saying today, "if you held a market cap weighted SP500 you would be massively tech heavy (Apple,Google,Facebook,Amazon) and you would be sorry following the great tech stocks crash of xxxx"?

His other point about how the US, and so an SP500, did better than other developed or developing countries in the last few years is classic back picking. I'm sure I can find some specific country index that has done better than the US over the last 10years if I'm allowed to look backwards

[steveo]

A couple of things that I disagreed with Bogle were:-

1. ETF's. I only use ETF's. They are cheaper than the fund options that I have available to me. Why not save more on fees. I also only use Vanguard ETF's.
2. Having all your money in the US. I'm Australian and the Australian market is much more concentrated so I like to have some international diversification.

He said his objection was to people trading in/out of ETFs during the day, not buying and holding as MMM. I think that outside the US you can only buy Vanguard ETFs and not their mutual funds.

He specifically said that the US-only plan was for Americans - and the risks of holding foreign assets were political and currency, so those would be good reasons for holding US stocks as a non-American.

But I must say that his argument against holding non-US stocks seems disingenuous.

He said in the interview "if you had market cap weighted the world in the 90s you would have held 50% Japan and you would be sorry", but this is exactly the argument for an index fund. How is it different from saying today, "if you held a market cap weighted SP500 you would be massively tech heavy (Apple,Google,Facebook,Amazon) and you would be sorry following the great tech stocks crash of xxxx"?

His other point about how the US, and so an SP500, did better than other developed or developing countries in the last few years is classic back picking. I'm sure I can find some specific country index that has done better than the US over the last 10years if I'm allowed to look backwards

I thought he said he was against ETF's because people traded them. I don't think he touched on the fact that in my situation the ETF fee is lower than the equivalent mutual fund fee. I can buy Vanguard funds. I think they are great. I can get a lower fee though if I purchase the ETF of the same fund.

I agree with you on buying the total world index vs the US total index. I think it is probably better to buy the total world if you want more diversification. Stating the US will continue to outperform is not realistic in my opinion and a little against his theory anyway in that stocks revert to the mean.

Still I don't think you'd go wrong as a US citizen in just purchasing a total US index and a US bond fund based on your risk profile.

[Seppia]

I agree the only weird thing is his argument anti-world diversification.
The whole point of index funds is to track market performance and be as diversified as possible.
Saying "us has done better" sounds very similar to "small cap value has outperformed, let's just buy that".

His anti ETF argument on the other hand is specifically related to trading, there's a moment when he says if one buys and holds he has no issue with that.

[MustacheAndaHalf]

I cheered when John Bogle said it's okay to hold ETFs for flexibility.

He brought up many points in favor of 0% international (disclaimer: I disagree!)... here's a couple:
1. US market regulations.  China halted trading for a month, the US hasn't done that.  Other countries could prevent investors getting their money back, which is less likely in the US.
2. Buying international developed markets invests 48% in 3 countries: Japan (22%), UK (18), France (8%).  He highlighted Japan's demographic problems with an aging population, where the US has less of a problem.  He mentioned the UK doesn't know if it will be better within EU or outside it.  And he poked fun at how often the French shut things down.  But he's trying to express the conditions in the US, for investment, are better than these 3 countries, which are roughly half your international developed investment.

While I disagree with John Bogle's stance on 0% international, I like to see his argument so I know what I'm rejecting.

EDIT: John Bogle recommends a few books: "The Intelligent Investor" (4th ed), "A Random Walk Down Wall Street", "Against the Gods", "Four Pillars of Wisdom".

[nobodyspecial]

1. US market regulations.  China halted trading for a month, the US hasn't done that.  Other countries could prevent investors getting their money back, which is less likely in the US.

And also pretty unlikely in UK, Germany or Canada. Markets which do crazy things are likely to be small and unimportant. China's market is tiny compared to it's economy

2. Buying international developed markets invests 48% in 3 countries: Japan (22%), UK (18), France (8%).  He highlighted Japan's demographic problems .....

This goes against the idea of indexes. It's country picking based on opinion and so is no better than buying IBM rather than HP because you like the look of their management. World market is about 60:25:15 US,developed and emerging - so these 3 countries are a smaller part of your portfolio.  The US market growth is dominated by 4 technology stocks, that would seem to be an even bigger risk. 

The argument that US companies trade internationally and so you have international exposure. Remember you are buying companies not countries, so GM and Toyota are in the same global market. I'm in Canada and so the same arguement would say I can own Blackberry+Bombardier and do as well as owning Apple+Boeing.

[Cycling Stache]

I have all my investments in US market index funds, and I always thought it was fine based on how much business the S&P 500 companies do internationally.  I checked quickly and it looks like in 2014 33% of revenue for those companies came from abroad.

I actually just put on my task list this morning to read some of the asset allocation threads to see about adding some international stocks and/or bonds, but based on the amount of revenue that comes from outside the US, it seemed generally right enough to me to have an S&P index fund (or VTSAX, which I understand to be dominated by the S&P 500 companies).

I realize things can be fine-tuned, but to some extent people like Bogle are pushing the idea that investing doesn't need to be hard, and doing one thing (e.g., buy VTSAX) beats many other options, including most significantly not investing for fear of not knowing exactly what to do.

[nobodyspecial]

I think buying only VSTAX is exactly the right thing to do because the US market is essentially a proxy for the world economy rather than because America is so superior to other developed countries.

If you are outside America you might want a bit broader just to take out some currency risk.

[steveo]

I have all my investments in US market index funds, and I always thought it was fine based on how much business the S&P 500 companies do internationally.  I checked quickly and it looks like in 2014 33% of revenue for those companies came from abroad.

I actually just put on my task list this morning to read some of the asset allocation threads to see about adding some international stocks and/or bonds, but based on the amount of revenue that comes from outside the US, it seemed generally right enough to me to have an S&P index fund (or VTSAX, which I understand to be dominated by the S&P 500 companies).

I realize things can be fine-tuned, but to some extent people like Bogle are pushing the idea that investing doesn't need to be hard, and doing one thing (e.g., buy VTSAX) beats many other options, including most significantly not investing for fear of not knowing exactly what to do.

I agree with this. I don't think that you will really go wrong if you are a US citizen and have just a total US stock index. I would also have a bond index. Fine-tuning is something that sounds great but you don't know what is going to happen in the future so just getting a decent asset allocation is really all you need. I think other factors are more important like being flexible in your spending, being able to return to work etc.

I think buying only VSTAX is exactly the right thing to do because the US market is essentially a proxy for the world economy rather than because America is so superior to other developed countries.

If you are outside America you might want a bit broader just to take out some currency risk.

Exactly. I'm Australian and although our stock market does have companies with earnings outside of Australia our market is much less diversified so I think we need to hold some international stocks.

[Seppia]

2. Buying international developed markets invests 48% in 3 countries: Japan (22%), UK (18), France (8%).  He highlighted Japan's demographic problems .....

This goes against the idea of indexes. It's country picking based on opinion and so is no better than buying IBM rather than HP because you like the look of their management. World market is about 60:25:15 US,developed and emerging - so these 3 countries are a smaller part of your portfolio.  The US market growth is dominated by 4 technology stocks, that would seem to be an even bigger risk. 

The argument that US companies trade internationally and so you have international exposure. Remember you are buying companies not countries, so GM and Toyota are in the same global market. I'm in Canada and so the same arguement would say I can own Blackberry+Bombardier and do as well as owning Apple+Boeing.

Absolutely agree
When he said "if you invested in 1989 you would have had half the world's market cap in Japan, ask them how well it did for internationally diversified investors" (or something like that).
That's a phenomenally stupid argument, it's the same of one asking "hey if you bought VTSAX in 1999 you would have had a shitload of assets invested in crappy new economy bubble stocks, how well did that do for you?"

One of the points of investing is:
You are not sure what's going to happen tomorrow, so just buy as broad and as low cost an index you can buy and be happy with average returns.

Everybody should diversify internationally.

[MustacheAndaHalf]

2. Buying international developed markets invests 48% in 3 countries: Japan (22%), UK (18), France (8%).  He highlighted Japan's demographic problems .....

This goes against the idea of indexes. It's country picking based on opinion and so is no better than buying IBM rather than HP because you like the look of their management. World market is about 60:25:15 US,developed and emerging - so these 3 countries are a smaller part of your portfolio.  The US market growth is dominated by 4 technology stocks, that would seem to be an even bigger risk.

Take a look at the portfolio page for Vanguard Total World Stock ETF:
56% North America (53% US)
21% Europe
14% Pacific
8% emerging markets
I'm not sure where you're getting 25% for emerging markets - it's nowhere close to that.

When Carly Fiorina left HP, they could change management, culture and how the company was run.  If Carly Fiorina became President (she's out of the race BTW), she would not be able to scrap all of the stock market regulations and reputation the US stock market has built up.  I disagree that buying one tech company (HP in your example) is the same as buying the Total US Stock index consisting of 3800 stocks.  Those are nothing close to equivalent.

[farangster]

2. Buying international developed markets invests 48% in 3 countries: Japan (22%), UK (18), France (8%).  He highlighted Japan's demographic problems .....

This goes against the idea of indexes. It's country picking based on opinion and so is no better than buying IBM rather than HP because you like the look of their management. World market is about 60:25:15 US,developed and emerging - so these 3 countries are a smaller part of your portfolio.  The US market growth is dominated by 4 technology stocks, that would seem to be an even bigger risk.

Take a look at the portfolio page for Vanguard Total World Stock ETF:
56% North America (53% US)
21% Europe
14% Pacific
8% emerging markets
I'm not sure where you're getting 25% for emerging markets - it's nowhere close to that.

When Carly Fiorina left HP, they could change management, culture and how the company was run.  If Carly Fiorina became President (she's out of the race BTW), she would not be able to scrap all of the stock market regulations and reputation the US stock market has built up.  I disagree that buying one tech company (HP in your example) is the same as buying the Total US Stock index consisting of 3800 stocks.  Those are nothing close to equivalent.

I think what he is referencing is that without FANG facebook,amazon,netflix,google the market would not have done well last year

[nobodyspecial]

Take a look at the portfolio page for Vanguard Total World Stock ETF:
56% North America (53% US)
21% Europe
14% Pacific
8% emerging markets
I'm not sure where you're getting 25% for emerging markets - it's nowhere close to that.

Sorry perhaps the formatting wasn't clear, I wrote 60%=US, 25%=developed, 15% = emerging. This was from memory but is roughly right, depends on which index you pick. Some count S. Korea as emerging (!).

You could even count Canada and Australia as emerging markets, given how dependent they are on exporting raw materials for other people's technology industries.

[ShortStuff]

Jack Bogle interview on the Masters in Business podcast 3/11/16. Well worth a listen.

http://www.bloomberg.com/podcasts/masters_in_business

Thanks for the link. Folks, skip to the 5:30 mark when Bogle starts speaking, as the beginning is rambling by the interviewer. 

Takeaways: a failed merger at the age of 35 caused Bogle to lose his job, and then become a fund administrator. At the :15 minute mark, Bogle talks about how his new little Vanguard group was not allowed to enter distribution, and wasn't allowed to manage investments at the time. He then created the index fund.

 

[Lski'stash]

Very interesting- thanks!

[nobodyspecial]

Just listening to another in the series with Vanguard's CEO
It sounded like mutual funds and indexes are a tiny part of their business. He says that they had 12,000 employees and had introduced software that let them offer their adviser service to clients with only $500K rather than $1M

How does this sit with the Bogle + indexes story? If they are just Betterment or My-Local-Bank with slightly lower margins?

[Rollin]

After listening to the broadcast I reviewed my portfolio to determine my international exposure. He was saying that there really is no need, because most of your indexed S&P stuff has US companies that have lots going on overseas (I think he said close to 50%, but may have that high). I then called Vanguard about my stock and bond (60/40) split that is further divided stocks at about 69/31 US and international and bonds at 73/27. They lightly defended the exposure (canned speech, as I wasn't talking with an advisor).

I looked at the last 1.5 years of returns and the indexed international stuff has done quite poorly. I haven't changed anything with VG (no realignments and my contributions each month still go into these funds similar to the split), but I have started reducing my dollar cost averaging into my 401B by reducing the amount I am putting towards international from 15% to 10%.  Anyone else have an AA they like for US vs. international exposure within a 60/40 mix like me? I feel overexposed internationally.

[nobodyspecial]

I looked at the last 1.5 years of returns

To decide where to invest for a 40-50 year retirement ?

[misshathaway]

I then called Vanguard about my stock and bond (60/40) split that is further divided stocks at about 69/31 US and international and bonds at 73/27. They lightly defended the exposure (canned speech, as I wasn't talking with an advisor).

Even if you do have a Vanguard advisor... In the portfolio designed for me I have 50/50 stock funds, bond funds. Bond is around 30% international, stock is 40% international. This includes the international fractions of one of the Vanguard all-in-one retirement funds I still hold.

When I asked the advisor about it, citing Bogle, he just said something about diversification.

[Rollin]

I looked at the last 1.5 years of returns

To decide where to invest for a 40-50 year retirement ?

As an indication of where it was going, but good point.

[Rollin]

I then called Vanguard about my stock and bond (60/40) split that is further divided stocks at about 69/31 US and international and bonds at 73/27. They lightly defended the exposure (canned speech, as I wasn't talking with an advisor).

Even if you do have a Vanguard advisor... In the portfolio designed for me I have 50/50 stock funds, bond funds. Bond is around 30% international, stock is 40% international. This includes the international fractions of one of the Vanguard all-in-one retirement funds I still hold.

When I asked the advisor about it, citing Bogle, he just said something about diversification.

You got the same speech as me! i also got that Bogle ain't here no more, so although we still love him he doesn't represent our opinions no mo!

[dandypandys]

i really would like to have a Vanguard international, but my work only offers a couple and i have 12% in Federated International Leaders R6 with a fee of 0.94% Vanguard Emerging Mkts Stock Idx Adm and Vanguard Dvlp Mrkts Indx Admrl 
The emerging one looks like it has done really badly! So should i switch the 12% to some USA and maybe put half in the Vanguard Dvlp Mrkts Indx Admrl ? 
Im a newb, what does the admiral part mean? I am going to listen to the podcast later while I paint today :) thanks!

[jinga nation]

i really would like to have a Vanguard international, but my work only offers a couple and i have 12% in Federated International Leaders R6 with a fee of 0.94% Vanguard Emerging Mkts Stock Idx Adm and Vanguard Dvlp Mrkts Indx Admrl 
The emerging one looks like it has done really badly! So should i switch the 12% to some USA and maybe put half in the Vanguard Dvlp Mrkts Indx Admrl ? 
Im a newb, what does the admiral part mean? I am going to listen to the podcast later while I paint today :) thanks!

https://investor.vanguard.com/mutual-funds/admiral-shares