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Narrator: For seven decades, John C. Bogle, known as Jack, has been fighting for the rights of the individual investor. In 1974, Bogle founded a different kind of investment company; one that’s owned by the shareholders who invest in its funds. Bogle served as Vanguard’s chairman and chief executive officer from 1974 to 1996, and was senior chairman until 2000. Thanks to his dedication to creating low-cost investing opportunities and his focus on keeping a long-term perspective, Vanguard has become one of the world’s largest and most respected investment companies. Bogle is credited with creating the first index fund for retail investors. Viewed as the conscience of Wall Street, he’s a best-selling author and a widely acclaimed financial leader. Fortune magazine has referred to him as one of the four investment giants of the 20th century.

Rebecca Katz
Rebecca Katz
Rebecca Katz: Well, good afternoon and welcome to this very special live Vanguard webcast. I’m Rebecca Katz, and it is my great pleasure to be joined today by Vanguard’s founder, John C. Bogle. As you just saw, Mr. Bogle is certainly a legend in the investment industry. He’s celebrating 65 years in the industry, but 41 years ago he started The Vanguard Group, which has now grown to serve more than 10 million clients globally with more than $3 trillion in assets.* So, certainly, Mr. Bogle’s relentless focus on low costs, long-term investing, and always putting the client first has truly created a Vanguard revolution. Mr. Bogle, congratulations on this milestone, a happy belated birthday to you; you turned 87 last month. Thanks for being here.

Jack Bogle: Thank you, Rebecca, and thank all of you for listening in and participating.

Rebecca Katz: We have more than 40,000 people registered for this webcast, and as our regular viewers know, we will typically spend the full hour asking questions. Now, of course, people submitted thousands of questions, so we’ll try to pick a representative group of questions to ask you, Mr. Bogle. Just some housekeeping notes. On your computer screens, you’ll see at the bottom of the screens little icons or widgets, as we call them. There’s a blue one there. If you have any technical difficulties, click that; people are at the ready to help you. And there’s a green one that will take you to a list of different Vanguard research which is pertinent to today’s webcast. You can download that and read it afterwards. As I mentioned, we got thousands of questions in, but we will take some live questions. So if you have a question on your mind or as we’re discussing things, send it in or you can use the hashtag and tweet it to us #JackBogle. That’s an original one, there you go. I have a Twitter feed going here and we’ll make sure to take some of those tweets. So, Mr. Bogle, I actually thought we would just jump right into questions if that’s okay with you.

Jack Bogle: That’s great, but I should tell you, remind you, that’s my first hashtag.

Rebecca Katz: Your first hashtag: Bogle. Well, I think we’re going to see a lot of activity on our Twitter feed today. So I think, you know, we got a lot of very similar questions, and one of the questions that came in was from Shirley who lives in Maryland. And Shirley askes, “How has Vanguard as a company managed to be so successful providing low-cost portfolios to investors through the years?” So how have you made this work and for such a long time?

John C. Bogle
John C. Bogle
Jack Bogle: Well, it’s actually pretty easy. First, we have the only correct structure in the entire mutual fund industry. We have a different structure than everybody else. We operate at cost.** We are a mutual mutual fund group. All these other people are misleading investors when they call themselves mutual funds. And it’s not just my opinion, it was the opinion of Chairman Manuel Cohen of the SEC. He says, “Where does this mutual come from? They’re not mutual.” So we are truly mutual and that means one simple thing—put the investor first. That is the focus of everything we do. And with that structure being mutual, we operate at cost. And that means all the staggering profits that our rivals—I almost said peers—our rivals take out of this business we don’t take out. The savings, if you will, the profits we make, are basically given back to the shareholders in the form of lower cost. And that’s a huge advantage.

Rebecca Katz: So we actually have a question about, “Aren’t you surprised that other fund families haven’t adopted that structure?” And that’s from Jackie. Surprising? I mean profits, you mentioned profits.

Jack Bogle: No, it’s not surprising at all when you think about the way I explain it to you, Rebecca, and the way I explain it to the viewers, is the problem with Vanguard is all the darn money goes to the investors. We don’t have someone siphoning it off before they get to it. Now we have our own costs. We pay people very well, but it’s not a huge profit margin that we’re laying on these investors. It’s there’s no profit margin so the profits are theirs. And that amounts to right now, give or take, maybe something like $18 billion of rebated profits a year. That’s a lot of money.

Rebecca Katz: So, obviously, people are understanding the benefits of this. We’ve grown to be more than $3 trillion. Did you ever imagine that the company would get to be that size?

Jack Bogle: No. How could I? We had a lot of untried ideas. And if our structure was one of the keys to our success, that mutual structure, the other was our strategy. And that was to focus on funds in which low cost was the most self-evident, the most obvious. And the clear way to do that is the index funds. And we started the world’s first index fund. Started it in 1975. I wasn’t sure I could get the board’s approval for it, but I had a wonderful document from Dr. Paul Samuelson, Nobel Laureate in Economics, Professor at MIT, and he had almost the moment that we began an article in the Journal of Portfolio Management that said, “Would somebody somewhere please start an index fund.” And I said, “Well, it’s a good doctor.” Now gone. Wonderful, wonderful man and good friend of mine. Died at the age of, I think, 94, 93 or 4. Probably a decade ago almost. And so we would give it to them. And he gave, that chapter of his, that paper of his in the Journal of Portfolio Management, gave me credibility with the board to which I added the data what had the mutual fund industry actually done. And we found there was about a 2% gap between the returns given by the average mutual fund and the returns given by the Standard & Poor’s 500 index. These were all basically large-capitalization mutual funds. And you’d compound that over time, and I think the final value of the investment was maybe 1½, 1¾ times if you went with the index fund rather than the mutual fund. So that’s where it all began. So it’s the strategy. The strategy of low cost most manifested in the index fund.

Rebecca Katz: Which didn’t take off right away, right? How many years did it take before that idea?

Jack Bogle: Give or take 20.

Rebecca Katz: Twenty years.

Jack Bogle: Two decades.

Rebecca Katz: It’s a good thing you’re patient and long-term focused.

Jack Bogle: Well, you know, it was a series of flops at the beginning, Rebecca. We had an underwriting that the underwriters were going to bring us $150 million. This was big in those days.

Rebecca Katz: Yes.

Jack Bogle: And they actually raised $11 million. And, in fact, I said, “Oh, my God, we can’t even buy round lots, 100 share lots of all 500 stocks.” And they said, “Why don’t we give everybody their money back.” And I said, “You’ve got to be kidding me. We have the world’s first index fund and we’ll take it from there.” And then out came a big poster on Wall Street. And there was Uncle Sam with a cancellation thing stamping out stock certificates. And it said, “Stamp out index funds. Index funds are un-American.” And that was the great reception of one of the most financial world’s, mutual fund world’s greatest changing idea of all time.

Rebecca Katz: Well, we actually got quite a number of questions about whether the popularity of index funds—you know, they’re pretty ubiquitous at this point—actually might be problematic or whether index funds work in this more volatile market environment. So how would you respond to that?

Jack Bogle: Well, indexing, take the market environment, the easy one first, indexing works in all environments. You just have to understand one simple thing. All of us investors own all the stocks in the stock market. And so those that are indexed own them in their proper proportion. The market value capitalization weight of things like Google and Alphabet, as it’s now called, are the largest. And everybody owns two-thirds of that. Everybody but the indexers roughly. And the index owns one-third. So it’s volatile for us the index fund; it’s volatile for the investors. They’re all one because investors own the market and they can either do it the intelligent way on an index fund that holds it or trade with one another. And one trader trades with another trader. It must be obvious there can be no value added there, just who owns the stock. Ah, but there is something nice going on here for Wall Street—the man in the middle, the broker in the casino, the guy with the rake—whoosh—takes his share out. So the other investors, the nonindex investors are playing a loser’s game. And people have figured that out. And I get letters pretty close to every day, Rebecca, saying, “I wish I’d read your first book earlier.” That’s now 20 years old. Twenty-five years old, I guess almost. And, “I wish I’d listened to your ideas earlier” or “I did and I’m now retired.”

Rebecca Katz: Wow! We have already gotten something like 800 tweets in saying thank you and similar sentiments about how you help people be financially successful. So I’m going to come back to some of those in a few minutes. I mean, this does beg the question, though, I mean, you basically just described the difference between active management and indexing. And, of course, Vanguard has a lot of index funds. And we had a couple of questions saying, “Well, why does Vanguard have active managers?” And what’s so interesting is I think most people think of you as the father of indexing, but most of Vanguard’s earliest funds when you were running the firm, and even before that at Wellington, were actively managed funds. So how do you describe that paradox?

Jack Bogle: It’s less a paradox than a practicality if you want to look at it that way. And that is we had, when Vanguard began, at the bottom of the 1973/1974 bear market where the market had gone down 50% and our assets were around $1.4 billion in Wellington™ Fund and Windsor™ fund and a couple of go-go funds—we could talk about that at more length, but they’re gone now so we don’t need to worry about them—and so you couldn’t have an index fund alone. You couldn’t run a company on an $11 million fund. So $11 million joins the active funds and is kind of the little brother or sister, as the case may be. So what we did do, however, and this is a very, very important point, from the very day Vanguard began, I said to our tiny staff—there were only 28 of us counting me—”The one thing I want to make sure our first rule is to have funds that have” I called it then “relative predictability.” I had observed firsthand and in pain the typical pattern in the mutual fund industry, Rebecca, where the fund that’s very distinctive and good then turns bad. We call that reversion to the mean or regression to the mean. Nothing stays good forever; it’s a back and forth kind of thing. When does the money from investors come in?

Rebecca Katz: Top.

Jack Bogle: Here up at the top. When does the money from investors go out? Down here at the bottom. So it’s well documented. It’s basically just exactly what you would think. The typical mutual fund investor, because of his foolish timing, his bad behavior, if you will, loses about two percentage points a year in a fund that itself loses two percentage points a year because they’re not as good as the index fund. So you want relatively strong predictability and performance. We now call that high correlation essentially. And our funds, by my design originally, and most of them have stayed this way, typically have correlations with their market indexes. We have index standards for each of our funds. Wellington Fund, for example, is about 65%, is 65% Standard & Poor’s 500 index and 35% Barclays corporate bond fund index. And it correlates with that, the fund does, even though it’s actively managed at 97%. Is it an index fund? No. Is 97% an index fund? Well it’s easy to answer that, yes, that’s a little oversimplified. But if you’re 90% correlated with the market, the manager is basically changing around things with 3% of the assets. So all of our funds have high correlation, almost all of them. Probably 95, 96%, and I like that.

Rebecca Katz: That’s good.

Jack Bogle: And the reason it works, by the way—

Rebecca Katz: Good choice.

Jack Bogle: —is you end up looking like your competitors and you’re probably, before cost, you’re probably about average. That’s what I liked and like because you then win on cost.

Rebecca Katz: Right, we marry up low cost with active management.

Jack Bogle: And the performance can go up or down or sideways or anything, but costs go on forever. So if you look at say a 1.5% cost advantage a year—and we do at least that because of expense ratios, lower turnover, no loads, all that kind of thing—that’s 1.5% a year is 20% over a decade. So if you can beat your competitors without taking any extra risk by 20%, give the client 20% more money, well, it’s a good deal. And there’s no risk involved in it.

Rebecca Katz: Right, right. It’s tremendous headwind for everyone else. That’s incredible.

Jack Bogle: So it’s all one piece. It all fits into our philosophy.

Rebecca Katz: Okay, great. Let’s see, we just got a related question. And this one’s live from Thomas who says, “With ridiculous expenses, how come hedge funds are so popular?”

Jack Bogle: Well, they’re popular because people are fools. I’m sorry to express it so bluntly, but the hedge funds have not done nearly as well as the S&P 500 or I think maybe a little more fairly a combination of the S&P 500 and the Barclays bond index because the hedge funds they’re hedging were not fully exposed to the market. But the mutual funds have been winning for the last five years. Earlier the hedge funds looked good and people do too much looking back at performance.

Rebecca Katz: Yes.

Jack Bogle: Why did they do better before? There were fewer of them, there wasn’t a lot of competition in the field, and there were actually some very good managers. But when you add more and more hedge fund managers, they must be average on balance. And the big problem with hedge funds is this tremendous spread between the best hedge fund, best-performing hedge fund in a given, let’s say, year and the worst. And I think we calculated that last year as the best one was up 192% and the worst one was down 80%.

Rebecca Katz: Wow!

Jack Bogle: It might not have been quite that big, but it was at least a couple hundred percentage point spread. So all I can tell the viewers, the participants today, is pick the one that goes up 192%.

Rebecca Katz: I’m sure that’s so easy to do.

Jack Bogle: Yes, very easy to do.

Rebecca Katz: All right, well, Mr. Bogle, Twitter—

Jack Bogle: And make sure it happens again, by the way.

Rebecca Katz: Well that’s true. Twitter is actually blowing up. We have lots and lots of tweets coming for you. Again, a lot of congratulations, but a lot of good questions too so let’s take one of the Twitter questions. This one is from Joshua Rack, and he says, “What are some personal rules that you abide with when you invest?”

Jack Bogle: Well, I’m largely indexed and the only reason really that I’m not 100% indexed, all in Vanguard funds, of course, is we have some funds that are very index-like that you really can’t find good indexes for that are very difficult to implement, particularly in the municipal bond fund area. And in my personal bond account, and, obviously, it’s very demand—It requires I use municipal bonds because the rates are so favorable for people in my tax bracket. And so if we’re there, they have correlations with these indexes which you can’t really match, so they’re not pure index funds, but those correlations run on the 95 to 99% range between our long-term municipal bond fund, tax-exempt bond fund, intermediate-term, limited-term, and short-term, and actually a high-yield municipal bond fund too, high-yield tax-exempt. So they’re index-like and almost entirely index-like. So I’m an indexer, that’s all.

Rebecca Katz: Haven’t changed your stripes. We did have a question from Reggie, speaking of change, who asks, “What are some of the most significant changes you’ve seen in the broad investment landscape in your 65 years?” I mean, there have been so many, but what sticks out in your mind and are they positive or negative?

Jack Bogle: Well, certainly, the first one is highly negative. And that is turnover in the stock market has gone from maybe 25% a year to 250% a year. And so people are doing more and more swapping back and forth with one another creating value for Wall Street and subtracting value from themselves. The same thing—very few people I think have thought about this—the same thing is happening in the mutual fund business. When I was in this business at the beginning, the typical redemption rate was, let me just take a slight guess at this, was about 8% a year. And that meant if you had 100 shareholders in the beginning of the year, 8 would leave during the year. And now that redemption rate is up to 25% a year. So the holding period the way we do it in this business, an 8% redemption rate suggests the average holding period is 12½ years, and a 25% redemption holding period suggests that, the redemption rate suggests that the holding period is 4 years. That makes no sense, none, nada, nil. So that’s another one. We also had in a lot of ways a pretty good industry back when I came into it. One thing very few people are aware about is the average expense ratio on this $2 billion industry was lower than it is today. It was around 60 basis points, 0.6 of 1% and that’s weighted by the assets in the fund and not a weighted average for an actively managed fund because I think it’s about 88 basis points or something like that, 88 of 1%. So it’s up about 30%, maybe 40. So fees have gone up, and when you multiply the higher fee rate times the industry that has gone from $2 billion to say $16 trillion, you can see it’s a bonanza for the fund industry. And another thing that made it much worse, and this is something that almost nobody ever thought about until I mentioned it in some depth quite a few years ago, and almost nobody still thinks about it despite my caveats, and that is this has become an industry owned by financial conglomerates—mutual fund management companies which used to be owned by their officers and money managers, partnerships, or closely held corporations, privately owned corporations. Of the 50 largest mutual fund groups now, 40 of them are owned by financial conglomerates. When a financial conglomerate or even a publicly held mutual fund management company, they’re trying to serve two masters. Clearly, I don’t want to demean them too much, but they clearly want to get the best returns they can for their fund shareholders but not to the point that they’re not making money, earning return on the capital of the owners of the company. And that’s just a conflict. And as the Good Book says, I’ll get it right this time, “No man can serve two masters.” And it also goes on to say, “For he will hate the one and love the other.” And it is my firsthand observation that among these conglomerate-held mutual fund managers, the one that gets the love, if you will, is the person that owns the management company. And I’m not sure the other one gets the hate. I don’t want to go that far. But they get what’s left essentially.

Rebecca Katz: Right. And this is why your first point about the structure is so important.

Jack Bogle: Right.

Rebecca Katz: So we have a tweet up actually from someone local, Gina Missoula, who says, “What differences are you seeing in investing attitudes and behavior across generational groups?”  So we’ve talked about changes over 65 years. Do you see changes in investors themselves as we have different generations in the market?

Jack Bogle: Well, I don’t have enough data to answer that question successfully, but I do think that when you get toward retirement age—that would; be older investors—you tend to have learned a lot about investing and tend not to switch around as much. You’re more comfortable with your portfolio. You’re more apt to be investing for income than capital growth. And income is kind of this steady thing that comes along month after month or quarter after quarter. It doesn’t change a lot in a bond fund or high-grade stock fund. And the very young people have been so well educated in college in finance courses and in business school that they know that the answer is the index fund. I mean, that is what is taught in our universities and in our business schools.

Rebecca Katz: Really!

Jack Bogle: Everywhere. I mean they say nice things about me, Rebecca.

Rebecca Katz: They do some nice case studies on Vanguard, sure.

Jack Bogle: So it’s kind of the group in the middle, I think. And this is a demographic study and I have not seen but I’m just taking a guess because you get a lot of experience in this over time. And so it’s the group in the middle. Maybe the mid-30s to mid-50s, something like that, that is doing more trading than they should.

Rebecca Katz: Yes, I wonder sometimes if, you know, having that information at your phone, every minute you can check the markets, if that creates some behavioral issues where you feel like you have to take action because it’s in front of your face. And it wasn’t years ago. I mean, I was here before we had smartphones and the Internet and you had to really look for it.

Jack Bogle: Sure, the Internet, I mean, it’s so easy to move money around just by pushing a couple of buttons. Resist the temptation.

Rebecca Katz: It’s hard, it’s hard. The light blinks at you. We have a question from Steven in Southampton, Pennsylvania. And he says, “Most of us have actually only communicated with Vanguard by phone” since we don’t have investment centers. “Can you talk a little bit about what it’s like at Vanguard? So what are the crew like?” Now you eat at our cafeteria every day that you’re here and you have lunch with the crew and talk to them. Can you give people a sense of what it’s actually like to be here?

Jack Bogle: Well, I think I actually can because I’ve spent a lot of time and delightful effort making sure that I’m in contact with the crew a great deal. There will be Award for Excellence winners, about I think eight or ten each month, each quarter, and I’ll spend an hour sitting down and just talking to them about what keeps them here, what makes them happy, where they grew up. If I’m not violating an HR regulation, ask them about marriage, children, things like that. Might ask them what their parents did for a living. We often find that crew members who had teachers are basically disproportionately large here, which I think is great. And then if we get a retirement or a 30-year anniversary or 25-year anniversary, they’ll often invite me to come and just talk to them informally at the celebration. And other than the fact that I don’t eat much cake, I love to do it. I love to be with them. And then somebody will come up and say, maybe drop me an email or even just accost me, for the want of a better word, in the galley or cafeteria, and say they want to have lunch with me. And maybe they’ve been here three months. And I say, “That’d be great, but my time is limited so I’ll only do it with you if you can get like six or seven of your friends,” so we have a six- or seven-person luncheon.

Rebecca Katz: That’s wonderful.

Jack Bogle: So I feel like I’m very in touch and I try to explain to them, let’s be fair to the audience, you know, working at Vanguard is not heaven on earth. It may be as close as I could get it to or the present management could get it to too, for that matter because we’re all looking at this the same way, but you can work to make it the best place you can find to make a living.

Rebecca Katz: Yes.

Jack Bogle: We’re pretty good on promoting. We’re very good on the gender. Lots of women in the higher ranks of the company.

Rebecca Katz: Yes!

Jack Bogle: And it’s very diverse. Very diverse racially. We, of course, have a lot of people from India and China and Taiwan. And they speak better English than we do I think. And so it’s a little microsection of the world, but certainly the upper intelligence level of the world. Almost all college graduates.

Rebecca Katz: Yes, sure.

Jack Bogle: And many business school graduates. The computer people are, you know, they’re technology people and technology is taught, I fear, so much better in India and China than it is here in the United States. Maybe we ought to think about getting our U.S. act together a little bit.

Rebecca Katz: I think science is definitely a top priority. Okay, well we have a couple live questions. So our next one is from Edward. And you talked about bond funds a little bit, and he says, “Do bond funds still make sense even in a low-interest-rate environment?” So it’s tough for income.

Jack Bogle: Nothing makes sense for everybody, let’s start with that.

Rebecca Katz: Good.

Jack Bogle: But for the vast majority of investors, I believe now, and I’ve always believed, that you need— Basically I don’t care for long-term bonds. They will provide the highest returns over time, but they’re quite volatile and apt to scare people. When interest rates go up, they can go down 25, 30% in price. And I don’t think most investors are just up to that, up to really staying that way in the long term in a bond account. So there, because when the market gives us one of those 50% drops of which I’ve seen three, if you’re 50/50 stock bonds, that 50% drop is going to be 25% in your account. It moderates the volatility in your account. Now I happen to believe that’s a good idea, but if an investor says, “I can handle the volatility,” and I believe them, I’d say, “You don’t really need any bonds at all.” And so we have a little rule of thumb, no more than that, of having— Start thinking about your age as the percentage of bonds you have in the portfolio. So in the abstract—and this is a rule of thumb, this is not a rule—20% in bonds when you’re 20 and 80% in bonds when you’re 80. Now what comes into there, I don’t want to make this too complicated, but it’s a very important thing for just about every single person on this webcast, and that is you also have Social Security; the vast majority of people do. And that has much more kinship with a bond than a stock. It pays you income every month. Yes, you don’t have a capital position or anything like that but you should take that into account. And, therefore, if you have Social Security of a substantial amount and it can get pretty large, you can own less bonds and more stocks because you look at it—

Rebecca Katz: You treat it like a bond.

Jack Bogle: —as stocks, bonds, and Social Security or corporate pension fund if the corporation is going to make it. That’s a big “if” and if the municipality is going to make it.

Rebecca Katz: Oh, wow! Yes, not that many—

Jack Bogle: And that’s a big “if.”

Rebecca Katz: —pension funds left either, at least in the private sector. Next question, shifting gears from retirement, is from Christian, San Jose, California, who says, “Congratulations, Mr. Bogle. May you live longer and provide sensible financial guidance to us all. I have two sons, ages 23 and 20. So what is the one single piece of advice you’d give them so that they are financially secure when they retire?” So what’s the one thing investors just getting started right out of college really should know?

Jack Bogle: Start to invest now. Continue to invest as you have the money. Increase your investments as you make more money. Have a little note in your budget so that let’s say 15% of your compensation goes into a mutual fund investment, a low-cost mutual fund investment. Or, even better, an index fund investment. And that’s only because I believe in them. I’m not trying to sell anything.

Rebecca Katz: That’s okay, you can sell. It’s a Vanguard webcast.

Jack Bogle: But make sure that your contributions go up with your income. And then, you know, I would say, another rule that I use, it’s a little overdone maybe, don’t peek, P-E-E-K. Don’t look at your account every day. Don’t look at your account every month. I tell people if they don’t look at it, they start investing when they’re 22 years old and they don’t peek at their 401(k) statement or IRA statement until they retire, a caution, “Have a good cardiologist next to you.” Because when you open that final statement, you’re allowed to open it at the end, you will probably have a heart attack. You won’t believe how much money you’ve accumulated. It’s so remarkable what long-term compounding plus, well, the magic of long-term compounding returns without the tyranny of compounding costs is magical mathematics. And if you’re aware of that, that’s really all you need to know.

Rebecca Katz: Start early, save often, don’t look.

Jack Bogle: Yup.

Rebecca Katz: Sounds good. You know, I want to take a second. As I mentioned, we’re getting a lot of congratulations in both through Twitter and through the computer. And there were a few that I noticed came in that I wanted to share with you because I do think, you know, certainly, I’ve been here 20 years and I thank you for that for making this home for me and many people feel the same way. So the first tribute to you comes from our friends, the Bogleheads. For those of our viewers who don’t know, there is a Jack Bogle fan club called the Bogleheads, and you can look at their website which is boglehead.org. And this is from Mel Lindauer who says, “Hi Jack. On behalf of Taylor, myself, and all the Bogleheads, I’d like to congratulate you on this momentous occasion celebrating your 65 years in the industry. More importantly, though, is what you’ve accomplished in those 65 years as a beacon in the darkness selfishly ensuring that investors get their fair share. We’re blessed to call you a friend and a mentor.” And I guess we’ll be seeing them in the fall when they come to Vanguard.

Jack Bogle: I spend more hours than you can ever imagine in their two-and-a-half day visit here and I love it. They’re a wonderful group of people. Mel is great. Taylor Larimore who’s essentially the founder was almost a victim of the Battle of the Bulge in World War II.  He’s a marvelous gentlemen. And the rest of the Bogleheads are just—I mean, how people could stand, sit in this room where I think we can only take around 230 people in the local hotel. And how they can sit in that room and listen to me go on sometimes for two-and-a-half hours consecutively, then with a five-minute break and another two-and-a-half hours—well, I’m exaggerating about the break and the second two-and-a-half hours.

Rebecca Katz: I’ve seen it. It is a great event. We have a couple other comments. “I’ve admired John Bogle for years.” This one is from Elaine and she lives in Wisconsin. She says, “I’ve admired John Bogle for many years. When my husband died suddenly at age 50, I was left with some insurance money and no clue what to do with it. Someone suggested Vanguard. That was in 1982. I’ve been so happy that I made that decision. Now my assets have grown to the point where I’ve been able to designate a substantial amount to each of my three children and my seven grandchildren as well. So thank you, Vanguard, and a very special thanks to you, Mr. Bogle.”

Jack Bogle: Well, you know, I get a lot of letters like that and one of the really I think maybe less well-known things about them is they come from everywhere. I mean, towns that we have never heard of. We’ve heard from all the states. They sometimes come from abroad. And the diversity of geography and the diversity of the people and their needs and how they’re doing is really, makes my day.

Rebecca Katz: Yes, mine too.

Jack Bogle: And a couple of them even bring tears to my eyes to be honest with you.

Rebecca Katz: Makes you feel very good about working here. Speaking of feeling, we did have a question from Paul in New Paltz, New York. And he says, “How are you feeling, and what’s the most important thing to you now?” He also says he’s read everything that you’ve ever written and he thanks you for giving him and his family financial independence. So we had a lot of questions asking how you are feeling.

Jack Bogle: I was going to first say I salute anybody that’s read everything I’ve ever written. I think there are 500 speeches on my website and we know from the introduction there are ten books. But I’m actually feeling, I guess I have to say considering, pretty good. Had my 87th birthday a while back. I feel mentally very strong. I had a Uber driver pick me up the other day and when I got out of the car he said, “You sound like you’re 30 years old. How old are you?” I confessed to 87; no point in lying. But I’m getting older and I’ve got scoliosis, and a little hard to get around. I carry a walking stick. But I am not complaining. I think I can say this on the air. I gave a commencement speech up at Trinity four, five years ago and I was talking about some of the adversity, including having a heart attack, my first heart attack when I was 30 and some of the adversity I’d encountered. But I said, “You know, if you’ve had the life I’ve had and gotten” at that time I think “16 extra years of life from the transplant, heart transplant, it doesn’t seem like a good idea to go around bitching.” And the audience, I guess I look like nice or distinguished.

Rebecca Katz: Yes.

Jack Bogle: I don’t know why, I never noticed that about myself. But the applause, the cheers, the laughter overwhelmed the next sentence, which was, “I apologize for using such a gross word, but the word complaining simply does not capture my meaning.”

Rebecca Katz: I think we’re going to see that word on Twitter a few times, Mr. Bogle. That might be the tweet of the evening too. Alright, let’s take a few questions. We have a couple more live questions that have just come in. We have a question from Ralph who asks, “What about value-based investing for long-term capital appreciation, picking companies based on good value, earnings ratio, and management?” How do you feel about, well, there’s two issues here, picking the companies and contrarian investing, which I think are two separate things.

Jack Bogle: There’s quite a bit of material written, papers written about the value, is the endurable so-called factor.

Rebecca Katz: Yes.

Jack Bogle: And if you do value investing, that factor will drive higher returns for you as compared to growth as the usual alternative. And the similar things are said about small-cap and large-cap. I don’t see it. I see it in the aggregate. If you go back to 1926 when these data started and up to date, it’s clearly true that value has done better than growth, but you can look there and there’ll be maybe periods as long as 15 years when growth does better than values. So we don’t know if we’re just at the high end of the cycle or it will continue. But I have this conviction, and a lot of people whose opinion is much more valuable than mine and whose opinion I deeply respect, think value can go on forever. In my opinion, reversion to the mean again, value does better, growth does better, value does better, growth does better is likely to happen. Which I give just an excellent example of this and that is in a couple of ways, and that is back in 1992—it’s more than 25 years ago—I thought it might be interesting to allow people that wanted to accumulate money in a tax-efficient way in a growth index fund would accumulate money. And then when they got to retirement that they would go into a value index fund which would have less volatility and higher income. And I said, “I base this on the presumption that over that kind of time period, growth and value will do the same. Both of them had exactly the same return in that period. For those who are saying, “Bogle’s one lucky guy to have said that,” I say, “You’re right.” But it just happened to come out exactly the same. But there’s a real lesson here because the average investor in those funds didn’t earn 9%. He wanted to earn 9% in growth and 9% in value. But by going back and forth, he earned 6%. And I warned them about this in the 1st annual report and the 2nd annual report and the 3rd annual report and probably the 15th annual report. And that is don’t trade these back and forth because you’ll make a mistake. And you’ll go into the hot one and it turn out to be the cold one. So we’ve tested it that far and that one particular example. It’s only one, it shouldn’t be definitive. But I’m skeptical because I’ve always held the belief that if something seems to work so well, then all the growth investors will buy value stocks and bid them up and growth stocks will go down and then the equation won’t work anymore.

Rebecca Katz: Right, it all evens out in the end.

Jack Bogle: A little complicated for the audience here maybe.

Rebecca Katz: No, no, no.

Jack Bogle: All that prestidigitation.

Rebecca Katz: I think it makes absolute sense. We’ve had a lot of questions about both what you think the most valuable lesson you’ve learned over the last 65 years and what your biggest mistake was over the last 65 years. I think they’re related. So Matt in Colorado Springs asked about your most valuable lesson and Sierra asks about your biggest mistake.

Jack Bogle: Well the most valuable lesson, I suppose—

Rebecca Katz: They might be related.

Jack Bogle: —was taught to me by Walter Morgan, my great mentor at Wellington, because we had one fund in those days. Wellington Fund was started in 1928; I came here in 1951. It was about a $140 million fund and one of the larger funds in the industry. And it was all about balance, balance, balance. They’d been through a tumultuous period in the ’30s and even halfway through the ’40s. And it worked just fine a balanced idea. So the idea of some kind of investment balance, which is drummed into me. He also drummed into me the fact the crowd was always wrong. If everybody wanted something, that’s what you did not want. I’m not sure how these things have stood the test of time, but now we call that, everybody calls it the first thing the investor needs to decide on is asset allocation.

Rebecca Katz: Sure.

Jack Bogle: And as long as it’s stocks and bonds, we’re talking about investment balance. And on that point, Rebecca, I don’t believe in these other funny things that have entered the marketplace. I do not believe in commodities. I do not believe in gold, which is a kind of commodity.

Rebecca Katz: Sure.

Jack Bogle: I don’t believe in these funny real estate things that are— Real estate index fund is fine or a managed real estate fund. But all these limited partnerships and all the accounting funny stuff that goes on. And I don’t believe in all these triple leverage funds that you can buy through exchange-traded funds. All these little tricks, if you will, shortcuts have absolutely drummed into my head, again, after 65 years in this business, almost 65 years, don’t do it. Stay the course but stay the main course.

Rebecca Katz: I like that. Stay the main course. What do you think your biggest mistake was?

Jack Bogle: Oh, I’ve made so many; it’s a curious thing. Very clearly, the biggest mistake I made was when I was given the responsibility at age 35 to take over the Wellington Management Company because we were in deep, deep trouble. And Mr. Morgan said, “Do whatever it takes to fix it.” And after trying three or four, I had a to do a merger partner—it was in the middle of the go-go era—and to stay alive you had to have a go-go fund. It’s kind of unpleasant to think of now, particularly since Wellington Fund was slipping a good bit at that time. So the biggest mistake was making that dumb, dumb, dumb merger. These Boston managers were greatly overrated. They were short-term, they were go-go. They weren’t particularly analytical. They believed in things like momentum and all that and started two more go-go funds to go with the one we acquired. And all those funds lasted for— They were very good for five years and then they weren’t very good. And then they were so bad that they vanished so they’re gone forever. So doing that stupid, stupid merger for the sake of the company, which I thought I had an obligation to do. I had a fiduciary duty to Wellington Management Company and a fiduciary duty to Wellington Fund too to try and make things better. The Wellington Fund got so much worse that it’s breathtaking. I didn’t know that in advance. The manager they brought in was—well, I won’t get into that involved naming names which I’m too much of a gentleman to do here. But they were gone and fired me and they made all the mistakes. Well, this doesn’t really seem like a very good idea. As a matter of fact, I was crestfallen, it was the end of my career. And out of that came a new company.

Rebecca Katz: Vanguard. Yes. Thank goodness it happened.

Jack Bogle: Vanguard!

Rebecca Katz: The best mistake you ever made.

Jack Bogle: Yes. So the mistake was terrible, but the outcome—and this is, I think, a pretty good lesson for everybody. You can’t get down on yourself. You can’t think the existing conditions are going to last forever. You need a lot of determination. Somebody says grit these days.

Rebecca Katz: Yes.

Jack Bogle: Those kind of things. And you need to have a lot of confidence. Always had a lot of confidence in my investment acumen. I’m not known for that. When I fixed the Wellington Fund myself, told the manager what to do in 1978, it’s beaten the average balance fund for every year since 1980. Every single year primarily because of cost. And I tell people about cost particularly for a Wellington Fund that the competitors come to us every year. There’s a cost differential of about 150 basis points, 140, 1.4%. So they say, “We’re going to have a 100-yard dash and we want you, Wellington, to start on the 20-yard line.” Thank you, I’d be glad to do that.

Rebecca Katz: That’s right. All right, let’s take another live question. This is a good one, and, certainly, a lot of sentiment around this. This is from Loretta, and she says, “Everyone is saying that the markets are currently in a state we’ve never seen before. Do you think we can still rely on the historical principles we’ve always relied on today?” Is it different this time?

Jack Bogle: This time is not different, but stock valuations are higher than they’ve been. And the prospects for the future are lower than they have been in a long, long time. You know, in the period I’ve been in this business, the stock market has averaged a return of about 12% a year. And that’s just not going to happen again because at that time during that period, the dividend yield, and a very important component of stocks, stock returns, was about almost 6%, call it 5.5. Now it’s 2. That’s a dead-weight loss. The average earnings growth was pretty close to 6%. I don’t see that earnings growth happening in the future. I think it’ll be, if we’re lucky, 4%. And stocks have high valuations. The price earnings multiple, the essential nature, essential measure of value is around 22 times earnings and the norm is about 16. So putting those three things together, they’re all dear, expensive if you will, and so we can look for maybe stock returns and a balanced fund. And interest rates are 5.5% during that long period in my time in this business. And now they’re 2%, actually 1.6% on the ten-year intermediate-term Treasury. And so bond returns will be lower. So I think that we’ll be lucky to get a return of 4, 5% from a balanced portfolio in the next decade. I don’t look at this and I don’t want the viewers to look at it as saying, “He’s predicting something for the year.” I have never predicted anything for the year. I don’t believe in year-long. Too many things can go wrong. But in the long run, and this gets to the heart of that question, the same reason for generating returns, the reason that stocks generate returns is the same as it has always been, the earning power of corporations. They make earnings, they pay some out in dividends, they reinvest to build newer, faster, innovate, whatever they do, and that’s where earnings growth comes from, from that reinvestment by and large. So dividend yields are lower and the reinvestment will be lower and so the returns will be lower. I think that’s almost certain. And so just relax because the one thing that will guarantee your retirement plan will have an asset value of zero is don’t invest at all.

Rebecca Katz: True. Yes. Actually, we should save more.

Jack Bogle: Yup. So what’s hard and I think very important for the audience to understand is you have to accept the market returns for what they are going to be. Don’t reach beyond them. Don’t do something speculative. Don’t lever up to make up the difference. It just is highly unlikely to pay—Well it certainly will not work for everybody and highly unlikely to work for very many people.

Rebecca Katz: Great. Well we have a tweet that just came in to our #JackBogle and this one is from V.M. Campos who says, “What is a concise one-sentence way to convince millennials to think about their retirements which seem unfathomably far away?” I mean you’ve said, “You’ve got to start saving.” How can we convince them of something that is 40 or 50 years off?

Jack Bogle: Well, I’d say the miracle of compounding. And I will repeat myself and say the miracle of compounding returns without the tyranny of compounding cost because that can ruin everything, the cost factor. So just, I mean, get out a compound interest table. And the dollar is going to grow to $30 in 25 years. If it had been 50 years I think it is. And a dollar to 30, that’s 30 times. And if you’ve got another 25 years, it probably goes another let me say 12 times over. Something like that. Those dollars, you can’t accumulate them at the end because you’ve only got a year or two. Nothing works for you. So start now because it’s going to be a lot cheaper. I don’t have a good arithmetic number for you here, but if you want to invest $5,000 a month when you’re 60 years ago, you’ll get somewhere. But if you want to invest $500 a month when you’re 25, you’ll have much more money. And it’s not going to be easy to do $5,000 or $10,000 or whatever it might be, but the longer you wait the more your monthly contribution has to increase like this. The ladder gets steeper and steeper and steeper as you get closer.

Rebecca Katz: Yes, we’ve always found it very effective to put it in actual dollars and cents and say, “Here’s what $50 a month could look like potentially.”

Jack Bogle: Yup.

Rebecca Katz: And I think that’s what gets people motivated. Our next question is totally off topic, but Lee in Bloomington, Indiana, says, “What’s your favorite book on investments?” And I would assume he or she means not one you’ve written yourself.

Jack Bogle: No.

Rebecca Katz: Which would be fair, but.

Jack Bogle: Well, I guess I’d say there are not very many of them, by the way, that I think rank in that group. One of them would certainly be Burton Malkiel. It’s my friend Professor Burton Malkiel’s, A Random Walk by Wall Street. It has a touch of humor, a lot of data. He brings it up to date probably every three years, four years. And that’s a very good book. It’s hard for me to go a long way beyond that to recommend a book to someone.

Rebecca Katz: Okay. That’s a good one to have on a short list as good beach reading.

Jack Bogle: Yes, it could be number two.

Rebecca Katz: Bogle and Mutual Funds?

Jack Bogle: Probably.

Rebecca Katz: Well, you know, speaking of Dr. Malkiel, we had a question from K.G. in Ohio who said, “Do you believe the markets are efficient?” So he’s talking about the efficient-markets theory, and there are some people who don’t believe in that or don’t believe that it still holds true. And, if so, how do some, although very few, consistently beat the markets?

Jack Bogle: Well, it is funny because they gave a Nobel Prize to some of these people this year and the people that believe in the efficient-market kind of theory. When I started the first index fund, let’s be very clear on this, I had never heard of the efficient-market hypothesis, EMH. And I didn’t think it worked. I mean, what we must know after all this experience is the market is efficient sometimes and inefficient sometimes. I mean it’s inevitable. And it’s very difficult to have the wisdom to know the difference. I mean, I don’t have it. I mean I know a little bit about valuations. My own market prognostication, for want of a word, reasonable at creating reasonable expectations for market returns, has been highly accurate without having anything to do with the efficient-market hypothesis. And that is corporate returns come from dividend yields and earnings growth and changes in price earnings. You know the dividend yield when you look at the market, and that’s why it’s not better today. You know what the long-term earnings growth is; probably 5 to 6% in the U.S. And if price earnings multiples are over 20, the odds are probably 80% they’ll be lower at the end of the decade. And if they’re under 12, the odds are about 80% they’ll be higher at the end. See this is not a vacuum. I think efficient-markets theories goes too far and, to underscore, has absolutely nothing to do with my creating the first index fund. Did I make that clear?

Rebecca Katz: Yes, I think so. Let’s see if there’s any other live questions. So we have a few questions. Obviously, we’ve been in a low-interest-rate environment and we’ve had a question both from Gregory in Tennessee about what to do if the Fed raises interest rates, but also more generally, “What is your advice for retirees who want to create income when bonds really are not paying very much?” And that’s from Alene in Boston, Massachusetts. So should people be making adjustments to try to get income?

Jack Bogle: Well, there’s an old saying, probably going back to the ’20s or ’30s, “More money has been lost reaching for income than has been lost at the point of a gun.” You have to stay, I re-emphasize this, you have to stay within the confines of the market. I mean, you can go out there and put together a bond portfolio today that probably yields 10%. Now half of the bonds in that portfolio probably won’t make their next payment. You just don’t know. And I do think particularly for people’s retirement plans for people that want to maintain their capital, do not reach for yield. Another example we use is the limb in a tree. And if you reach out too far on that limb, go out too far, the limb snaps off. And it’ll work for a tiny minority, but it won’t work for the average person. So stay within the confines of the market. But, I hope this isn’t too commercial for the viewers, but once you get yields in this range, stocks at 2%, bonds at maybe 2.5 or 3, if you use some corporates and go a little bit longer in intermediate-term but not long, what really matters? Cost. Because if a stock fund— Think about this for a minute. If a stock fund is yielding 2% and has a 1.5% expense ratio, you’re going to get 0.5 of 1%. So see how much of the yield you’re getting. If someone’s bragging about a portfolio of high-yielding stocks with above-average yields, nothing the matter with that as such if you don’t reach too far. But if they’re taking three-quarters, three-quarters of the yield and putting it in their own pocket, don’t go there. Did I make that clear?

Rebecca Katz: I think so too. Low costs. All comes back to low costs. Let’s take another live question. This one might be a little on the brink of political, but Robert asks, “Will our country’s debt ever catch up to us?”

Jack Bogle: No, it won’t.

Rebecca Katz: You worried about it?

Jack Bogle: Well, I’m worried about the way it is today, but as the country grows, there’s a gross domestic product running now probably $18 or $19 trillion a year. As that grows, the ability to handle the growth of the debt it becomes—it’s basically a wash if you can keep debt in line with the country’s growth. I’m not sure I’m smitten with that idea, but I am definitely smitten with the idea, bothered about the idea that we can somehow take a huge reduction in debt because that would probably run us into a recession. Government spending is a very important part of the economy and it shouldn’t go on forever. It probably should not have gone on as far as it has gone on. Strike the “probably.” It should not have gone on as far as it’s gone on. And this country is not leading the world in ratio of debt to GDP but we’re not as badly off as many of our fellow nations. And we’re also much more—We remain one of the most strongest economies in the whole world, particularly the developed world. And as for emerging markets, well, they’re a little shaky. I wouldn’t get too carried away with them. Good old U.S.A. Now you say, “Well, Bogle is just this jingoist.” That may be true so take that into account in your investment decisions.

Rebecca Katz: We’ve talked a little bit about commodities and precious metals. “Absolutely no reason to hold a precious metals fund or precious metals in an otherwise well-diversified portfolio?” And that’s coming from Craig in Pleasanton, California.

Jack Bogle: No, no. No, no, no, no. But I’ll make one exception. If you have a significant amount of wealth and are concerned about the possibility of severe inflation in the future, it would not be the end of the world to put maybe 5% of your money in a precious metal gold fund. I don’t like commodities because they don’t have—I mean, gold is basically universal in the financial system. I don’t like that advice very much, but it comes along with another piece of advice. And that is a lot of people think the stock market is a great place to express their gambling instincts.

Rebecca Katz: Is that wise?

Jack Bogle: And that is a wonderful way to gamble, but a terrible way to accumulate a retirement fund or a fund to educate your children. So I say, “Put your money into two sections.” One is a serious money account and one is a funny money account. And these commodities and so on, gold, would be in the funny money account. And my own recommendation would be to limit the funny money account to 5% or maybe at the outside 10% if you just have to do something. But don’t do it so it ruins everything else. And who knows, you may get lucky. You may buy the next Apple, but I wouldn’t count on it.

Rebecca Katz: You can also play the lottery. Our next question is from Barry. So Barry would like to know, “Do you ever talk shop with other financial wizards like Warren Buffett?”

Jack Bogle: Well, I have a wonderful relationship with Warren Buffett. I’ll make this short, but like first when we both were at the State Securities Commissioners meeting in San Diego, California, about 30 years ago, Salomon Brothers that he was deeply involved in was in deep trouble and he was out there trying to explain it all to the California Department of Securities. And there we were sitting waiting for a newspaper in the living room, in the waiting room in the hotel and I recognized him. He seemed to know who I was, which surprised me. And I said to him, “Would it be—”I actually sort of spoke up and I said, “You’re probably like I am waiting for the papers to arrive and if you’d like to chat a little bit, I’d love to chat with you.” And our friendship really began there. And it was certainly enhanced when I made sure I was the one that bought the billionaire the morning paper. But we’ve been in touch over the years. He plugs, for want of a better word, recommends highly our index funds. He recommends my books. He has a trust fund he’s leaving for his wife that he has directed be 90% invested in the S&P 500, the Vanguard S&P 500. And he uses the Vanguard S&P 500 in his so far with only a year and a half or two years to go. An inordinately successful bet that he will be a hedge fund manager who thought he could beat the S&P 500. I think Warren is about 44, 50 percentage points ahead. Way ahead. So, very nice. He wrote wonderful blurbs for my books. And he’s easy enough to reach if I wanted to call him. I don’t really have any reason to, but we’re in touch periodically. And I’ve been out to Omaha and had dinner with him. He’s a lot of fun. He’s a wonderful person.

Rebecca Katz: I think a lot of our viewers would love to be at that dinner table.

Jack Bogle: Yes. Well, I saw somebody paid $4,000,567 something, something, something to have lunch with him. And he just took the 4 and ran it up, 4, 5, 6, 7, 8, 9, whatever. And topping a previous bid for the lunch for 3, 4, 5, 6, 7, 8, 9; $3,000,400.

Rebecca Katz: I assume that was for charity.

Jack Bogle: Yes. People buy lunches with me, Rebecca. And so far I think the high bid is $2,000. I do this for charity.

Rebecca Katz: Yes, I was going to say. We have a question in from Herman who says, “Can anyone be an expert at market timing?” So here we’ve just talked about Warren Buffett who people think of as the world’s greatest stock picker. So is it possible?

Jack Bogle: Well, I suppose anyone can, but investors as a group by definition cannot. They can’t all get out at the top and get in at the bottom. Please understand, viewers, that if you’re getting out of the market at the hot top, somebody else is getting in the market at the top, right? You’re selling your stocks, somebody else is buying them. This is not complicated. So just not a good idea. But Warren Buffett is not really a market timer at all. As everybody knows, his great record, really truly great record was created at the very beginning back in the ’40s and ’50s, before the ’40s actually, with Berkshire Hathaway. And Warren like I are great disciples of Benjamin Graham. And Warren told me himself that Benjamin Graham became an indexer as the character of the market changed. And as valuable security analysts when they we doing it by themselves could pick out good values. But when everybody has security analysts all over the place, no competition equalizes. There’s a certain amount of efficiency built into that. Not perfect but pretty good. So, you know, time if you want to but I’d put that part of your account into the funny money.

Rebecca Katz: Funny money, right. Speaking of trading, I wanted to ask a question from Preston in Palo Alto, California, who asked, “What is the effect of high-frequency trading”—I think he’s reading Michael Lewis’s book—”on individual investors and portfolio value?”

Jack Bogle: Well, the curious thing about it is it probably is helpful. And it’s helpful because high-frequency trading, and all these other crazy things that go on in our market, have reduced the securities transaction cost to the lowest level we have ever seen in the history of the financial markets. So if an individual comes in he’s at a low, he’s going to come in at a lower cost in buying stock. There’s a lot about high-frequency trading that deeply troubles me. I don’t think there’s enough information about it. I don’t like the idea of dark pools. I think the sun should shine on everything that goes on in the trading markets. This fellow who worked on the side of this rapid trading thing has just gotten permission to start an exchange which will make it—It’s kind of amazing to think of that he has in his system a 350 millisecond delay in his printing of prices and that solves the problem. 350 milliseconds.

Rebecca Katz: Wow!

Jack Bogle: So I don’t think we need to concern ourselves about it. I would like to know how much of that sharp pricing is done between two high-frequency traders as compared to two investors because if two investors are there and one of them pays an extra penny to buy a stock and the other one gets an extra penny, well, that just comes out in the wash. Doesn’t do investors any good or any harm. But I’m afraid I have a deep suspicion the middle man is taking a larger cut than we know and we’ll just have to find that out. They’re very profitable firms.

Rebecca Katz: Speaking of middle men, we’ve had a number of questions both through Twitter and when people registered about the fiduciary standard rule. And you’ve been pretty outspoken about that. So can you just share at a high level some of your thoughts around that and maybe help define what it is for people who might not be following this.

Jack Bogle: Sure. Well, first, let’s define it. Fiduciary duty means and it’s the highest duty known under the law. Fiduciary duty means serving the person that has employed you. Putting the interest, in this case, of the investor first before your own. And the Labor Department has come out with this requirement that both investment advisors, registered investment advisors, and stock brokers observe a federal standard of fiduciary duty putting the client first. That standard, whether it’s adequately observed or not, is something else again but was always applied to financial advisors, registered investment advisors. Now it’s applied to brokers who only had the very loose, what do you call, suitability standard. And this only applies, it’s kind of amusing, it only applies to retirement plan investors. So here we have at least a theoretical situation where there’s a broker out there and he has coded red over here retirement plan investors, put their interest first. And their nonretirement investment plan clients over here. He says, “Do whatever you want with them.” That seems unlikely to happen. The system will equalize, and I do hope the SEC, which should have the primary responsibility for this anyway, Securities and Exchange Commission, will have that fiduciary standard apply to everything in the financial business. And I would even extend it to money managers who are not under a fiduciary standard. I mean, they are theoretically, but it’s not like a federal statute that says fiduciary. So putting the client second, I mean, I said to someone doesn’t seem like a great response to your client when your client asks you about this to say, “Well, I’m putting myself first and you’re second, but it’s close.”

Rebecca Katz: This is the great thing about being owned by our clients.*** We don’t have those issues. So, Mr. Bogle, we have actually gone over time. Obviously, thousands of questions and tweets left. Maybe we can get you to answer a few tweets after the end of the broadcast. But I did want to give you the opportunity to have some final thoughts, and we could share them right with the shareholders that are watching if you’d like.

Jack Bogle: Sure. Well, I’ve had a great time in this business. Almost unimaginably great. I’ve accomplished something that has not been done before. The idea of index fund investing is kind of taking over the world. And it is taking over the world and it’s going to continue, by the way. I warned my actively managed competitors, they’re going to have to do something somewhere to protect themselves. But the whole core of everything we do here most notably and easily measurable in indexing is putting the client first and giving you your fair share of whatever market returns develop. They may be good and they may be bad, and I warn you that owning an index fund is not a free ride to prosperity under all circumstances. When the markets are bad, and they will be bad from time to time, particularly in the short run, the index fund will give you your fair share of those bad returns. So don’t think of it as a miracle. Think about it as an intelligent policy that puts you in the focus of the system. And, fortunately, given Vanguard’s structure, we’re able to deliver on that promise, a mutual company in which the shareholder comes first, last, and always. Or as I would put it in a more simple way, you’ll recognize the cadence, Vanguard is a company of the investor, by the investor, and for the investor. And you all are those investors. And I thank you deeply for your kind comments about me. And I thank you for your confidence in me and in Vanguard.

Rebecca Katz: My goodness, and we thank you so much for all that you’ve done for this company. Mr. Bogle, thank you so much for joining us for this hour. We’re going to have to do this again.

Jack Bogle: My pleasure. Give me a couple days.

Rebecca Katz: Okay. And thanks to all of you for tuning in and watching. I think you’ll agree this has been a wonderful webcast. We will be sending out replays and video highlights to you with transcripts to you in just a few weeks. And we would really appreciate it if you would fill out the survey. At the bottom of your screen, you’ll see a little red icon. You can click on that and fill out a survey. We’d love to hear what you thought of this. Now next week you can join me here again, and we’ll actually be talking about the global economy with our chief economist. And you can sign up for that right now using the green widget where we have our research listed as well. So I hope you’ll join us again next week. From all of us here in Valley Forge, thank you again for joining us, and we’ll see you next time.

*As of December 31, 2015.

**Vanguard provides its services to the Vanguard funds and ETFs at cost.

***Vanguard is client-owned. As a client owner, you own the funds that own Vanguard.

Important information

All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your minimum investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.

For more information about Vanguard funds, visit vanguard.com or call 877-662-7447 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, or other important information are contained in the prospectus; read it carefully before investing.

This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.

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Vanguard provides its services to the Vanguard funds and ETFs at cost.

As of December 31, 2015 Vanguard has more than $3 trillion in global assets under management.

Vanguard is client-owned. As a client owner, you own the funds that own Vanguard.

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