QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

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QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by Mel Lindauer »

Hello Everyone:

Once again I'll have the distinct pleasure of moderating a Question and Answer session with our friend and mentor, Jack Bogle. The Q&A will take place at our annual national get-together with Jack at Bogleheads 11 in Philadelphia on October 17-19, 2012. http://www.bogleheads.org/forum/viewtop ... 8#p1322518

Since many of you won't be able to attend to ask your question in person, you can post your question(s) for Jack right here on this thread.

Even if you're registered and do plan to attend, you should still post your question(s) for Jack here.

Shortly before Bogleheads 11, I'll consolidate all the accumulated questions by subject matter, and then ask Jack to respond to as many of your questions as time allows.

Fire away!

Best regards to all,

Mel
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by CyberBob »

Mr. Bogle,

In a past interview with financial columnist Scott Burns, and another with Forbes magazine, you stated that "Your bonds should be your age as a percent, including the Social Security value, and if you have a company pension you should capitalize that, too, just like Social Security."

Could you explain the actual mechanics of how one should capitalize Social Security and/or a pension in order to accurately account for them when computing overall asset allocation?

And when should you count Social Security and/or a pension? Should you count it only when you get it and make a big adjustment to your allocation then, or plan ahead and use the assumed date when you will get it and so adjust your allocation toward bonds more slowly than an 'age-in-bonds' guideline?

Bob
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by bb »

Don't know a good way to ask this question. Jack Bogle and others have frequented lamented the number of the best and brightest gravitating to the finance industry for employment. Is Jack arguing that people should not be attracted to the highest paying jobs OR these jobs should not be paying such high salaries. If it is the former that seems unrealistic. If it is the latter why? What would be the solution in either case?
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by gotherelate »

Jack, first of all thank you again for founding Vanguard and devoting your professional life to helping the little guy in investing. What can we little investors do to help ensure that Vanguard remains Vanguard? What do we need to watch out for? How can we and our descendents preserve this wonderful company that you started and protect it from potential threats from both within and without?

(edited for grammar)
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by hazlitt777 »

Mr. Bogle, could you highlight what you think are the pros and cons of ETFs versus the pros and cons of Mutual funds?

What will be future be for mutual funds in relationship to ETFs. Will they out compete them or not?
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by ronney »

Mr. Bogle

What would be your Lazy Portfolio for most of the Individual Investors?
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by shashi »

Do you see Vanguard becoming global and offer funds to investors around the world in their own countries? If so, when would this happen? 10, 20 years?
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by goalie »

Mister Bogle,

If you could go back to the early, start up years at Vanguard, what would you do differently? Maybe something in the corporate structure or fund design or management line up? Thank you in advance.

Chip
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What a man !

Post by Taylor Larimore »

Bogleheads:

I remember when I collected the questions for Mr. Bogle before I lost my voice to cancer. The first time I asked Mr. Bogle: "Would you like to review the questions beforehand?" He replied: "I don't need to see the questions. I like to answer questions spontaneously."

I doubt if there are many experts, so comfortable in their knowledge, that they would refrain from looking at questions in advance.

What a man!

Best wishes.
Taylor
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by jidina80 »

Mr. Bogle,

You have been a strong advocate for returning the control of companies from management to the shareholders. However, Vanguard's record on shareholder votes shows that in recent years that Vanguard has voted "with management" on pay issues more often than most other mutual fund companies. Vanguard has been accused of being a "pay enabler" for corporate executives. What are your thoughts on Vanguard's voting record? Do you think Vanguard is voting in the best interests of its shareholders? If so, why does Vanguard so often vote "with management" on exective pay?

Just
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by nisiprius »

Within Vanguard, has there been a sense of internal rivalry between the managers of index funds and the managers of active funds? Is there any "word" within the company about the relative status of active and index funds?
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by umfundi »

Mr. Bogle,

As you consider the current environment, and look to the next decade or two, are you optimistic?

Can you reflect on what might be broken in the current investment system, or systemic changes that might most help individual investors in the years to come?

Thank you,

Keith

(edited for clarity - Keith)
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Re: What a man !

Post by abuss368 »

Taylor Larimore wrote:Bogleheads:

I remember when I collected the questions for Mr. Bogle before I lost my voice to cancer. The first time I asked Mr. Bogle: "Would you like to review the questions beforehand?" He replied: "I don't need to see the questions. I like to answer questions spontaneously."

I doubt if there are many experts, so comfortable in their knowledge, that they would refrain from looking at questions in advance.

What a man!

Best wishes.
Taylor
Hi Taylor,

A priceless story of a great man.

Best.
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by abuss368 »

Mr. Bogle,

What are your thoughts on TIPS and the Vanguard Inflation Protected Bond fund? Is this fund needed?

Can we focus on the Total Bond Market fund only in tax advantaged accounts and tax exempt bond funds in taxable accounts?
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by hazlitt777 »

I wonder if Mr. Bogle would be willing to comment upon Marc Faber's explanation of the source of excessive speculative behavior in the market. If he could listen to this presentation he would be able to hear a detailed exposition of its cause according to Mr. Faber:

http://www.youtube.com/watch?v=H0sS6a9R ... ults_video
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by Mel Lindauer »

hazlitt777 wrote:I wonder if Mr. Bogle would be willing to comment upon Marc Faber's explanation of the source of excessive speculative behavior in the market. If he could listen to this presentation he would be able to hear a detailed exposition of its cause according to Mr. Faber:

http://www.youtube.com/watch?v=H0sS6a9R ... ults_video
Try again. You'll need to frame your entire question here. Jack certainly won't be stopping in the midst of the Q&A session at Bogleheads 11 to check your youtube link. And he doesn't want to see the questions he'll be asked in advance. Additionally, all the attendees will have to understand what the discussion is about, and most of them won't have checked your youtube link either.
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by hazlitt777 »

Mel Lindauer wrote:
hazlitt777 wrote:I wonder if Mr. Bogle would be willing to comment upon Marc Faber's explanation of the source of excessive speculative behavior in the market. If he could listen to this presentation he would be able to hear a detailed exposition of its cause according to Mr. Faber:

http://www.youtube.com/watch?v=H0sS6a9R ... ults_video
Try again. You'll need to frame your entire question here. Jack certainly won't be stopping in the midst of the Q&A session at Bogleheads 11 to check your youtube link. And he doesn't want to see the questions he'll be asked in advance. Additionally, all the attendees will have to understand what the discussion is about, and most of them won't have checked your youtube link either.
Okay. Let me try again.

If we continue to go into debt as a nation, at a rate of more than 1 trillion a year for the next 10 years, will this increase the level of speculative behavior in the market, increasing the volatility of stocks, commodities and bonds, or is this totally unrelated in your opinion? If it does increase the volatility, do you have any advice as to what the average investor ought to do in order to keep perspective and the ability to sleep at night?
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by Mel Lindauer »

hazlitt777 wrote:
Mel Lindauer wrote:
hazlitt777 wrote:I wonder if Mr. Bogle would be willing to comment upon Marc Faber's explanation of the source of excessive speculative behavior in the market. If he could listen to this presentation he would be able to hear a detailed exposition of its cause according to Mr. Faber:

http://www.youtube.com/watch?v=H0sS6a9R ... ults_video
Try again. You'll need to frame your entire question here. Jack certainly won't be stopping in the midst of the Q&A session at Bogleheads 11 to check your youtube link. And he doesn't want to see the questions he'll be asked in advance. Additionally, all the attendees will have to understand what the discussion is about, and most of them won't have checked your youtube link either.
Okay. Let me try again.

If we continue to go into debt as a nation, at a rate of more than 1 trillion a year for the next 10 years, will this increase the level of speculative behavior in the market, increasing the volatility of stocks, commodities and bonds, or is this totally unrelated in your opinion? If it does increase the volatility, do you have any advice as to what the average investor ought to do in order to keep perspective and the ability to sleep at night?
That'll work.
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by nisiprius »

With regard to the "age in bonds" guideline, you've that the present value of Social Security benefits should be counted within the bond allocation. Have you always meant for the rule-of-thumb to be interpreted that way?

Twenty or thirty years ago, when "age in bonds" was a widely-accepted mainstream rule of thumb, the reference was to the percentage of actual bonds within the investible portfolio, I don't remember Social Security ever being mentioned. For example, the 1990 edition of Burton Malkiel's A Random Walk Down Wall Street suggests a portfolio for the mid-fifties that is 50% stocks. The remainder consists of cash, zero-coupon bonds, a no-load GNMA fund, and a no-load high-grade bond fund. No mention of Social Security at all.

If it is now understood that Social Security is to be counted as a bond, but not before, and if "age in bonds" was right before, shouldn't the guideline now be "more than age in bonds?"
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by tiresias »

how would the market perform if everyone invested like a boglehead?
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Re: What a man !

Post by jidina80 »

Taylor Larimore wrote:.... The first time I asked Mr. Bogle: "Would you like to review the questions beforehand?" He replied: "I don't need to see the questions. I like to answer questions spontaneously."

I doubt if there are many experts, so comfortable in their knowledge, that they would refrain from looking at questions in advance.
....
Hi Taylor,

I admire Mr. Bogle's confidence, and I'm sure his busy schedule does not allow much advance consideration or our questions.

However, I think the quality of his responses would be better with some forethought. Who's wouldn't?

If possible, I urge you to present the questions in advance to Mr. Bogle, so that he, and his tiny and probably overworked staff, might reflect as deeply on these questions as those of us who have presented them.

Sincerely,
Just.
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by SGM »

What are Mr.Bogle's thoughts on the various tips etfs and MFs vs. direct purchase and laddering of tips?
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by dbr »

nisiprius wrote:With regard to the "age in bonds" guideline, you've that the present value of Social Security benefits should be counted within the bond allocation. Have you always meant for the rule-of-thumb to be interpreted that way?

Twenty or thirty years ago, when "age in bonds" was a widely-accepted mainstream rule of thumb, the reference was to the percentage of actual bonds within the investible portfolio, I don't remember Social Security ever being mentioned. For example, the 1990 edition of Burton Malkiel's A Random Walk Down Wall Street suggests a portfolio for the mid-fifties that is 50% stocks. The remainder consists of cash, zero-coupon bonds, a no-load GNMA fund, and a no-load high-grade bond fund. No mention of Social Security at all.

If it is now understood that Social Security is to be counted as a bond, but not before, and if "age in bonds" was right before, shouldn't the guideline now be "more than age in bonds?"
While this is probably one of the lesser issues in the entire spectrum of investing, it certainly looms large as a source of consternation in discussing advice on asset allocation.

I too would hope this question could be asked and answered.
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by nisiprius »

Some of Vanguard's index funds have tracking errors that are lower than the fund's expenses. For example, over the last fifteen years, as I write this, Morningstar is showing that over the last fifteen years the Vanguard Five Hundred Index Fund only lagged the S&P total return by 0.08%, even though it currently has an expense ratio of 0.17%.

It is widely believed that Vanguard index funds use active-management-like trading strategy to overcome expenses and reduce tracking error. William J. Bernstein discusses this in a year-2000 essay Selection Skill, Transactional Skill, in which he opines that Gus Sauter possesses both.

If it is possible for an index fund manager to overcome 2/3 of expenses by creating 11 basis points of alpha, why can't that manager intensify what they are doing, more than overcome expenses, and create an index-fund-like product that beats the index? If a little bit of active management can work, why can't a little more of it work?
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match or beat the index ?

Post by Taylor Larimore »

Nisiprius:
If it is possible for an index fund manager to overcome 2/3 of expenses by creating 11 basis points of alpha, why can't that manager intensify what they are doing, more than overcome expenses, and create an index-fund-like product that beats the index? If a little bit of active management can work, why can't a little more of it work?
It is my understanding that the goal of a good index fund manager is to match the index--not beat it.

Best wishes
Taylor
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by FrugalInvestor »

Mr. Bogle,

There is often discussion on the Bogleheads' site with regard to the safety of having most or all of one's portfolio invested at Vanguard verses spreading it among multiple companies. The justification used by those claiming that a Vanguard only approach is safe typically revolves around the ownership structure of Vanguard. It is said that since the funds themselves own the company that Vanguard having financial difficulties wouldn't threaten the funds or fund owners themselves.

Could you address and perhaps expound on this a bit for us? Am I as safe holding all or nearly all of my investments at Vanguard as I would be spreading them out a bit? Was the safety of investors' assets one of your considerations when initially structuring the company?

Thank you.
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by stratton »

Mr. Bogle,

What are your views on the proposed SEC regulation of money market funds versus the fund industry?

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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by Noobvestor »

Two questions for Mr. Bogle - each related to the one area I cannot understand about his investing advice: international equities.

1) You have made comments about specific non-US countries in the past suggesting they are not safe or wise places to invest in equities, but I wonder: if markets are indeed relatively efficient, and total-market indexing is the best starting point for investors, why speculate on the prospects of different countries in relation to one another by tilting heavily toward one's home country? If there are additional political or economic risk factors to investing in other countries, would these not further diversify the sources of both risk and return for a portfolio?

Since I anticipate the answer being related to currency risk, this may be the more important question:

2) Given that a young person has a great deal of human capital in their home-country currency, and an older person should have a great deal invested in home-country bonds, is currency risk really a concern when adding international equities to a portfolio? How would one begin to quantify such a risk either way?
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Re: match or beat the index ?

Post by Phineas J. Whoopee »

Taylor Larimore wrote:Nisiprius:
If it is possible for an index fund manager to overcome 2/3 of expenses by creating 11 basis points of alpha, why can't that manager intensify what they are doing, more than overcome expenses, and create an index-fund-like product that beats the index? If a little bit of active management can work, why can't a little more of it work?
It is my understanding that the goal of a good index fund manager is to match the index--not beat it.

Best wishes
Taylor
Hi Taylor,

My understanding is the goal of a good index fund manager is to match the index on a gross basis, and spend as little as possible thereby nearly matching it on a net basis. Nisi's question sounds like a reasonable one to me.

I will not be attending, but I would be interested to find out whether the fees Vanguard earns by lending hard-to-come-by securities account for some or all of the difference. Perhaps that could be a followup to nisi's question should Jack not mention it in his original answer.

PJW
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by Taylor Larimore »

PJW:
My understanding is the goal of a good index fund manager is to match the index on a gross basis, and spend as little as possible thereby nearly matching it on a net basis.
Your "understanding" is better than my own.

Best wishes.
Taylor
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by nisiprius »

Let's define "the bond market" to mean "any security you can buy from the Vanguard Fixed Trade Desk." That would include municipal bonds, TIPS, and junk bonds. The Vanguard Total Bond Market Index fund tracks the BarCap, formerly Lehman Brothers Aggregate Index. It therefore does not include municipal bonds, TIPS, or junk bonds. 1) Does it really deserve to be called "total?" 2) Why wouldn't it be a good idea to have an index fund that truly tracks the total bond market, including all commonly traded fixed-income securities?
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by umfundi »

FrugalInvestor wrote:Mr. Bogle,

There is often discussion on the Bogleheads' site with regard to the safety of having most or all of one's portfolio invested at Vanguard verses spreading it among multiple companies. The justification used by those claiming that a Vanguard only approach is safe typically revolves around the ownership structure of Vanguard. It is said that since the funds themselves own the company that Vanguard having financial difficulties wouldn't threaten the funds or fund owners themselves.

Could you address and perhaps expound on this a bit for us? Am I as safe holding all or nearly all of my investments at Vanguard as I would be spreading them out a bit? Was the safety of investors' assets one of your considerations when initially structuring the company?

Thank you.
This might be a question to pose to Vanguard as well, to address during their time at Bogleheads 11.

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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by abuss368 »

nisiprius wrote:Let's define "the bond market" to mean "any security you can buy from the Vanguard Fixed Trade Desk." That would include municipal bonds, TIPS, and junk bonds. The Vanguard Total Bond Market Index fund tracks the BarCap, formerly Lehman Brothers Aggregate Index. It therefore does not include municipal bonds, TIPS, or junk bonds. 1) Does it really deserve to be called "total?" 2) Why wouldn't it be a good idea to have an index fund that truly tracks the total bond market, including all commonly traded fixed-income securities?
Hi nisiprius,

I have asked this many times. Has the index not changed since the creation in the 80's?

Time for an update!

Including TIPS and high yield would allow a lot of investors to consolidate holdings.

While the risks would increase due to including junk bonds, perhaps there would not be as much impact with inflation bonds added.

Besides, the increase in yield would be welcome.
Last edited by abuss368 on Tue Aug 21, 2012 2:20 pm, edited 2 times in total.
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by nisiprius »

abuss368 wrote:
nisiprius wrote:Let's define "the bond market" to mean "any security you can buy from the Vanguard Fixed Trade Desk... Why wouldn't it be a good idea to have an index fund that truly tracks the total bond market, including all commonly traded fixed-income securities?
I have asked this many times.
Just to be clear. I don't personally want such a fund, and am not at all sure it's a good idea... but I think it's an interesting question and I'd like hear Mr. Bogle's opinion.
Including TIPS and high yield would alow a lot of investors to consolidate holdings.
Not with TIPS: the amount that would be present in such a fund would be tiny. I figured it out once, it would be something like a 3% holding. Anyone who actually wants TIPS is going to want more than that. I don't know what the numbers look like on junk bonds.
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by Ian Kennedy »

Dear Mr. Bogle,

Sorry I can't be there in person.

You have written that an investor's allocation to bonds should match his or her age. For example, a 60-year old's portfolio should have 60% in bonds.

At today's interest rates--and with stock market dividend yield now higher than the yield on ten-year Treasuries--do you still advocate this allocation?

Thanks,

Ian Kennedy
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by nisiprius »

If it had been operationally feasible in 1976, would you have created a Wilshire 5000 fund instead of an S&P 500 fund? What went into the decision beyond operational feasibility and marketing (familiarity of the S&P 500?) Was any consideration given to using a broader index?
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by BornInCA »

For some time, Vanguard has had index funds that track all the different caps and styles of the US Market (Small cap value, large cap growth, mid cap blend, etc.). While Vanguard has a foreign small cap index fund and an actively managed Vanguard International Value, how come Vanguard does not have any foreign index funds that track Large Cap Value, Large Cap Growth, Small Cap Value, and Small Cap Growth?
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HanSolo
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by HanSolo »

The Fed just announced QE3, and it's unclear whether this is a good idea. Some say that it's irresponsible to print money, and that it silently transfers wealth from savers and retirees, without their consent, to banks and borrowers. Questions:

1. Should the Fed be taking such actions?
2. Should the Fed be restricted in their ability to do this?
3. Should the Fed be required to get the consent of the savers and retirees (such as by 2/3 vote of Congress) before having them bail out the banks and borrowers?

Thanks, and see you at BH11,
HanSolo
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nisiprius
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by nisiprius »

I agree with what you say in "The Silence of the Funds" in Clash of the Cultures. But I don't know what to do about it.

You suggest that fund investors "vote with their feet" and "gravitate to fund organizations that are serious about putting their interests first." Vanguard is one of the worst corporate enablers and routine rubberstamper of management proposals. Unforturately I can't "vote with my feet" because I don't know of any mutual fund company that, overall, is more serious than Vanguard about putting client interests first.

What actions can I take to influence Vanguard to "act like an owner" of the companies whose stock they own?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by Investor2 »

Federal and military employees have access to the Thrift Savings Plan (TSP) G Fund, which has some unique characteristics. Given the current environment, how should retirees or near retirees use the G Fund when constructing their bond allocation? Should they put 100% of their bond allocation in the G Fund, or should they also include some other types of bond funds (such as corporates, TIPS, I bonds, or Total Bond Market) and in what percentages?

(Note: I posted this question under the general experts Q&A thread, but would be interested in hearing Mr. Bogle's view as well, if you think this question would also be appropriate for his Q&A session.)
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by mur44 »

I just finished reading your book, 'The Clash of Cultures'.

You addressed American Competitiveness when corporate pensions
are involved. You should have discussed how American Health Care
system blunts the country's competitiveness.
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by Mel Lindauer »

Mel's bookmark. Questions recorded to this point.
Best Regards - Mel | | Semper Fi
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Re: QUESTIONS FOR Q&A WITH JACK BOGLE AT BOGLEHEADS 11

Post by Mel Lindauer »

Thanks for your contributions. Questioning is now closed.
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