John C. Bogle is the founder and retired CEO of The Vanguard Group, the largest mutual fund organization in the world, comprising more than 160 mutual funds with current assets totaling more than $1.4 trillion. Since his retirement from Vanguard in 1996, Bogle has spent his time studying, writing, and speaking on the financial markets and mutual funds. He is President of the Bogle Financial Markets Research Center, created in 2000 to support his ongoing work on behalf of investors.
Bogle is 84 years old, but not 84% in bonds. In this video segment he explains the decisions he has made when modifying his equity position over the years, and how the market has changed over that time. You start with a rule of thumb, he says, and work back.
Tom Gardner: By the way, Jack, I truly can't believe that you're 84 years old. Are you 84% in bonds?
Jack Bogle: No.
Gardner: So, you're violating your advice! I'm kidding ...
Bogle: You know, it's my rule of thumb. And of course, at 84 your Social Security doesn't have a capitalized value of $350,000 either! I'd like the next check to come in. My wife doesn't think we should take the checks, but we postponed them until we were 70. I could live on what I get from Social Security, because we live in a fairly modest way -- well, very modest compared to the standards of what you see in the financial world and corporate world -- but pretty nice compared to the typical American worker.
You start with a rule of thumb.
Gardner: Then you work back.
Bogle: You work back. And I haven't figured out, Tom, how to do it. When I first introduced this rule ...
I can remember back in 1999 at Morningstar, I told them that I was reducing my equity position from about 75% of my holdings to, I think 30% of my holdings, because the stock market was selling at 35x earnings and the bond market was yielding 7%.
I looked at the transcript a while back and I said, "Honestly, when I look at the math, I don't see why I would hold any stocks at all, because at 30x, 35x earnings, stocks were not going to give you a 7% return in the first decade of the 21st century."
Gardner: Now you look at the numbers, and you're not really sure what to do about them.
Bogle: Now, my own position is that stocks are more or less fairly valued -- probably a little on the high side -- but more like, depending on whose number you're using, 15x to 17x earnings, maybe 18x earnings. It's a long way from 35x -- half.
And bonds are not yielding 7%. They're yielding -- depending on what you want to look at -- 2.5% to 3.5% depending on corporate government mix, maturities and things of that nature. So, you have to think a little bit differently, but I have not done anything about that. I don't change my portfolio.