 One of the real highlights of our annual conference is that the Bogleheads get a chance to have their questions answered directly by a Vanguard founder, Jack Bogle. This year's moderator at the Q&A with Jack is a retired mobile oil corporation human resource executive. He discovered the Bogleheads in 2001, and he and his wife, Patty, attended their first Bogleheads conference in Denver in 2004. They've both been active in the Bogleheads community since that time. They live in Northern Virginia area and started the Washington, D.C. area of Bogleheads local chapter. Please welcome my good friend and conference teammate, Ed Rager. And please give another very warm welcome to our very special guest of honor, Mr. Jack Bogle. And now without further ado, let's get started with the Q&A. Take it, Ed. Just let me say one quick thing. I spoke at the NASD, I had a big long speech, NASD National Association of Security Dealers in Washington about a decade ago. And when I was introduced, they gave me a standing ovation. And I looked at the audience and said, why didn't you say that till after I spoke? We know this crowd loves you, and that's why we're here. So you'll probably get another one before the day is over. Okay, so I've got a number of questions, and we'll get to as many of them as we can. This first one is from an attendee named Fred Beery. He says, the market has been up for years, and I have gained more than I expected, in setting up a donor advisor fund for charitable giving over the next, say, 10 years. What allocation would you suggest between U.S. equities, bonds, dare I ask international, to maximize the returns for the charities I give to? Well, first of all, if you're going to have a balanced program, which is what you laid out there, you're not going to maximize your return. The best way to maximize your return is to buy in the long run, maybe not from here, is to buy the S&P 500 and leverage it. And you don't want to do that. The prudent thing, so the real question is not to get maximum returns, but what is the best way to get prudent returns? And I would stick with the balanced index fund formula of 60% stocks and 40% bonds, and maybe for a program like this, 65%, but you really can't make an argument over 65% or 60%, because nobody knows, and God knows, boggles them now. So should international, non-USB, and that 60%, I don't think you need it, and I don't think the rest of the world will do as well as the U.S. But I'm wrong so often in my new book. I spent more time talking about the things I did wrong than the things I did right. So it's a matter of judgment. And I'd say maybe to honor the principle, let's call it Taylor's principle, the free fund portfolio, you might have 10% to 20% of the stock position, no more than that, in non-US stocks. Okay, thank you. This next one is from Adam Mann-Warren. Since attending the Bogleheads conference for the first time last year, I've been quickly moving my asset allocation toward Taylor Laramore's three fund portfolio. Recently, I've been lured into the Vanguard Active Alpha Seeking ETFs. After rereading your article on reversion to the mean, am I just chasing my tail with that active ETF bet? Yes. I think that answer is fairly clear. So Adam, listen up. This next one is from Trey Parrish. As a retiree in mid-retirement, given your lower projections for stock market returns over the next 10 years, should I reduce my stock exposure in my portfolio since CD rates are rising and becoming more attractive? And how can I determine the appropriate stock allocation? Well, you know, I've said before this is a really hard time to invest. I would say as a general principle with a stock market at these levels, it is probably a good idea to, as Maren Rothschild said, to sell to the sleeping point, to sell stocks where you're not worried about it. Maybe a 10% percentage point reduction in the stock position. Maybe not. What makes this time so different is that bond yields are so low and they're going up admittedly. The stock market is up to, I think someone said 3.2%, 25-year treasury, 30-year treasury. And the stock market is 1.8%. So you get a higher yield, but these are not really super yields. And so it's really not an easy question to answer because it depends not only on your ability to withstand a market decline, your financial ability, but on your emotional ability to stand apart and decline. So you're asking me to do not only a financial analysis, but a psychological analysis, which I'm not prepared to do on the information contained in one or two sentences. But I would say the biggest mistake investors make is when they think the market is high. They get out. They go zero. That is the dumbest thing you can possibly do because there's no certainty in this. So in my book, which I think, I've signed so many I don't feel, I feel badly about blacking it a little bit, the little Book of Common Sense investing. And I say never have less than 25% of it in equities and never more, and there are exceptions to both of those. But I would kind of stick to that, just make sure you've got a decent position. And I would think today would probably be a time to make a very, if this is the way the investor feels, just makes you more comfortable, makes you sleep better, to do some kind of a five or 10 percentage point reduction. So if he's at 65%, you go to 60 or 65, 60 or 55, excuse me. And, but there's no, I don't know how to get across, people ask me these kinds of questions on that. There's no certainty about this. You know, you could be so terribly wrong that you don't want to do anything too big. But in general, I'd say if you're at 60, 40, and I happen to be 50, 50 myself, I told you that yesterday, and I spent half my time wondering why I have so much in stocks, and the other half wondering why I have so little. The investor's dilemma, I think I called it. But it gets to, presumably the financial ability to withstand risk is there, and the emotional ability there. You have to add the investor as to ask for himself. But if you're really bothered, really scared, do something. I mean, life is too short. But are there precise answers to the question? No, there are precise answers to anything in the field of investing. Okay. This is from Duncan Rankin. If all of your portfolio is inside Roth IRAs, is it better to use Taylor's three fund portfolio or use an equivalent target date or life strategy fund? Nobody knows. Nobody knows. You know, the target date is an interesting kind of an idea. Your equities go down as your age goes up. Your bonds go up as your age goes up. And Taylor's three fund portfolio is presumably a buy and hold. And that could easily do better, but it could easily do worse. There's just no way that I could think of, you'd have a balanced portfolio on any event. And there's no way that I could predict which will do better. But if it were me, we are a funny, funny crowd, these investors, we investors. I would do the simple portfolio rather than the complex portfolio. Now that means you're not on as much fun game playing. You know, it's kind of boring. You don't have all your money in the balance index fund. You know, what do you do? Well, you don't look at it once a year maybe. And take it from there. So there's just kind of, as the old saying goes, how many angels can dance on the head of a parent? And that's how much you should have in one or the other. I just can't answer the question. Okay. This is from Meryl Moore. What is the single best piece of advice or lesson that you want to pass on to your heirs? I'm thinking. Well, that's a very hard question because getting when you get into a presumed investment advice or not. Just a single best piece of advice or lesson. The obvious thing, the best single advice is never lose your humanity, be a good human being. Now, presumably this is actually aimed at an investment. What do you do about investing? And a single word I'd say minimize costs and start early. That's a second piece of advice. And never stop your regular investment program no matter whether times are good or bad. I mentioned low cost. Be diversified. And now I've gone over the single best piece of advice. It all counts. This is from Dion Stams. I like the statement that, quote, in theory, practice and theory are the same, but in practice they are not. End of quote. Do you have advice for us managing our portfolios on the difference between theory and practice? Let me say a couple of things about that. You know, I read a lot of the financial analysts, journal articles, and a lot of the journal portfolio management articles. And I can understand about 15% to 20%. They've got all these Greek formulas and they make things very complicated and they're looking backward always. So they're doing a lot of data mining. If you look backwards and see something that doesn't work, you throw it in the ash can and find something that does work. And believe me, if you do enough data mining, you can find a lot of things that work. In the past that have worked in the past, I should say. So a lot of the theory out there I think is cast on a very misleading and foolish light. It doesn't allow for cost. It doesn't talk about what strategies you should have, what you do in bed. And there's this back testing that it's called that leaves me dubious about theory. Indeed, I wonder if anybody who writes these academic theory articles has ever followed his own advice. Think about that. And so practice, I would favor over theory. But if you want to tell me that theory gross return minus cost equals never return, I would follow that. Is that a formula? Is that a theory? Is that a practice? That's certainly a practice. And it's certainly a theory too. There's this old saying about it works in practice why the heck doesn't it work in theory? An interesting question. I think there's much too much, much too much. The search for the holy grail in investing, the search for the market beating, consistently market beating formula, without the knowledge that as far as I know in human history the holy grail does not exist. So you don't want to spend an awful lot more time looking for it. Okay, next from Nuoff. I'll put my glasses on. Nuoff Felumbam, I'm sorry for the name pronouncing. At what age did you introduce your kids to financial literacy concepts and what methods did you find most effective? Well, I did it very differently. You can't answer that question very well because all kids are different. And I'll give you an example of that. My oldest son used to be a hedge fund manager. I mean a market neutral hedge fund manager. He does very well for his clients and himself. Unbelievably because his fees are very low. He was kind of restless and not fun and not getting much interest. This one he would say 16. And not getting much interest in the world. So I had wanted to take a look at the stock market, John, and I'll pick out a couple of stocks for you. You can pick out a couple of stocks that you like and follow them and see what happens. We weren't going to buy them, just put them on paper. So he picked out about four stocks and I didn't know how successful that advice was until I went into his bedroom one evening and there there were all little letters in his nightshade. So it was a way to get somebody interested in investing and I'd test these contests that schools and colleges have among kids to see who can pick the best portfolio and all that because it suggests that that's the way you should invest. But that's just a game. That's not anything to do with real investing. So at what age is a kid able enough, and all children are going to be different, able enough to understand the essential message that I give and I should tell you that for 25 years so let's use that one, probably the oldest the oldest child well the children probably they're now in their two of them at their 60th birthday God am I that old? So probably when they got into their early 20s like teens I told them I was going to put some money away for them every year and I'm going to put it in Vanguard Balance Index and that's a yeah I didn't part of it's an administrative convenience you know I've got six kids 12 grandchildren I guess six great grandchildren show this is that right Mike I told you I relied on Mike for a lot and so probably in their late teens or 20s and I told them what I was going to do was put it in a balance index fund told them what that meant wouldn't go up as much as the market but it wouldn't go down and you didn't have to worry about it and then every once in a while a news clipping would come along and I used one of them in my book a little book of common sense investing it showed how well the balance fund had done balance index fund which didn't very sensational at all but it had beaten the college endowment funds I think it's very close to the chart that Gus Soder showed you a little while ago and so I said to Ian just don't do anyone I put it away that it's in trust they won't get it for I guess like Cork I can't remember no they don't even get it then then their parents become trustees and then they can draw a capital they want to buy a new house or something like that or put a down payment down but you would be amazed at I won't give you the numbers but putting a large kind of gift that I can afford to do every year year after year for 25 years my be the damn kids are rich and I don't give them valuations I don't talk about it I want them to make their own way in financial life and when I Cork they're going to be very very happy grandchildren but I won't be there to hear the laughter I guess I'm not sure Steve Floyd wants to know if the US stock market suddenly went into an unexpected broad market decline of greater than 25% and still heading south what would you tell us to help us stay the course well the first thing I'd say was who the heck knows whether it's still heading south it may have stopped going down at 25% and a lot of them do stop at the 20-25% range but you know it's an opportunity to buy more and certainly there are a lot of funny ways it's not very hard to give advice on these kind of things but the one piece of advice I would categorically for everybody for God's sake don't stop a program of regular investing because the market goes down you're killing the whole value of dollar cost averaging and it may go down for a few more years who really knows but so much the better when you're putting money in every month because it will come back I think we're in a little dangerous territory now as I tell people it's always possible just because markets are markets so I think the questioner is right to say what should I do and I guess the answer generally is don't do something just stand there This is from Kathleen Ryan What was the best advice you received from each of your parents That was a long time ago I should remember but they always wanted me to do what was right and we placed high value on telling the truth which would be a kind of an integrity related thing they were taught we were taught to behave like honorable human beings but I can't remember any specific piece of advice that we got Well I would think that everyone in this room and around the world would agree that you've done every one of those things I hope so try my best Yvette Sir Lucho again forgive me on the pronunciation What are your thoughts on ways a new retiree can protect their portfolio from inflation Protecting yourself from inflation in the stock market is a very difficult thing there is very little correlation even over intermediate with stock prices in inflation there is a direct correlation a very high correlation between dividend payments and inflation and those lines almost overlap each other I think I had one of those charts in that ancient Princeton thesis but dividends are highly correlated and I think we should spend more time thinking about dividends rather than market values because market values are all over the place and dividends are pretty reliable to go up a little bit each year like inflation is and now someone mentioned the other day Jonathan maybe in 19 what was that year 1979 or 80 dividends went down 22% on the S&P 500 that's an extraordinary event it was the biggest decline in dividends since 1929-1933 so it doesn't happen over and over again that's the case it was most extraordinary about it it didn't reflect a general drop in dividends it reflected the elimination of dividends by almost all the banks they had to stop paying their dividends so I wouldn't give that much credence I think dividends are fairly secure and you should be worried not about the value of your estate but about the income producing capacity of your estate or your retirement plan once a month you go out to the mailbox and get your mutual fund dividends and your social security check and then you come home and have a nice dinner live in a nice house whatever else you want to do we should focus I really believe this so strongly we should focus more on the value of our investment program than on the market value because markets are crazy things and that's what makes investing so difficult and if you want to look at it that way it's much fun this is from John Allen I would like to know more about you as an individual what do you like to do that is not related to investing and what places do you and your family find most enjoyable to visit well I hate those questions because I'm in fact kind of a jerk and that is I have gotten so wrapped up in my career in my crusade in my mission that I am not nearly as well about as the human being as I should be I try and read three or four good books a year when someone that has a good education which I certainly got should be reading a dozen books a year I do read The New Yorker that's my one claim to omniscient on the bus kind of reading and it's a great magazine and greatly written and great subject matter you just can't beat it but a few books a year and I'm talking about good books I sometimes throw in a junk book I read The Woman in the Window that popular book a few years ago still I'm quite sure of what happened at the end but of course now I'm not the man I used to be and don't say no you never were but I can't do much in the way that I used to play a lot of tennis squash I had to pick up golf after I had my first heart attack which was 19 31 years old I guess that was 1960 and so I had to give up the racket sports and then I finally found a doctor who said get back to racket sports which was nice although turned out to be something I shouldn't be doing my peculiar form of heart disease actually collapsed once on the squash court and died and my opponent didn't know what to do he ran to the may have heard this story he ran to the locker room the guy that said call for help Mr. Bola was down I think he's dead and then the guy said well you know I don't know we don't really have a system for that and so I came back clunk clunk as already good in my heart and that turns out to be quite a brilliant thing to do particularly in that case because it actually started and when the emergency people got there they said do you think you need to go to a hospital you can't make this stuff up right Mike and I said yeah probably a good idea but so I can't do the athletic things I have a lot of you can see it here I can't do even much walking now I'm very shaky in my balance I'm taking some physical therapy I hope it will get better but time is not on my side but I think my kids would tell you I've been a good father and you can be a good father in my fashion I always thought my job was to lecture the kids but they show them how I behaved so they weren't saying when something happened you told us not to do that daddy we don't get much of that because I tried to live to the standards that I would have lectured them on and so we're close in a lot of ways children grandchildren have a very happy nicest thing for a family is to have the cousins all interact to what together and we don't do that we do it a very high percentage we all get together in great times as a family so I don't feel too guilty but the prime reason I was able to be a less than perfect father or less than I don't know how to explain this but you get consumed with a mission and you also get a reputation and sometimes I think half of my life is spent trying to live up to my reputation and this I think is not uncommon at all it's sort of like Adam Smith invisible spectator is it invisible? impartial spectator I depend on him for every impartial spectator you've read about that and you'll read a little bit about it in my new book but I have a fantastic wife she was a great mother he's a great mother she's a complete workhorse and now she has she's about five years younger than I am and now she has the task of taking care of this poor doddering old fool and it's hard for me to get around the house even so she really steps up to the plate and does that too, one more task she's in charge of me and the dogs so I don't need to make this too apologetic there's an old saying if you do over again would you do it differently? why the hell would I do it differently? I'm happy with what I've done in a small way proud of what I've done and a lot of it's because of people like you in this room the people that have been helped by my simple ideas and I say my higher high moral values you mentioned your book there was a question we're eager to read your new book is it coming out in November? I think so that's really funny if you can stand a little by play here Mike has been the lead horse and tried to get all the proofs done and all that and we got the final proofs and I looked at him with a weekend a couple of weeks ago and we only had four days to look at him and I decided that chapter 17 should not be chapter 17 it should be three different chapters 17, 18 and 19 so I separated the three rewrote the third and brought it in on Monday morning and I thought Michael was going to faint and I thought the editor Wiley was going to die so I turned that over to Mike to deal with it and it's a better book because of it but it didn't hold up the publication the reason I mentioned it here so it should be out around November 15 the note on Amazon says November 29 and that's a special distribution problem for Amazon and I read you that part you, me and the universe I'm sorry the universe, you and me and always you, me and the universe come to help a bit wrong under why and so there's a lot of moralizing in it and increasingly I find that life is kind of simple drawing your humanity and try and get the hell out of this world as a decent human being and you've been lucky in your education in your family family that I grew up with and the family that I have now and have also had a career that's mounted on more than nothing I don't know I shouldn't be satisfied I will never be totally satisfied but I feel pretty good about my life so far so far okay Bob Ronan wants to know do you think bubble heads are too thrifty so that they end up leaving too much money for someone else to spend should we splurge a little more I miss the middle do you think we end up leaving too much money for someone else to spend should we splurge a little bit more well you ask that question of the cheapest guy in the United States I hate shopping I don't even go into a store I get most of my stuff including everything I'm wearing at this moment from L.L. Bean because they have like a little catalog and you just check off a few things they're calling by phone and they send them to you it's kind of wonderful and they're not very expensive but everything I give a word I don't know if I really should say this but I will tell you the truth I might take a couple of families at the dinner and I get worried about the bill do you really have to have steak what's the matter with chicken no I don't say that but I think that you really need a salad course a nice big dinner a dessert and I can give a very large donation to a charity and not even think about it so it's kind of weird but it's a lot more fun to give away to people with people that have less than you do then getting accustomed to highway of living going out for dinner for example we like to sort of place in Lake Placid very nice we've been there for 50 years now and bought by my wife's parents and if I ever say to the kids up there we'd like to go out to dinner tonight they always say if it's nicer than it is here and we don't go out for dinner then no place on earth nicer than that we also had multiple questions from people out on the Boglehead website that we weren't able to attend and I thought I wanted to mix some of those into the questions as well and start off with what major changes or trends do you foresee coming in the next decade or two well I'll give you with reasonable brevity the three that are right out of the book chapter 17 is not part two with three chapters and the chapter that three of the book is called the future of investment management and the three chapters are number one the mutualization of the mutual fund industry and there's no way that at some point other firms will adopt the Vanguard shareholder first strategy and I want to but when costs get driven down enough when directors wake up to pay huge fees for bad performance it will finally happen and I do tell the story in there are my two big attempts to mutualize I try to mutualize Putnam and I try to mutualize a subsidiary of IBM that ran their money and in both cases I fail but on the other hand you're not out to have three strikes and that's only two so I believe that the industry will be forced economically to run itself for the fund shareholders and not for management shareholders that's number one number two is the fight to save the S&P 500 index there are all kinds of forces against it and it's in a sense it's own worst enemy it's so successful that assets are concentrated and the index funds on very large portions of every company in America and pretty much around the world and for U.S. companies Vanguard owns I think around 8% BlackRock owns almost 8% that's 16 I think I used these numbers earlier and States read about 4 just those index funds and that's 20% and if you throw an American fund they probably own 3 and then you go way down from there but the concentration of power the first issue is the number of competitors should you own all seven airlines a very serious attempt to say no mutual fund index or otherwise but it applies mainly to the index fund you can own more than one company in a given industry I talked about this briefly in the other day and out of that fight that somebody better be making I'm doing it now myself to say it because I think by common agreement the S&P 500 index fund that we started in 1975 was the greatest advance for serving investors in the history of finance that seems a little broad but nobody else can think of any other and so we cannot let that go but there may be things that have to happen because the other part of the problem and that is concentration of voting power and as an article by Dr. John Coates professor of Harvard law school who says do we really want a country where 12 people, 12 individuals control corporate America I think he's wrong it's more like six we're going to end up here and not 12 and he might be says 12 just the number he picked out of the air number of individuals, the chief executives of big money management firms are going to be able to run corporate America unless something changes something will change, it will be changing governing responsibilities maybe changing the law right now it says that no mutual fund can own more than 10% of any security voting stock of any company but it only applies to the mutual fund not to the complex so it's all very easy to get around which gets me to the third part of the third issue which is what I call in the book the investment company the financial institutions act excuse me of 20, 30 number picked out of the air and as the investment company act is written basically to regulate closed end investment companies it doesn't regulate institutional investors it regulates mutual funds and in incremental ways mutual funds were never the focus of that act so there were things that were designed for sort of procrusty in bed things that were designed for closed end funds were applied to open end funds and it also relates to I mean this litany of problems it relates to a mutual fund well this isn't a mutual fund because it was in 1940 most people had just one fund and now people have a lot of funds the regulatory unit should be the mutual fund complex or the management company and not the mutual fund itself my opinion so that will be a big change it's going to happen all these things are going to happen and I can't tell you why I can't tell you how and I certainly can't tell you when but I can guarantee you you younger people in the room who will be here to see it mark my words okay thank you do you think the market has become more efficient than it was 10 or 20 years ago or less efficient I believe the market is precisely as efficient as it was as it was 70 years ago and I picked that 70 years for a reason and that is I showed the one in my proposal to start an index fund I showed directors the performance of the average mutual fund there were all large cap funds compared to the S&P 500 and the mutual fund lost for the S&P 501 by 1.6% a year the article I wrote which I mentioned to the financial analyst journal I wrote up to date to the previous 35 years to 19 I'm sorry to 2015 probably and the gap was exactly the same 1.6% that may be just a happy accident that they're exactly the same number but it's just that whatever efficiencies there were then there are now whatever management ability was able to overcome it now it's the same same as it was then there's no evidence that this institutional market of today is much different than the individual dominated market of the 30s and 40s and 50s and why would there be a difference when all these all these institutions are just composed of human beings and they want to do better than one another and with the human beings or institutions or real human beings the market is going to be quite efficient but never perfectly efficient and this is true for the whole every year of the past 70 years and even before that and it's the efficient market hypothesis is right some of the time and wrong some of the time which I think means it's a lousy hypothesis so I don't see any evidence that the market is less efficient or more efficient none do I make my position clear if you could travel back in time to give some advice to the 21 year old Jack Bogle what would it be get into the mutual fund business as soon as you get out of college yesterday you mentioned China rising could you please talk more about this well I'm not an expert on China but what we see out there is continued population growth continued substantial GDP growth which ran up in the 11 or 12% annual GDP growth for a while and now it's down to I believe 6 or 7% very healthy growth continuing those numbers are about right and I see a more enlightened in some ways Chinese government that's prepared to let entrepreneurship play its own role business play its own role and what could get in the way and then those are things they basically have a stronger base economic base, population base than the US and they will gradually catch up and pass us really any question about that and they have dragging them down a tremendous amount of regulation and what do I want to say maybe mind control you really have to sign on to Chinese Communist Party if you want to get anywhere one party and they're giving that a certain amount of continuity by having a leader who I think they suspended the rules that he the leaders change every six years to give them lifetime and then I heard some of them taking it away so I'm not sure exactly where we are on that but it's a very regimented society a very debt ridden society they have big economic issues in a lot of building that goes on with huge debt and nobody moves into the buildings this is the problem that we face in America from time to time and it seems to be a serious problem but probably the most serious problem is when you what do we know about China and that is we don't know a heck of a lot they guard their information they would give you misinformation if they could and they do give you some misinformation but sooner or later you know when you're playing with a half a dozen or a half a hundred different economic indicators it would be pretty clear which ones have been bused with and which ones have not so I think they're coming around a little bit but I think they're powerful potential short term problems and a real risk to world stability Do you like Vanguard's target retirement funds and would you recommend them to most investors for their tax advantage accounts well take the easy part if you want a target date retirement fund I would lean strongly in favor of Vanguard's why? because our costs are a fraction, you knew this was coming a fraction of what the others are charging it's a curious paradox well I do not I believe when I've said this before and I'll say it again I believe 40% in equity 40% of the equity position outside the US not the right thing to do and to do it I think if you're not sure non-US will do better than the US give people a choice say we're going to start a whole series of international target date funds God knows we've gotten up funds already another 15 or 20 of them won't matter 12 of them I guess and you decide instead of just saying here's what we're doing notice that nobody read because people don't read notices that said all the other two we are not particularly out of line compared to the other target date funds T-roll price American funds I guess the next two competitors and they have heavy international components I'm not sure it's 40% maybe a little more maybe a little less but we're all following pretty much the same strategy and what this makes me reflect on is from the very beginning I thought the best strategy for investors and for Vanguard the firm was to have funds with relative predictability so you are never way out of line with your competitors and you will win on cost if you really are right in line with your competitors so if you look at a fund like Windsor and look at other large cap value fund say and this is maybe not the best example in the world you're going to find a 99% correlation between our returns and if you have a 1.5% cost advantage when you take out lower turnover, lower expense ratio and no sales load 1.5% is easy it's probably to conservative you'll win by 20% over 10 years approximately 20% over 10 years 20% better than the average fund it's good enough for you I don't know how to help you honestly so and you don't get money pouring in at the top when your performance is great we just think about Magellan Magellan fund Magellan had this great performance the money poured in it got to $110 billion paying the Johnson family a couple of billion a year I don't think they needed that badly and they do if they're going to cut their prices on their index funds to zero couldn't resist that and then it stopped doing well and now Magellan fund is like 9 billion about right Mike 12 okay let's call it 10 billion you could have just said yes you know Mike is such a treasure I got to say that again we had such a great time together he and I he takes that in the same sense of humor that I overdid out but that's $100 billion that's left Magellan fund probably more than that because the market has been going up during this period even though their performance has been bad $100 billion worth of disappointed investors no wonder Fidelity is thinking more about indexing and so the idea of being really good must come with a knowledge certain that when you're really good in some periods you're going to be really bad at others that's the way at the markets so that's a terrible strategy because the money comes in as I said when you let the investor down it goes out and you've got a dissatisfied investor who's then probably dissatisfied general public who knows your company so that has worked out well with index funds our other funds have I talked about this before our relative predictability and so is high and to focus this particular point on Ed's question is this relative predictability for our target date funds relative to our competitors who all have heavy international position or is it relative to a simple US stock bond position how are investors going to relate to that a lot depends on how international does international I should say non-US and the fact that I wouldn't do it wouldn't have done it or wouldn't have done it to such extent really means nothing because I'm often wrong if never in doubt is that and so there's also no magic in a target date fund I mean it all looks so simple but it is there will be periods when you'd be better off having a very high percentage in bonds when you're starting off in a very high percentage in stocks when you're finishing I mean that's just the way the market is it's so logical and sensible and it's not a bad thing but I think not maybe I wonder at the end of the trail whether the target date fund won't prove to have been offered kind of as a panacea and the investment business and the mutual fund business there are no panaceas I'm sure you have that lifetime of learning no panaceas okay the next question is what are your proudest accomplishments you said this the other day quoting Sophocles did I tell you Sophocles well if you don't remember it I guess I didn't tell you or maybe you weren't paying attention oh we were paying attention but he said one must wait until the evening to enjoy the splendor of the day and so you're asking me in effect how do I feel about the splendor of the day what's my biggest accomplishment but my evening isn't here yet so I'm going to wait until you know I call it a day in this business and I don't know when that will be you know I'm going to hang on as long as I can I will as you'll see in the book I will keep right on to the end of the road and though your day be long let your heart be strong keep right on to the end you're tired and weary I can probably say the whole point still carry on till you come to your happy abode and all you've loved and I'm waiting for will be there at the end of the road period next question is what strategies would you use to avoid the sequence of return risk there's just not there's no way to avoid the sequence of returns there is one thing that I would advise everybody which is at least tangentially related to this and that is when you look at a funds record look at this I mentioned this the other day in connection with the international and the growth and value put a dollar in the fund and put a dollar in the market and accumulate those dollars each year and then do a one into one chart so you're not looking at a single unit like the 10 year 20 year 30 year performance you're looking at how it was achieved and if you see this at the beginning you'll see it jump right out at you probably somebody started a fund with a hundred thousand dollars and put a whole lot of new issues in it and got way ahead and stayed ahead fell back from that high but it's still way ahead at the end of the game so there's the market is going to do what the market does when the market does and sometimes rationally and sometimes irrationally but the reality is and again coming back to my idea about dividends and this is slightly different the market is a terrible thing to think about because it has this speculative element in it which means sometimes it's selling to cheap, cheap and sometimes it's selling to dear and what we do know no, no is it ultimately a return on the stock market S&P 500 matches the fundamental return of the S&P 500 the dividends yields plus the earnings growth it has speculation goes speculation but you always come back sooner or later it may take a while to the fundamental return that is the return created by business and that is dividends and earnings growth and so we can look at the market today and say it doesn't look so good and using that particular formula or that particular concept you're probably right but it could be I didn't say when on any of these things and it could be a few years I don't think much more than that before the market comes down to a speculative it's fundamental value but right now it's higher and we know that and but nobody knows when so you want to be very careful about doing anything about it what happens is people look at it now and say it's going to go down to it's probably take about a 25% drop or something to get to it's normal fundamental value of the earnings and dividends and someone looks at it, well I'm going to get out now and then a month passes and two months passes and three months pass and a year, two years and five years and somewhere along the way the investor says I was wrong so I'm going to go back in that's usually the time to get out so I if someone the market is the market there are millions of people who are smart and people who are dumb institutions who are smart and institutions who are dumb investors who are lucky and they all come out as a group with the market return and there's just no predicting the sequence and if there were we would all be gathered here there wouldn't be anything to do the answers would be easy but the answers in the market and it's very frustrating two part question what is the best and worst personal financial decisions you've made in your life? well that's it I confess that when I got out of college and started to make a little more than my initial pay of $250 a month and I was able to save a little like I did some investing in individual stock and they all had great stories and none of them panned out and when I had a little more money and I'm not talking about big league money here at all I had a broker a friend of mine from Smith Barney and he liked to call me up and tell me to get out of this and into that and it wasn't the fact that every single time I should have gotten into that and out of that which is the way the world works but it was a damn phone call I was wasting my time talking to a stock broker when I had much better things to do in the office yet so the biggest mistake I was was letting that go on too long which is probably ten years I do own some equities now always have and basically dominated by I've been director of any number of companies maybe five and I've gotten option stock for each of those and so I've kept those stocks that I've accumulated there and not sold but other than that I really had very little to do I did to me just full disclosure being full disclosure I did to show my confidence in my son's small cap growth fund I made a pretty decent investment you know that and it's really not well so and I think you could say is it really a mistake a mistake a mistake is something you learn from with a small amount of money it's probably the most brilliant thing that ever happened to you so that would be it I didn't get the religion adequately well the final question that I have Jack is would you please run for president there's an old joke and it's a Boston joke about guys with a little lisp but I won't bother you with the old joke but his answer was I won't say yet I won't say no but I will say that that's the best over I've had today all right we can open up to the audience if anybody else has any additional questions we've got a few more minutes hold on until we get a mic back to you Jack thank you so much yesterday we had a great time at vanguard and so impressive I think everyone agrees everybody's been talking about it and the crew members in particular are what make this place so impressive and they talked again and again about how much they love working at vanguard and how much they love you as the founder could you share because many of the people here work in business or business leaders are able to start that culture that lives on today well that's really a nice question because it comes out of a little bit out of the events that transpired in my book and that is I think I started to say this to you yesterday and it was originally about landmarks each step along the way that got vanguard from the little skeleton company the biggest company in the world I never ran 12 of them and I read the book and I thought it was a stinking book and instead of throwing it away I added a chapter about human beings and it's called caring the founder's legacy and in that I tell the story of when we were probably around when you say 200 crew members we started with 28 personnel function it's called HR today human relations and we were not about oh no we're not about to hire anybody we don't have any money to hire anybody so I decided to get an individual in the company to be the head of personnel and her name was the owner of the centcraft she worked in the legal department I cleared it with her boss he said he should do it and I came in and said I tell the story in the book say on or we want to start a personnel kind of function your boss tells me that you would be good at and you could do it and would you be able to do that whatever you want Mr. Vogel this is not an answer I got to some frequency and I don't get quite that much anymore oh I shouldn't have said that and so I said well that's great thank you and she goes out the door and then she comes back in and she says I want to do whatever you want me to do Mr. Vogel but what is it you want me to do and I said well you know that's a really good question and I haven't thought much about what I want you to do so let me try this I want you to hire nice people and make sure they hire nice people and out she went and did that so the key is to have people that have at least a touch of niceness of human goodness and even more than that and yes you have to have people with no technology particularly so you need the technical it requires very brilliant people and but even then you should try and get people who are at least fun to be around who are committed to the company committed to their jobs committed to their fellow crew members that's amazing how many of these people I mean I talked to a lot of 25th anniversaries retirements award for excellence winners I'm still spending a lot of time which I love talking to individual crew members or groups of crew members what do we call those things Mike I do team meeting team meeting I do probably three team meetings a week where somebody finds that they want to bring their investment team or whatever team it is and see me or they get a bigger room and maybe as many as 20 people and just I talk to them about anything they want to talk about but I think to the extent that what you're saying is a valid reflection I think never underrate the power of trying to be a decent human being and it's really easy you know don't lure it over people don't yell at people I don't usually I laugh and I never do almost never hardly ever but for me the standard is really you build up a reputation for being a decent human being there's a lot of admiration even love from our crew members and we human beings then try to live up to that reputation so it's constantly I mean I'm making bigger demands of myself everyday because the reputation grows but I think it's just trying to be a decent human being who cares about other human beings whether they're crew members or that matter whether they're all the people sitting here in this room and you know if you like other people I'm not a big political guy at all I'm not a big handshaker at all I'm very introverted but I enjoy the company of people that share my values and particularly within the company and if you can build that kind of a culture and I never did it like consciously I never thought I have to build a culture I did what seemed like a natural thing to do hire people nice people give them good compensation have them figure out what it is to do and a lot of them work on the same teams have worked on the same teams for 25 years and I really like that they get along well they come to work they're happy to go to work on Monday and sometimes they had to leave on Friday so it comes down to you know as human beings if we want to do what's right for ourselves and for society just try and be good to the people around you and make sure that they pick that up from you it's very easy because they see what happens and have them do handle other people higher or lower in the pecking order with humility and respect and confidence and trust you know I haven't really tried to explain that before Patty but that's the best I can do at the moment can I add something to that I will tell you a witness when we had our first conference in with Jack in 2000 in Miami I was a snowbird and Jack knew that I had a business in this area and he invited me to join him when I came back for lunch and which I did and Jack's office is a block or so from the walking across from Jack's office to the galley would we have 12,000 employees at that time he seems like he knew everyone as we were walking he was approachable he seemed to know their names he asked how Mary was or how Joe was and when we got to the galley there is no executive dining room Jack's an empty table with all of the other employees and sits there and I think that is exactly what we're talking about what you're talking about Patty and can I add one little thing when Jack talked about how frugally he was in the galley you go through the buffet through the line and you pick out your lunch and we were going to have a salad and Jack told me to get the lightest plate you could find because they charged by the pound I had to throw that Jack some of this is actually true Jack, thanks for everything you've been doing being such a great man ok I'm nervous to ask this question to you here's a quote I'm going to have you had said stay the course you said I've said stay the course a thousand times and I meant it every time it's the most important single piece of investment I can give to you of course you read in the book stay the course around the year 2000 I think you cut back your equity investments from 70-80% to 20-30% something like that and you said that in extreme valuations people should consider similar actions so at the time the stocks were 40 times earnings yielding about 1% bond yields were 7% my question is what measures of extreme valuations should we change the course or change our investments and how am I supposed to know a layman like me, how am I supposed to know that thank you it's not easy to know those opportunities don't come along very often what happened in 2000 was something that I don't know what happened before the yield on the stock market to 1% that's not a sustainable stock market level at 1% Japan got to 1% Japan got to 1% but dividend yield is a very important point important point of my reasoning so here we have the stock market looking and the yield in the bond market was 7% so that meant you double your money in 10 years in bonds and you couldn't double your money or tripled your money in stocks from 1% but it just didn't seem like a good idea so I can't remember exactly what I did but I think I cut back from around 75% in the stock to around 50% very unusual probably advised people not to do it worked well of course and there is and this is I don't want to get too much sentiment into this but don't forget I have gone through a little bit to hell health wise and my heart was not working well I wanted to make sure that if I departed this orb my portfolio was fairly conservative for my family and so I even I was having a inflation which is a long process where they run stuff into your heart trying to get it beating properly took 10 hours but before I called my lawyer from the operating room and said could you please get down to me you never sent me the things I should sign to change my will the other day and I want to sign them before I get this procedure done so down she came and I signed them and so there is the subtle pressure of an uncertain life that has dictated more of my investment changes than you might think and that's probably stupid but it is understandable because you're thinking about those who are coming behind you anybody else while we wait as I walk over there I'll tell you a story I haven't told everybody here before airline pilot flying from one place to another I don't know where it was Florida got off the trip the flight attendant is we're organizing everybody to get on the van to go somewhere and he goes yeah some guy was in a coach seat was sitting in the back of the galley and he was giving me investment advice and I said oh no it's a stockbroker like that he says yeah give me his car and he pulled it out and he said John C bowl on it so I'm thinking about now how do I get that card or should I tell him who it is so so anyway I said hey if you don't want that card you know I'll go ahead and take it and I took it and then I told him who it was but on the back of it was life strategy modern growth he was advising a flight attendant in the back of the airplane so that's a story I've never told that here before that's probably what we call apocryphal Jack I have a question for you all of us have been following your mission we've been trying to get it out to more and more people we've been following it ourselves what are we doing the right thing is this what you want us to do as bogal heads if you could pray to all of us if you were going to give us a mission what would it be well that's a hard question to answer because I think it's unwise for anyone here including me to give anybody real advice because we don't know what's going to happen and you're judging the questioner per person ask you the question or ask for the advice and you don't understand who that person is how can you possibly do that so I like the idea of the bogal heads forum where all ideas can be integrated and people that disagree can do this and that so I think it's participating in a group exercise and I must say I'm astonished and delighted with the success of the bogal heads website and investors love it they love Taylor's book and they love my book still which are pretty much the same as Taylor's except longer and and so I think your mission is to do what's right to yourself and if someone comes to you in need to give them a course that goes down the middle with the knowledge always the knowledge certain that you don't know what nobody knows what lies ahead but worries me about this 25 year, 45 year which Vanguard has existed 12% return it's not going to happen again I don't believe and I think there's too much too many people believe that the past is prologue the future will continue to get these high return but think about that chart I showed you yesterday showing you the difference between a 4% return on stocks and a 12% return where your money doubles in the 12% return every 6 years and 4% return every 18 years and look at those lines spread apart if you don't expect it to happen again under play always under play the chance to make big money it's investing as a matter of putting to work money with corporations have a lot of worries about our corporations today so I say this visibly I just don't know what else to do I worry about the merger trend somebody has about the shrinkage of companies in the US Bill Bernstein did yesterday and that's a serious problem not a major serious problem but a serious problem and so the future is always uncertain so whatever you I guess I would like to sum up by saying whatever you say to anybody about anything at any time just make sure to say but nobody really knows or investing is really a hard business because our emotions get mixed up with our reality with our mathematics the dollars we have in our retirement plans and I think you should not be quite blunt about it try to give investment advice to anybody else without those edging words okay here's a chance to talk to your financial hero our old friend is your hero you make my way to the front first I wanted to thank Mike for being such a great help to Jack and to all of us Jack you mentioned that you read a couple good books a year which of the recent good books would you recommend to us I repeat Andrew Jackson by John Meacham called American Lion and I don't get a chance to catch up with a very long one excuse me and the last really great book I read was and I'm not talking about the last book but the last really sensational book was a Doris Curran's Good Winds, Theodore Roosevelt William Howard Taft and The New Age of Journalism and it's a compelling book but particularly a little disclaimer here particularly for me because I studied and wrote a paper about the New Age of Journalism back in the turn of the century Ida Tarbell can't remember the name of the magazine printed all this stuff but the journalism was active then and people listened to journalism and they had a powerful role in the public and so that combination of two really individual interesting characters I mean there's nobody more interesting than Theodore Roosevelt just meant for a very compelling read and I like biographies but I wouldn't know where to begin and people send me books all the time investment books and I had and I'm asked to endorse them and I got one the other day and I decided I'd give it a shot I won't mention the name of the author and I got to about page 150 and it was 550 pages so I wrote back to him and told him my rule I never endorse a book without reading it and I was sorry he just wrote too big a book for me to read he didn't seem very happy I also warned them by the way that my endorsement has never been known my blurb had never been known to add a single copy of Extra Sales not one book ever really the side and also on the personal touch after we finished the conference last year I got home and received a note from Jack himself very impressive you talk about the personal touch Jack we know how much you enjoy eating peanut butter and jelly sandwiches and other than whatever's on sale what is your favorite kind of jelly great well I think that wraps up the Q&A on that note is Jason going to put that in the journal okay thanks I was just going to ask you Jack as a new father and with our second child on the way my wife graciously allowed us to call him Jack little Jack this is big Jack because he's referring to but I just wanted to ask if you could give us a little advice especially as a father but you had six kids of your own and you elaborated the relationship that you have with them that's not something that happens by accident you have to be an intentional parent and you don't always see that in society but talking with many of you as a first-time attendee that's something that's pervasive and my compliments to all of you and to you Jack but if you could just give the next generation of parents your advice and what you would what worked for you in developing that relationship with your kids well I've already told you I was an imperfect parent so I don't know I'm a good person to answer that but I'd say as I do in so many ways the simple things that matter Ben first love the child no matter whether it's good or bad two set an example don't have to explain yourself away three be prepared for some real bumps along the way because almost every child has them particularly as teenagers and four when it comes to trying to drive a car don't let them hahahaha well Jack the bugleheads appreciate your every year attending and being and sharing your time with us we cherish your friendship every year we look for some meaningful gift to commemorate your appearance here I guess tougher and tougher I know you don't have any room just to tell the tale when I was in Jack's office a few years ago he had doctorate honorary doctorate degrees on the floor so I know you don't have a lot of room but this year from the American Revolutionary War Museum I think we found something that's meaningful and small this is a letter opener in the shape of an American Revolutionary war sword and the inscription reads thank you all you made me happier than ever that I was able to make it and be with you today and the one thing I want to say of course it's a highlight of all your admiration and good words and good wishes and selfies of all your admiration and good words and selfies signed books and standing ovation all I mean is a tremendous amount to me but what means the most to me at least it's on my mind now is one of you came up to me and said I think one of the visitors for the first time what a wonderful group of human beings you are they came here, they felt comfortable they felt welcomed they felt part of the group they felt it was an openness everybody was treated as equals and I think that is an incredible tribute to all of you in this Bogleheads crowd and that's what really life is all about so it's a wonderful amount I'm looking out there and thinking wow what a nice group so until next year God bless you all