 Again, please welcome our special guest of honor, Mr. Jack Bogle. Surely you must have had enough Bogle by now. God, I'm exhausted. I'm all exhausted thinking about who you all are out in the office, out in the audience just having subjected yourself to this unusual form of torture. But I always love being with you and I'll say a little bit more about that later on. I thought I'd just like to take a minute to talk about the development of Vanguard and the development of indexing at Vanguard partly based on Gus's remarks. And first let me say that there is in that Wall Street Journal article, it was so nice, championed a long term. I loved that. There was a comment by Holman Jenkins that an industry greybeard told me that I would ruin the industry if I started a mutual company. This was not a greybeard. This was a man named John B. Lovelace, or John Lovelace, his father John B. Lovelace was the founder of the American fund group out in Los Angeles, and John was the head of it. And he was a year ahead of me at Princeton. So calling him a greybeard is not exactly accurate. But he was an important factor in the industry, not a big participant. But that has always been a very well thought out group and he was a great guy. And he had to see me when I was out in their offices. I visited around a lot in those days. When he said I have to see you, I said well I can't do it. Now, I've got a lot of meetings with your people. And then I can't do it tonight because I've got a dinner engagement. And I'll be leaving tomorrow morning on the 7 o'clock plane to Philadelphia. And so if you want to meet me at the airport I'll meet you in the diner at 6 o'clock. So I went to the diner at 6 o'clock in all those covered little stools kind of thing. And I liked Linoleum or something. And in there was John. And after a brief introduction he said I've heard that you're going to try and start a mutual company. And I said that's true. I don't know if it's going to work or not. We're still in the middle of no man's land with the board directors in the summer of 1974. And no one knew how it was going to come out. And I said yes that's what I'm planning. And he said if you do that you will destroy this industry. But this is not a gray beard. This is a guy about my age concerning with my Princeton heritage. And he was very very foresighted. We did not destroy the industry. But if he just added you'll destroy this industry as we now know it. That is exactly what is happening now. And the reason for that phrase I haven't used yet today but I usually use it about 10 times a day when I'm trying to explain to an outsider and what we're all about. And then as we started with the structure, the mutual structure and then developed from that structure I have a speech called strategy follow structure. A local strategy the obvious thing to do if you have that structure of which the highlight would of course be an index fund. So that was strategy and structure together. And it's amazing that it has worked this way. And I thought I'd just talk a little bit about the development of our index business. First of all, because the point I'm trying to make is every single thing I'm about to tell you was intuitive. We had not a single formula. I didn't understand most formulas. I can probably read half of half of the articles the financial analyst journal and the journal of portfolio management. Or did I write half of them? I don't know but something like that. And it was all intuitive. And starting with Vanguard index trust, first index investment trust as it was called in 1975 when it was formed I did a crude comparison of the companies and the mutual funds in the industry. They were about 60. They were all pretty much large cap blue chip kind of funds, very similar. And I compared them for 35 years for the S&P 500 you saw that slide in my talk. And the index won by 1.6% I think was the number. And 35 years later or maybe it was 38 years later that is to say a couple of years ago I decided it would be interesting to see the correlation of that group of mutual funds in terms of their performance, how much was explained by the S&P 500. So I put night and all of them to work and it turned out to be 97. In other words if I produced that number I would have been really confident but this was just done intuitively without me. Then I decided that the S&P 500 would be the preferred index I hadn't really heard of much else. I knew the Dow Jones was a terrible index and the Wilshire wasn't even developed by then total market index. So we did start with the S&P 500 and I thought it might be a good idea for purists. We thought about changing the structure of the fund to be a total stock market that made more sense really. But no one had ever heard of the total stock market index. So in 1985 we created the extended market index fund, the completion fund. That's now our small, mid cap and small cap fund and it's been very very successful. But the original idea was the intuitive idea that you want to go out and get the rest of the market. Statistical studies about that? None. I didn't even know what the composition was. At that point we brought Gus Sorter in because we now had two index funds and we went on from there. We started a bond fund back in 1986. That was not Gus's part of it. And then in 1989, I think, don't hold me to these dates. I didn't look them up. But around 1989 we started an international fund. And I had the intuition that if Europe, Australia and far east Japan was terribly overpriced. It was half the world's market cap at that time. So I thought it would be a good idea to separate and have a European portfolio and a Pacific portfolio. Strictly intuitive. No data. The fact that the Japanese market soon collapsed kind of indicated keeping them apart. And that's where that came from. Small cap fund, small cap index fund in 1990 roughly came when the manager for the small cap index that we had, small cap managed fund that we had, came into my office and I was telling him what a terrible job he'd done and which he had. And he said, and this is the first time I really thought about it, I said, you know, I think we're going to convert this into a small cap index fund. And we did. I wasn't sure exactly how the small cap index worked. But it's worked okay. It's basically the best small cap index around. Or I don't like its concept particularly, but that's another one. Then we started those admiral funds for the original admiral funds for long, short and intermediate term treasuries based on the way we've ran our municipal bonds, have the shareholder to choose between yield and volatility. Then we started, this is a curious one, the growth and value funds. I had said probably in 1990, the development of our growth and value funds is going to, the formation of our growth and value funds will come as soon as we have a growth and value index. I didn't know what would be in the index. How would I know that? So Standard and Boers announced they were splitting the 500 into growth and value. So we started the fund. Totally on the basis that those two growth and value would be the same in the future. I've warned people about switching on them and they were. Turns out from then to now, 93 I think that was, growth and value had the same 9% return. It happens that Morningstar says that these two funds, growth and value, are the oldest and largest factor funds in the industry. So I will take credit for building the factor fund industry, but I don't want any credit for it because I don't believe in that. I started them for a very different reason. I wanted to understand that you can have formulas and formulas and formulas, but if they don't comport with common stents, you don't want to have anything to do with them. You can prove anything with data. I've done my share. So that's a little bit about the development. We also tried quantitative, higher quantitative manager, on the Gorniac by name, to run Vanguard quantitative portfolios. It seems so easy. There's the S&P 500. Just get rid of the five worst stocks with the three worst stocks and all of a sudden you'll do well. It seems easy. It wasn't easy. He barely outperformed the S&P 500 after taxes, I think, underperformed with that quantitative portfolio. I honestly can't remember if we still have a quantitative portfolio or not. It didn't work. When we had a managed fund, I picked the new managers by intuition. When we had Windsor 2, which I was assured would never do as well as Windsor, picked a manager, Barrow Hanley, and Dan and Dallas. In fact, Windsor 2 has done a little bit better than Windsor, although they correlate very, very highly as they were supposed to. Prime Cap, I like the way these guys look. They work for American funds. They had a lot of experience, and they did a great job on that. I want to get emphasized that we can look at formulas until hell freezes over, but use your head too. It's just, to me, common sense. Now, let me say a word about managers with skill, which Gus mentioned. Yes, there are some managers with skill, and sometimes they beat the market. But if you think of Vanguard in one way, and people don't talk about this, competitors, we don't even talk about it. You are investing for a lifetime. And find me a manager that has beaten the market for 75 years, or 50 years. They don't live that long. Start with that. That's an important qualification. And they turn over. And the manager is a typical fund, the last eight years. Half of the funds, I mentioned this the other day, yesterday, half of the funds go out of business every 10 years. Where is this genius who comes in the business just the day you come in, manages your money into your retirement, and then you both retire happily together and rich? They don't exist. And by the way, if that's the time sequence, how do you know to go to them? They don't have a record yet. So, this industry is complicated. Things that, to me, are very, very simple. I think I said this the other day, but I'll repeat it, because I like it. When our guarantee for you, all you Bogleheads and anybody else that comes to Vanguard, we will guarantee you that if you buy the 500 fund or the total stock market fund, and they are pretty much the same, very high correlation between the two, 98 and 99, we will have the same non-manager when you buy the fund as you do when you redeem it at the end of your, when you start to get conservative in your ancient years. So, and that makes sense. So, it's investing for a lifetime that this is all about. And so, those are just a couple of preliminary words. You know, I should say that to what Gus said, I did a competition with Rob Arnot, who runs this smart beta fund, so-called, out in a Super Bowl of indexing. I think that's the last one I went to, probably seven or eight years ago. And he wasn't there. So, a couple of us, I think Bert Melchia was there, and I was there. And Arnot was the third participant. And he was on a television screen about five times our height. So, when I talked to the crowd, I said, you know, we've got this giant Buddha over our heads. And in any event, they took the group there, Super Bowl, took a boat at the end of that meeting, and they voted the Bogle way, if you will. This is the standard and poorest 500 way. The market cap way was going to be more successful than the Arnot way. And the Jeremy Segal way, too. And that's exactly how it's turned out, I told you the other day. They don't look much different. Why wouldn't they look much different? But they're a little more risky or a little less risky, depending on which one you're talking about. And they have a little higher return if they're more risky, and a little lower return if they're less risky. When you kind of look at the day, they've had 19 years, 10 for one, none for the other. They've proved they're right. And they've proved that they aren't bad. They're not disasters. But they had no value. They actually subtract a little bit. So, all these things lead up to the fact that they're big, and big, and big, and big. And so I'm spending a little bit of time thinking about risks to the concept of indexing. And I hope the people back at the ranch are doing the same thing. The first one is we're taking in billions and billions and billions of dollars at very full market prices. Not necessarily overvalued stock prices, but highly valued stock prices. How will those investors feel when the decline will come? It always comes. You know, we could easily have a 20% decline since markets do overdo anything. It could easily be 30%. And then it'll be maybe a great value. Who really knows? I don't. Number two, so that's the one of the risks. How will shareholders react to a beer market? Having taken all their money out of the other funds and put it into ours, index funds. And how will they react? Number two, and there's some things being written about this now, is the concentration of indexing in three firms. And we all own, well we own about 6% of the market. State Street owns about 2.5% Black Rock, about 6%, same as we do. And yet, there's a big difference in those three holdings. What does one make of it? I don't know. But we're the only one that is focused on traditional index funds. The standard garden variety, buy it and hold it index funds. And those two are dominated totally. State Street's 100% exchange traded funds and I guess Black Rock is 85% exchange traded funds. Does that make a difference? What happens when people start trading these things? Will they do well? Will they do ill? How will those markets hold up? Those are big questions and it will be focused on index funds when that happens. Because that's what's driving the entire exchange traded market. And then there is the randomness of performance. Think about this. Every year we look at the performance data and we say the average fund was up X. Let's say 6% and the index was up 8%. And the industry number is the number of funds. So if you get a few very good performing funds, it doesn't help. If it was market weighted, market cap weighted, it would be very different. So that can turn against you. Small cap funds, little funds, they do much better. They won't do much better for very many people, but they will make the index look like it's underperforming when in fact it's not. So how will we deal with that? I don't know. And then there's the 10% rule. 40 Act says, 1940 Act, Investment Company Act says that no mutual fund can own more than 10% of any corporation. Essentially. We own 6. What happens when you get to 10? Spend a minute thinking about that. And then I will take you to a famous comment from the great Donal Runsfield, another fellow Princetonian, but not the nicest guy I ever met. And he says, I've talked to you about the known unknowns. What about the unknown unknowns? And that's a good question which I will now answer for you. I'm only kidding. So let's take your questions. Jack, the first question is from Kenner. He said, how does it feel to have beneficially transformed the investment world in order to give individual investors a fair share of the world's economic progress and to have enhanced the lives of millions of your fellow citizens? Good. I could have answered that one. I figured that was the answer. I might even say, although I think the word very is overused in our lives, I might even say very good. This question is from Stay The Course. It says, if you were born Jack Yashihara in Japan instead of Jack Bogle in America, would you still be advising 100% home country bias? Or did you have some prescient feeling America would do this well in the last 50 years? Well look. This home country bias is a bunch of baloney. Think about it for a minute. The American corporation's got half of their revenues and half of their profits from outside the US. So you have a diversified international portfolio already. Now there are arguments you should add international or non-US as they suggest and it's correct that these companies outside the US, indexes outside the US have a lower price earnings multiple. As I said with Bill Bernstein the other day, does that mean that they're just riskier or does that mean they're cheaper? I don't know the answer to that question. I don't know anybody else who does. The one thing I've learned in my career here 65 years is this is a hard business. It's a hard business to win at. So doing the simple things and getting costs out of the equation is the best thing to do. Everybody needles me. Everyone. They don't even like it when I talk about it. Am I telling you not to do it? Of course not. Non-US has done so much better in the last 25 years since I first went into it in detail in my first book 23 years I guess. Does that mean it will do the same in the next 10 years? I'd be astonished if it did that well in the next 10 years. Could it do worse? Of course it could do worse. So you just don't know and you pay your money and you take your choice and I don't want to intimidate anybody into not buying international although I do think diversifying at the market weight which would mean non-US stocks are I think around 43% of the world market is more than most US investors should have. And to me it's a matter of logic. But if someone stores a big formula and proves I'm wrong again, believe me and not the formula. I guess a little background on this for those who aren't aware, Warren Buffett has directed that his estate go into treasuries and the S&P 500 index. And this question asks, what is your take on Warren's choice of the S&P 500 versus the total stock market? Well I asked him about that, actually and he didn't answer. And first of all there's not very much difference. The correlations I said is I think 0.98 between the total stock market index. The S&P 500 represents 85% approximately of the total market. They can't be too different. So I'm not about to argue with him. I think a more interesting proposition is why he picked US at home country, biased idiot. Am I a little high here? I had my martini before. So I'm kind of relaxed about my answers. I don't mean to be cavalier. That's an excellent point though. I hadn't even thought of that. I'm sure a lot of you might have said that. Oh I'm thinking about it all the time. This question is a two-part question. What is the ideal blend of treasuries and investment grade corporate bonds in a long-term portfolio? And the second part, any necessity for our significant benefit from an international holding in a long-term portfolio? I think you can probably answer the second one in one word, right? Well, the international thing kind of mystifies me. It's not going to make much difference what you do as long as international bonds have the same quality and protective nature that US bonds do. There's some question I just don't have a good answer to. And that's one of them. I think it comes down to a preference. I do think that it's maybe a little bit peremptory to put these holdings of international bonds in an individual stock, international stocks into the retirement plans, target date retirement funds, without asking stockholders would they like it? Because they're quite large dimensions. I think Mike will have to correct me here, but maybe 35% international stocks relative to stock position and 35% international bonds relative to the bond position. Something like that, Mike? 30 and 30? 40 and 30. That's a big change. And if they all do the same, it's fine. And I hope somebody talked about it even thinking of having a target date funds that are US-oriented and target date funds that are world-oriented. Funds are large enough easily to accommodate that. But in any event that's not the way it happened. And I think we should always have options available that don't encompass international stocks and bonds. It's an important choice and whether it's going to be a big difference, I don't know. But my intuition maybe I'm just proud to be an American, or at least I know I'm free. There's a song that goes that way called God Bless the USA, which I will say to all of you, God Bless the USA too. Big part of our family culture. And the first part was... The first part was, what is the ideal blend of treasuries and investment grade corporate bonds in a long-term portfolio? Well, I have always said the best blend is nonline. This talks about, you know, intuition and not maybe thinking things quite through adequately, which is certainly what I have done. And that is when we started the bond, I just took the bond index, I figured it was represented. And it turns out it's 70% in treasuries and government guaranteed mortgages. And that didn't matter much in those days because the yields were running around 8%. But today it matters quite a bit. So you start to reflect times have changed. And I would think it would be desirable to have a fund like that, you know, just top of the head. 50% high grade corporates and 50% treasuries and other government-backed mortgage 50-50. Just for the fun of it. But those corporates are now only about 30. So a better representation for a higher yield and higher yield will lead to a longer return, holding everything else equal in the long run as we all know. And somebody says, well, that doesn't match the allocation of the index. Well, wait a minute, pal, where do you think that balance index fund came from? When I started that in 1993, I think it was. You know, I said 60-40. I didn't spend a lot of time thinking about it. But that seemed like a reasonable number. And there's no 60-40 index except for the index fund, which is the standard. And so some of this, I think we can overthink while having said that, I made a lot of mistakes in doing all the things I've done. And sometimes innovation doesn't work as well as I think. Sometimes my self-confidence is a little bit in the high side compared to what turns out. I mentioned picking that quantitative manager. So I've had some failures, funds that we started that didn't do anything. And so I don't have a good answer. But I do think there should be available to investors who want to take the extra risk in these days of very low yielding bonds. If you want to take a little bit of extra risk, you can do it now, by the way, by just owning a treasury fund and our corporate bond index fund. And it'll do fun. But people don't seem to like to do that. And it's hard to explain in the phone telemarketing is difficult when you've got to explain things to everybody. So I think it's a good idea but hard to implement. Jack, this isn't a prepared question, but since you mentioned target date funds, that brought up a question that I get asked a lot and I don't know the answer for. Maybe you do. Why aren't there admiral shares of the target date and the life strategy funds? They use the investor share class in all of them, even if you had $100 in the fund. We like to try to recommend to people that they simplify their portfolios and a great way to do it is either with the target date funds if you want the glide path or with the life strategy funds if you want a consistent asset allocation. So when people put a lot of money in there, it seems like they should be able to get the admiral shares. Michael, correct me if I'm wrong, she does all the time by the way. But don't the target date funds buy admiral shares or they buy them an asset value? An asset value? The funds don't pay an investor share price. They do. I'll talk to the management tomorrow. I've tried to get an answer from Vanguard and I haven't been successful with Jack so hopefully you will. Let's make a note of that, would you? It seems that the total amount needed to get the asset class of those would probably be much higher because of the underlying things but it still seems if you put $100,000, whatever the requirement is it still seems like there should be a number where they were able to get admiral share of classes. There may be some rational answer to that but I don't have it for you. I was wondering if there was any legal reason that you're aware of but it seems like they're using the investor class so I don't see any reason why they couldn't use the admiral class. I take the credit or the blame for that if that's the way we run the life strategy funds because I started them and the target date funds were of course just an outgrowth of the life strategy funds and so that's probably a question I'm usually so good at asking all the tough questions. So what can I do? Apologize? I don't know. We'll get an answer. Great, great. Now this question is from Jay Willis says, should an investor attempt to factor in the effects of quantitative easing into their investment plan or is it more likely to be a short term event unworthy of consideration? Well the answer to the first part of the question is clearly yes but I have no idea how to do it. I mean there's a point at which you have to accept the flaws and foibles of the market for what they are and this very low yield even negative yield somewhere around the world are there and you may not like it but that's the marketplace. I don't know what you would do if you take quantitative easing into account honestly but I would also say that it can't go on forever and interest rates can't say this low I don't think forever although I would have said it had gone on long before this going back up long before this and I don't know, there's some questions that even the quote great bogel doesn't know the answer to and so I look at this with the same kind of mystery you do but I don't know what to do about it and you know I'm roughly 50-50 at bonds and stocks mostly index funds and munis in my personal account and corporates and taxables treasuries, bond market. In my opinion I use the intermediate term bond market fund not the total bond market fund and that gives you a little advantage in yield and I just do it and I don't pay a lot of attention to do it. I mean I don't think I look at my portfolio I know I don't do it once a year I mean I know roughly what's in there I don't need to know any more than that I think sometimes we complicate simple things I mean the idea of rebalancing for example is okay if you know what you're doing and knowing you're sacrificing all the time your higher yearling asset but you're reducing the volatility as markets go up that's good in the one hand and bad in the other to do it every time is a one point change in the ratio it's just silly it doesn't matter so it's simplify simplify I think that's a quote from Thoreau. What do you think about the theory though that because of the low interest rate environment that a lot of people are going out in the risk and investing in the market in equities instead to try to get a return and that when the easing eases that a lot of those people will be bailing and going to higher yielding things do you think that's a correct analysis or not First of all at the margin and you know we it's hard to even express these things you know what I recommend a wholesale shift that way that'd be insane what I recommend maybe a marginal change to capitalize on your feelings I'm not much of a believer in that but I don't see any reason you couldn't do 5% in high yielding stocks higher yielding stocks or the high what do we call high dividend yield bond I thought that was a good idea that didn't happen to be mine but it was a good idea and the same thing with bonds when interest rates go up bonds are going to go down but stocks are going to go down too because the interest rate the premium equity premium will have to shrink I mean if it stays the same bonds will move hand in hand stocks will move hand in hand with bonds just if that number is going to stay stable it doesn't stay totally stable and sometimes it's very counter intuitive but that's kind of the right way to look at it so there really isn't a good haven and my own view is that reaching for yield is a very risky thing to do it looks fine you get the income and then all of a sudden it stops and you've gone too far out in the limb to use the metaphor and the limb snaps off so what I say is you'd never use high yielding bonds 5% of your bond position maybe even 10% won't kill you but won't change your monthly check very much but as compared to shifting entirely into high yielding bonds which I don't think is a good idea I mean I'm a diversification guy and I'm all a believer in you finally the investor has to accept the rate of return that's available in the marketplace doing otherwise means you're accepting greater risk and I'm just conservative simple and it's worked for me for the better part of 65 years and could it have worked better by the way yes I should have had 100% in equities these last ever since 2009 and but I didn't I didn't get down I got a little nervous when the market went down 50% anybody does but so there is as Gus mentioned actually your own investor tolerance for these things but stay in the mainstream or using the analogy I use in little book of common sense investing have a funny money account 5% of the total and play games over there do whatever you want buy new issues buy real estate whatever you want to do and with 95% and your serious money account that's what you're going to send your kids to college on that you're going to retire on that's what you're going to have a long life with that's going to be the basis of any sound investment program all this implies by the way that normalcy as we know it kind of continues this is a very risky world we're in a very risky world we've talked about the risk of Russia the risk of China the risk of nuclear war the risk of some idiot in North Korea even Obama across the Pacific Ocean and certain candidate who says we'll just take him out which is probably not the worst idea ever and maybe one of his only good ideas by the way oh I don't want to get into politics I've had enough of that but um and you know disease comes along global warming is there economic weakness around the world over leveraged world this is a risky time and the stock market seems to ignore it can continue to do that well like everything else that all depends all depends how it comes out but we're very much out of balance here in the US and all over the world is even worse in terms of the amount of borrowing the amount of that Federal Reserve balance sheet never been looked like this before the last five years and I'm not so sure what to make of all these things in which of these risks come home to roost but anyone investing today just has to be aware of the big risks out there in my common sense on mutual funds book the first sentence is something like investing is an act of faith and truer words were never said an act of faith that our nation will prosper an act of faith that our corporations will continue to earn money and have it grow and pay dividends an act of faith that our investment intermediaries will give you your fair share of the market returns that are developed from that and this is all faith there are no facts here it's based on the past but the past as I said the other morning talking about a completely different subject the past is rarely prologue so we live in an uncertain world and anyone who doesn't understand that should do I don't know what but not not save because as I said before the one way to be sure you end up with nothing is to save nothing and that's the only certain proposition that I can think of at the moment that's a very good answer but I think we should all be aware of just the systematic risks the broad risks that lie out there let alone the risks that lie here in the US which you're all well aware of this question is from Lady Geek who's here and one of the mainstays in the bowheads forum do you think the fiduciary standard will have the intended impact as you first envisioned it to be the answer to that is absolutely that is going to make much bigger change than anybody now envisions you know it's fine right now this is a curious anomaly it's limited to it comes out of the Department of Labor what have they got to do with a fiduciary standard where's the SEC here and the Department of Labor so it only applies to retirement plans so we have this I think I touched on this awful anomaly you've got a client here with a retirement plan and a regular plan you have to honor your fiduciary duty with a retirement plan but you can go rip him off on his regular plan obviously that's not going to happen more likely is that if you have a client that has only a retirement plan and another client that has no retirement plan which is the standard account is any broker with a half a brain going to treat the other client less favorably I don't think so so I think the system will actually free financial enterprise system capitalism will work to iron this out and so the fiduciary standard will spread either intuitively or by practice probably before the SEC gets around to saying which they should do that a fiduciary duty applies to all anyone that touches other people's money as I said the other day including financial institutions that are managing all that money can you imagine them not having a fiduciary duty in law I can and so that will come probably a long time probably hard fought but it's interesting to say we really don't want to put the customer first or as I said in one of the articles I wrote I'm putting my own interest first and the customer second but the difference is really small doesn't seem to me like something you want to say to your customer in the morning so it but it's going to spread as I've written at some length and as I used the other day in my Adam Smith quote it's going to happen even without a fiduciary rule people are going to have to serve the investor and producers are going to have to assume responsibility for consumers and giving them the best deal in time they'll go out of business and so we're going to see a lot of change in this business and indexing is going to put a lot of pressure on people and you can't really get to indexing enthusiastically until you get to mutuality and it may be before my days end there will actually be another mutual company or two I tried to do a couple, tried to persuade the Putnam directors a complete disaster they wouldn't do it and look at them now oh my god they used to be the fifth largest firm in the industry now they're probably 30th, 25th, I don't know where and terrible performance, high cost they brought in interestingly enough a guy from Fidelity Marketing to run the new Putnam they should have brought in an investment guy they need help everywhere and they're not going to get it they're probably going to go out of business that wonderful name of editors in the 30s and 40s so the industry is going to change and they may not like it although I will say this is a editorial comment that I kind of hoped given that I've completed 65 years of service in this industry including two years as chairman of the board of the investment company institute that maybe, just maybe somebody down there would say you know let's bring old Bogo down here and have them make a little farewell speech not going to happen now why is that, think about that for a minute, the most successful company in the industry's history created that, the most successful strategy in the industry's history he created that, well he hadn't done enough but do you think the SEC is going to be shamed into covering non-retirement accounts? They're going to have to do it I think they're getting too bureaucratic and Mary Jo White has a lot of conflicts of interest I think she's a good person but handling the kind of conflict she has and coming in she had no connection with the mutual fund industry which is a dominant industry that they regulate and I mean this is a, I guess 18 trillion dollar roughly industry and they got this big guy out there that I hope they're watching who has about three and a half of those 18 billion 20% about right and so they aren't, I don't think strong the investment division investment management that covers mutual funds doesn't have the strong leadership and I've been through a bunch of leaders down there and worked a lot on them really quite successfully I think getting what I needed done I'll tell you a little anecdote since we have a little time I once went to see the director of the division named Mary Ann Smythe and they always used to ask me where are your lawyers and I said I don't travel with lawyers, you know they got eight lawyers in the room and I always followed the principle he travels fastest travels alone and so I was down there and I was about an hour early naturally for a meeting with her I was trying to straighten out the name of the, I think it was the bond fund they didn't like bond index fund and so I'm sitting down there and they had a Roy Rogers or something like that, is that a place you eat? Yeah that's what it was and I was kind of looking why I was thinking maybe about the cheeseburger calories and up next to me comes Mary Ann Smythe looking for her hamburger so she said why don't you come up and we'll have lunch together before the meeting you know you don't get that kind of stuff if you're a bureaucrat if you're really having an entourage with you and we really got along fine and I didn't quite make my point I said okay we can't call it the vanguard bond index fund oh that would be fine every name has a funny derivation I've seen all this, it's really strange and it's really wonderful even the events have been very painful painful for me to endure in retrospect every one of them is memorable because of the fun it was, the memories it gave me you know they say victory has a thousand fathers and defeat is an orphan, but I kind of revel in my defeats you know they said to each other that if I hadn't been fired from Wellingham there would be no vanguard, think about that a world without vanguard, I mean I can't imagine it but that's only me, you'll have to figure that for yourself. This question is from Bogler Dude he said is there a valuation level where it would make sense to invest internationally well, sure but we just don't know what it is I mean these questions are fine but you know tell me how to figure that out and then tell me what you're going to do in the way of market timing then the valuation level is high so you get out and then it's low and you get back in who can do all that, the international problem is no different no different from the same problem you have in the US you don't want to put your money in the stock market when it's overvalued but you put it in every day and half of the time well it's overvalued probably 10% of the time, undervalued probably 25% of the time and has a good growth potential most of the rest of the time you're playing odds and the one thing you have to do is protect yourself against your own weaknesses and thinking you can decide what to use and when to do it is I think superhuman and as Gus pointed out well known fact that if you're getting out of the market somebody else is getting in and one of my favorite stories is I heard somebody say they're said to be I think it's $300 billion sitting on the sidelines when that money comes in to be invested in the stocks you're going to really see quite an explosion and I said wait a minute wait a minute if they spend that $300 billion on stocks how much do you think will be left in the saving reserve and he said zero I said no no no no no you don't understand somebody is going to sell them those stocks and it's going to be the same $300 billion in the reserve account as there was before it all happened it's just a different $300 billion there's no way around the fact that the market is kind of this circular thing so if you're doing one thing and the market is doing another it's a closed circuit and so you're then betting against somebody else as Gus said this morning too and I just I think to the extent you can get the idea that the market is a casino and you can bet and win is about the same as thinking that the casino is a casino and you can just bet and win the more you bet the more you lose and every study that's ever been done talk about intuitive says the more you trade the worse you perform of course it is because buyers and sellers aren't equal they're equal to each other but the man in the middle takes his hunk and that will eventually put pressure on people who are using ETFs for such less than noble purposes the fringe element I talked about the other day that made no sense at all except marketing sense and Gus certainly got Ornot right up there by saying he's got a great marketing message and this ETFs are about marketing ETFs are about financial buccaneers not all of them but most of them and so they're another kind of big if in the future of indexing too on your opinions on international investing can you give us a little background to history of how total international came about well I started the international fund because I thought there was a definite place for international in the mutual fund industry among investors who wanted international exposure and did I think it through in the same way I do today I mean I didn't think whether it would help them or hurt them I thought it was a viable option and it really is funny that the we started off before we got to the international index fund we started international eyes the old IVAS fund that failed so badly and we divided it into an international portfolio of 50% and the US portfolio of 50% and the year after we did that the international portfolio went up 100% brilliant no and I mean it's 100% in the year it's amazing and you can check it in your little perspective or something you check me Mike I'm pretty sure I'm right and but it was a very large number but it's a legitimate option for those who want it I just don't think everybody should have built into their investment objectives and I think you should understand what you're doing and what you're getting and the one thing I say about internationalists and this is all such common sense I mean I feel like I'm revealing the secrets of the world behind the curtain but before you do anything on the international look at the international index well the largest company in the international index is Great Britain the second largest is Japan and the third largest is France Britain Japan and France they're probably let me take a guess at 23 or 4% of the total international index I don't think Britain is doing so well they don't even know what they're going to do about the so-called Brexit they're still struggling with even they've never even voted to actually do it the parliament is going to have to do that someday or go back for another vote which I think is highly unlikely but they have a troubled economy they have this total question about the exit from the European Union they have the likelihood that if they do that Scotland will break off and the United Kingdom will only have one Kingdom Britain and so it doesn't seem like the best of the place you'd want a big hunk of your money now I could be wrong and that valuations may be good but kind of when you look at it in this way Japan my god they've got the worst demographics in the world the lowest ratio of probably about one to one of workers to retirees raising the question of what happens to the last in the US what happens to the last Social Security recipient when the last employer dies this would be a problem and then there's they get too tsunami periodically and very very structured economy and very very structured culture struggling economically a lot they don't seem to be able to find the answer and then there's France they don't work in France that may be a little hyperbole but they sure take the summer off and they strike a lot and Germany seems to be doing a good job their fourth but I only wanted to make my point by using the three bad ones but you are owning countries and to accept the index without knowing what's big S&P 500 for example we all know how totally dominated it's been recent years by the Googles and the alphabets and whatever so things like that as compared to the conventional leaders Exxon not having a very good time either for a whole lot of reasons we don't really know how to deal with all that except that these are very highly valued stocks compared to maybe not compared to their prospects but compared to the leaders years ago but it's still just to come back to our friend Ornot okay they've had 19 years to do it and they can't do it a little higher reward and a little lower reward respectively a little higher risk and a little lower risk respectively and a sharp ratio risk adjusted return it's a little lower than the S&P 500 they haven't proven anything and they've had 19 years of business between the two of them to prove it and that's not good enough for me but they prove it in advance you can this is a great business you can prove anything in advance but will it happen read the articles in the financial analyst journal by the professors and they've got these formulas or head over heels and they're incomprehensible to me but they come and they go it's just not a profitable thing to do Bill Sharp by the way said smart beta is stupid that was his contribution to the debate not for me you said what can you tell me about the process of picking ticker symbols who chooses them how are they negotiated is there a market among mutual fund companies in ticker symbols why did vanguard pick BND for the total bond ETF leaving bond available for PIMCO total return did vanguard marketing think BND was better I think that's above my pay grade I have absolutely no idea but I do think one of the more interesting things that happened in our ETFs is they're originally called vipers to contrast with the spiders and after about three years some may say you know aren't vipers dangerous well it shouldn't have taken them three years to figure out that vipers are dangerous so I just don't know the answer to that question I'm sorry no I'm not sorry at all actually it wasn't your fault right so that's why you don't know the answer now this question is from Chris001122 as one of the best financial geniuses of the 20th and 21st centuries do you believe the United States can ever begin to stop our dependency on debt if you believe we should what are some ideas you might have to balance our budget and begin reducing our debt if any single person could help solve this I believe you might have some good ideas on this look I am not a financial genius I have never been a financial genius and I have no aspirations to being a financial genius don't I make that clear despite that let me say a couple of things first we've struggled to pull ourselves out of this ghastly mess from the 2008-2009 almost failure of our financial system almost entirely by monetary policy better reserve we have done nothing in fiscal policy we could have raised taxes to help or cut taxes to help if we have done neither in any material way a few tax increases I think in that period not enough so we are going to have to have every economist is going to tell you at least they told me this in 1949 the best way to deal with crises is to have fiscal and monetary policy work together and we have not done that here so how do we get out of it how do we start to cut that debt down first a massive say tax increase huge tax increase to start running its surpluses would be an economic disaster for the country so the way it's going to have to work is if we continue to get growth and I think we might be lucky enough to get 2.5% or 3% growth in GDP we can work the ratio of debt to GDP down just by not letting the debt grow and the GDP grows just by holding it steady you won't do a lot of damage to the economy and the ratio will gradually come down it is large and I would say historically alarming but I think in today's circumstances it's something that you have to be conscious of taking it down by maybe some combination of rising taxes all the demands of our budget all these things about helping having college free for students and helping the people that need help in our country of whom there are many and who deserve help who we must have we must help we're going to have some kind of a revolution around here which is the last thing anybody wants to balance all these things in a federal budget in an affirmative quickly changing sharply changed dynamic is simply not going to happen you know how the Federal Reserve is balance sheets I think it's $1.6 trillion or something like that before how is that going to come down I don't know the answer to that question and how do we have in a political system that we are almost stymied every time we do something in government nothing much happens down there how are we ever going to do even the small things I'm talking about you know a more intelligent tax system that can raise a little more taxes enough to pay for the things we have to spend money on or that I believe we have to spend money on and it's just a it's a conundrum but there are you know answers statistically but what will actually work what you can actually implement is really a problem and because we don't implement very much and nor do we have much of a consensus you know we are going to have two Republican parties at the moment and probably two Democratic parties that looks like that from the primaries anyway and may even get worse we have a lot to answer as Americans they say we get the government we deserve and I think that's accurate we being broadly defined as everybody but I constantly remind people you know I was chairman of our constitution center then Philadelphia when it was being built and everybody used to say democracy I said we are not a democracy we have never been a democracy we are a Republic for whom the Republic for which it stands has always been where the voters elect their most able representatives to represent them we don't I think we are slipping a lot you could argue that democracy is responsible for what's going on in the Republican party and the Democratic party almost in the Democratic party too and you know I went and Brexit British thing was basically a plebiscite where everybody got an equal vote well they had a flying clue as to what leaving the European Union would mean to Britain and obviously most of them didn't so you get you know issues about feelings issues about emotions issues about who talks the loudest and gets your ear last and that's how you vote and none of that is healthy so I worry about that and I don't see clear answers in front of us you could argue we never have seen clear answers about the problems we face but I think this nation has always had the strength to finally do what's right as Churchill said Americans always do what's right but only after they've tried everything else Jack this is an area I think you've mentioned many times before but not necessarily to this crowd it says hello Mr. Bogle I've learned so much from your teachings your experience the interviews and writings I invest only in total stock market and automatically reinvest all dividends at capital gains my bond investment is totally my government pension and social security benefits I don't think I need a bond portfolio what is your opinion well in the abstract she's exactly right but and you can't do anything in the abstract I mean you would have to know what the value of her stock portfolio is relative to the income she's earning from her her two pensions social security and I think you said government pension and so in the abstract you know if they're let me say they're 80% of her wealth she's absolutely right on the other hand if they're 10% of her wealth that she should probably have a bond position I've always thought you ought to take into account and said this many many times for many many years you should always take into account your fixed income side of your equation social security corporate pension and bonds and then stocks on the other side it's not easy to do that statistically because social security value you know the typical value of I think the capitalized value of social security for a typical investor it's a retirement is around $325,000 a year make a note of that Mike and see if I'm right is that about right well thank you you're going to go far in this company but that's basically it's not a bond position because you don't own it your heirs don't get it it stops when you die but in terms of your financial stability during the remainder of your life it acts like a bond and a bond with a cost of living hedge I mean is there anything better and probably not a good deal or those that say the benefits ought to be cut back I saw an idiotic op-ed in the letter to the editor of the Wall Street Journal saying why are we paying all these investors 8% if they wait until 60 and a half to 72 and a half or whatever it is to get their social security which I did too and they didn't seem to have the slightest understanding that the reason it's 8% is that these people die off every year and never get a penny so actually the 8% is probably not excessive at all but it looks like it and I couldn't believe the journal would publish it maybe they don't read these things before they publish it except mine I had a really nice exchange with the journal the guy that runs that column is we have kind of a laughing stock together and so he wrote nice handled me very well when the dean of Harvard Business School said the stock market adds value to your society and it subtracts value by definition so we had a little interchange and I wrote a short letter short and I wanted to write but I wanted to make sure it got in and if you've got to take on somebody like the dean of the Harvard Business School this question is from Lynette she says congratulations congratulations on a life well lived what is your schedule how do you have the energy passion and drive to continue to work at your age my schedule is completely out of control and I have the passion and drive to do it I really don't have any alternative I don't know what to say about that I think anybody including my wife who looks at what I do and the intensity with which I work would think I believe accurately I've lost a couple of cylinders in my brain and that may well be true but we're all different and I love what I'm doing I love the people I work with my little team with Mike and Emily I'm happy very happy to be totally accepted at Vanguard again and love the letters from shareholders I get every day even though I spent time again answering 32 letters while my wife's back was turned and she's an unbelievably good human being and I would be nothing without her she's tolerant she's patient she's a great mother a great friend to so many people and we're very lucky to have a family that's pretty much together and all 31 of us as I said the other day you know you just mean I guess we just honor the expression press on regardless and you know sometimes it's hard for me I'll be honest with you I don't get to I don't leave home for work until 8 o'clock in the morning and I mean it's kind of like sloppy duty for me but by the time you get to 3 or 3.30 or 4 in the afternoon I'm too tired to keep going I'll be honest Michael knows this so I go the hell home and take a nap before dinner and if I can tell you a little family story when I get up from my nap which may last over an hour my wife does not say you lazy lout I need help around here she says did you get enough sleep dear somebody asked me my 50th anniversary obviously 10, 15 years ago and one of the questions from the audience which are usually quite shameless there's often a shameless question and about the third question that came up was what's the secret to being married for 50 years and I said I never thought about it before and I gave an answer to how to tell you that I couldn't improve on it and I said two rules one, marry a saint two, never forget the two most important words in the English language yes dear you can all use that when you get to 50 years it worked because I now am at 60 prosperity we know staying the course is what will give us the best chance of reaching our financial goals but given our emotional make up as humans are there any practices advice you could give on how to help fight off the potentially dangerous emotional decisions we are prone to make when the noise gets tuned up or turned up well I'm subject to all those emotions too and I'm not some superhuman human being and what I do when you get a 50% market decline you really get kind of worried and you get kind of worried about not so much your own account because I've got half of it probably a little more than a fairly safe bond account that's actually going up when the market's going down at that time from those interest rate levels and so I didn't really have a lot to worry about but I still worry and still get nuts in my stomach so what do I do I get out my first book and read it again and you reinforce your beliefs and it's a little hyperbole in that answer but it's pretty much accurate, it sounds good when I say get up my first book and read it again and that was really a book ahead of its time Dr. Samuelson said John Bogo has changed an industry in the optimal direction very few can this be said development indexing or anything else and there was one smart guy talk about a genius Paul Samuelson was certainly that but it's basically going back to original principles what got me to invest in the first place what I expected did anybody warn me the market could get down 25 or 30% or even 50% you know it's going to get down typically we don't know any of this but it's a useful thing to think of the market will probably go down 50% every 25 years once every 25 years and over 20% probably six times in every 25 years or eight times so when it happens say well there's one only five to go or something or that's the sixth time that's the last one it doesn't work that way but it's just going back to first principles and trying to figure out why you're investing what you're doing and are you doing it the best way you can have you been safe enough have you gotten your fair share of market returns these basic principles are so idiotically simple that one wonders how could it have taken 80 years roughly no 75 years I guess for somebody to start a mutual mutual fund how could that have happened how could it take until 1975 for someone to figure out that indexing works it seems inconceivable I must be the stupidest guy in the world because I should have thought about it years before and someone should have thought about it years before that and I do think that is the way and that is proving to be the way and whether the market goes way up or way down I don't think there are doubts about the value of indexing maybe the value of equities is another question but the value of indexing to get your fair stock market returns is eternal and it will continue to change this industry and it will continue to destroy this industry as we know it I'm a disrupter in the hell of it don't you think that it would be good to remind people especially the people who are still working and had the 401k that they're buying low instead of bailing out that this is a good opportunity for them because their money is going in on a regular basis sure I mean there's no question about this that people seem to like it when they put their money to work at ever ascending prices and hate it when they're putting their money to work at ever descending prices well that's so backward you should be hoping exactly the opposite the problem with that I mean the syllogism that was exactly correct but the problem is that probably let me guess that 35 or 40% of the Vanguard shareholders are accumulating maybe it's 65% I don't know the exact number maybe it's 65% I've done all the investing they're going to do so it's always hard to speak to the 35% let's say when the 65% is hurting but your point is well taken low prices you know you go to the grocery store and all the prices are down 50% you're going to buy everything and get your hands on it so this is a two-part question from Long Invest I have two questions for you about good enough my first question is about good enough portfolio is there anything wrong with investing in the three-fund portfolio recommended by Taylor Laramore composed of total US stock total international and total bonds without ever adding other mutual funds to it all lifelong regardless of age and market conditions I mean I would I'm not so sure what you mean by how much you have in the non-US portfolio and to each his own on that and you can you could say the same thing about a two-fund portfolio half bonds half stocks you can say it about a one-fund portfolio the balanced index fund 60 40 rebalanced every day never more than 60 nevertheless so they're the these are equally good options but with three-fund portfolio you know I don't mean to stake my name and reputation on you know not being international is the greatest idea but if you think about it you know the way the markets are they equal eyes they're a medium for arbitrage in the past present in the future I don't see any reason international stocks will do that badly I just don't see a high superiority for them it's not so much negative as it's just not a rousing positive and I think I don't know what I'll do because I don't want to run over my time is that okay sure well first of all thank you all so much for coming it's been such a delight for me to see all of you to shake hands I don't see how 220 people can take 2,000 pictures but I guess it's possible and the one thing I finally know is you're not wasting any film which is something I worried about because I'm a well known cheapskate but it's been great to be with you as I mentioned I think before and certainly many of you this is a happy time in my life what can you say about the 65th anniversary in the fund industry what can you say about the 40th anniversary of one of the most creative ideas stupidly simple as it is in the industry's history or maybe in finance history what can you say about the 60th wedding anniversary and for that matter what can you say about the 15th anniversary of the bubble neds you mean a lot to me always have always will your kindness and your generosity and I'm a little embarrassed about being overrated because I am just who I am and I'm happy with who I am I don't think I have any way to improve myself the old pump is working away the back's not doing so good but so what the I think we have here is a wonderful group Taylor, Mel Lara, the other leaders and other Mel a nice job the other day and all of you together make a huge difference in the organization of this which Mel has done such a great job at and his associates I know he says he got a lot of people working on this just makes this a very nice way to celebrate as we come to the end of another year I think what we have here is the magic of funds that are designed to serve investors with a fortuitous meeting of an investment organization investment website designed to serve other investors too and when you come to the end of the line it's I think serviced others the most important things in your life I will quote here William Penn who said whatever good you have to do do it now we shall not pass this way again but I hope to pass this way again for your hands thanks everybody thank you Jack thank you and you're wasting valuable time thank you all so much please be seated it's tougher and tougher to try to find a memento to give you I know your den is full you say you don't have any room we got the cane so there are the walking stick last year I'm running out of ideas but this year we found what I hope you'll enjoy this is a Ben Franklin money clip I know you're a big fan of Ben Franklin and you can put your Franklins in there so your Benjamin thank you so much and the engraving is Puggle Heads 2016 thank you Jack thank you very much that's a wonderful momentum you shouldn't have done it but you did it my thank you thank you so much again Jack we hope to see you again next year thank you Jack thanks again