I read this NY Times article about John Bogle over the weekend. Pretty good piece.
I found this part of the article interesting:
…he says, long-term investors must hold stocks, because risky as the market may be, it is still likely to produce better returns than the alternatives.
“Wise investors won’t try to outsmart the market,” he says. “They’ll buy index funds for the long term, and they’ll diversify.
“But diversify into what? They need alternatives, bonds, for the most part. What’s so frightening right now is that the alternatives to equities are so poor.”
In the financial crises of the last several years, he says, investors have flocked to seemingly safe government bonds, driving up prices and driving down yields. The Federal Reserve and other central banks have been pushing down interest rates, too.
But low yields today predict low returns later, he says, and “the outlook for bonds over the next decade is really terrible.”
Dark as this outlook may be, he says, people need to “stay the course” if they are to have hope of buying homes or putting children through college or retiring in comfort.
He is still preaching the gospel of long-term, low-cost investing. “My ideas are very simple,” he says: “In investing, you get what you don’t pay for. Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course. And they won’t be foolish enough to think that they can consistently outsmart the market.”
Summary: Bogle’s for buy and hold and diversification but there’s nothing to diversify into.
I would suggest looking into a broader diversification than simply a stocks/bonds portfolio. It might be a good time to check out Craig Israelsen’s work on the 7Twelve portfolio, which utilizes 12 different investments over 7 asset classes. He’s even written a book about the portfolio title 7Twelve: A Diversified Investment Portfolio with a Plan*.
Bogle Gets Political
One thing I found interesting in the article was that Bogle considers himself a Republican but he voted for Clinton and Obama and plans to vote for Obama again this year. This is slightly funny to me because he says that banks need more oversight when it was Clinton who signed the bill deregulating banks in the first place. Interesting. That’s okay. Mr. Bogle is entitled to his opinion.