NEW YORK For a guy who helped create the modern investment-management industry as the founder of Vanguard Group, John "Jack" Bogle has an interesting relationship with money: He hates to use it.
Bogle doesn't care for the fancy things people often buy, and he sure doesn't like how it has corrupted the financial system. He thinks that everyone should save for the future, of course, but he can't stand to spend on himself. He is happiest when he is at the family getaway in the Adirondacks with his wife, six kids and 12 grandchildren.
Or at the office, where he still works at the age of 83. Bogle's famously hard-working and thrifty outlook is present in his new book "The Clash of the Cultures: Investment vs. Speculation," a scathing indictment of an economy that serves to enrich Wall Street types at the expense of Main Street shareholders.
Bogle's own net worth is somewhere in the low eight figures, he estimates. So what exactly does he do with it - and what advice does he have for the rest of us? We sat down with him to find out.
Q: Can we assume you're all in Vanguard funds?
A: One hundred percent. My personal, non-retirement accounts are about 80 percent bonds and 20 percent stocks, reflecting my old rule of thumb that your bond allocation should roughly equal your age. It's spread across different bond funds, like the Vanguard Intermediate-Term Tax-Exempt (VWITX). I'm a pretty conservative guy.
My retirement accounts are more like a 50-50 split between stocks and bonds, because of a longer time horizon and because yields on bonds are extremely unattractive right now. The equity side is mostly in Total Stock Market Index (VTSMX), but I still have a little bit in the Wellington Fund (VWELX), which I've been investing in for many decades. I don't ever want to sever that relationship. Bonds in my retirement accounts are about 30 percent Treasuries and 70 percent investment-grade corporates, like the Vanguard Intermediate-Term Corporate Bond Index (VICBX).
Q: How about investments in other areas of your life, like real estate?
A: My wife and I downsized our home in Bryn Mawr, Pennsylvania, as we got older. About five years ago we moved into a place that's about a third smaller and with much less property. I didn't take out a mortgage for it because at this point I don't have to borrow money, and I don't like to. We also have what I call our "big old Adirondack barn," which is a place that's been in my wife's family for more than 50 years. It's for ourselves and our six children and our 12 grandchildren; it's a nice refuge for them.
Q: Do you set a little aside for those grandkids in 529 college-savings plans? (Vanguard has about $40 billion in assets in 27 state 529 plans.)
A: I don't really like the idea of tying up your money in 529 plans, because of all the restrictions on withdrawals. I'm not against them, I just like having more flexibility than being required to use those funds specifically for educational purposes. We do save a little money for all my grandkids every year, but we just chose the Vanguard Balanced Index Fund (VBINX). It's about 60 percent stocks, 40 percent bonds, and it's been wonderful. We give them what we can within annual gift-tax limitations, and put it all into that very tax-efficient fund.
Q: Have you had any medical expenses in recent years, resulting from your health scares?
A: Thankfully, we have terrific health coverage here at Vanguard, and I've definitely used it in my 83 years. Because of my heart transplant 16 years ago and use of anti-rejection drugs, they estimated about a 50 percent fatality rate. I've been lucky enough to be in the good half. Anyone who's been given an extra 16 years of life, there's no point in going around bitching about anything.
Q: Where do you like to give back?
A: I tend to give to those who have helped me along the road of life: Blair Academy, Princeton University, our church, and several hospitals that got me here in one piece. On the community side, I've always been a big supporter of the United Way. The best rule for philanthropy is to give until it hurts, as much as you can, because none of us can get through life all by ourselves. As John Dunne wrote, ‘No man is an island, entire of itself.'
Q: Do you have any extravagances?
A: Every winter my wife and I take a week off and go to a resort in Florida. But I really can't stand spending money on myself. I don't like going into stores, I don't like the whole process of buying things. I have everything I could possibly need. I grew up in a certain way. My father's money vanished in the Great Depression, and he had trouble keeping a job. So they were tough times, and I started working when I was 10 years old, delivering papers and eventually becoming a waiter. I learned you work for what you get, and I feel sorry for people who haven't had that upbringing.
Q: Any advice for people about where they should invest going forward?
A: Stock returns basically come down to dividend yield plus earnings growth. If you have a dividend yield of 2 percent, plus earnings growth of 5 percent, I think a 7 percent annual gain is a rational expectation for stocks.
I think it's unwise to get out of the stock market, or the bond market, even though the economy is uncertain. The market is often stupid, but you can't focus on that. Focus on the underlying value of dividends and earnings.
Invest as efficiently as you can, using low-cost funds that can be bought and held for a lifetime. Don't go chasing past performance, but buy broad stock index and bond index funds, with your bond percentage roughly equaling your age.
Most of all, you have to be disciplined and you have to save, even if you hate our current financial system. Because if you don't save, then you're guaranteed to end up with nothing.
(Edited by Jilian Mincer and John Wallace)