Business & Real Estate

Jack Bogle: A Father’s Day Q&A with the grandfather of index mutual funds

At 85, he’s the grandfather of index mutual funds.

John “Jack” Bogle, the legendary investment pioneer, is founder of the Vanguard Group Inc., one of the world’s largest mutual funds. With more than $2 trillion in assets, it’s a fixture in many investors’ portfolios, as well as many corporate 401(k) plans, including the one offered by The Sacramento Bee.

A prolific writer and speechmaker, Bogle has long criticized “stock pickers” and the high fees associated with actively managed investment funds. Although he stepped down as Vanguard’s chairman more than a decade ago, Bogle remains outspoken about his investing beliefs, delivered in a strong baritone voice that belies his eight decades.

As president of the Bogle Financial Markets Research Center, he still reports to his Vanguard headquarters office in Melvern, Pa., every day, where he writes speeches and op-ed pieces and personally answers fan mail.

We chatted with him by phone last week about fathers and sons, mutual funds and a little bit about Bogle wines. Here’s an excerpt:

On Father’s Day, we often look back on our dads. Do you have any memorable bits of wisdom from your own father?

In terms of my own father, the answer is zero. He had trouble keeping a job; there was a lot of drinking. Much of the family fortune was wiped out in the Depression; we have great memories of being dunned for non-payment of bills. We lived with uncertainty. (Because of that) you learn at a very young age, you’d better roll up your sleeves. That’s an eternal lesson. If you do not learn it, you’re disadvantaged.

How did that inform the financial lessons you passed on to your six kids?

Growing up in a privileged environment doesn’t do you any good. It’s not an advantage. With my own children, we were strict with them financially. There’s such a thing as too much. We were stringent in allowances. We very much pressed them to get jobs to earn money on their own, particularly in the summer. Or even during Christmas vacation. It’s basically having them learn the same lesson (of independence) that I learned, but without the necessity. And with a strong presence of a father in the family.

You and your eldest son were recently featured in the Wall Street Journal, good-naturedly sparring about your differing approaches to investing. You’re down on hedge funds; he manages one. Do you simply agree to disagree?

We really don’t disagree on anything. He uses index funds in his own family’s portfolio. I gave him a little support and bought his mutual fund when it came out 15 years ago. Usually you want to stick with principles, but who am I to judge how someone makes a living if they’re doing well? He’s been successful with his hedge fund at very low costs, reasonable turnover … We talk every Friday. I’m doing an op-ed piece on high-frequency stock trading and sent him a draft … He’s a really good editor.

What’s your take on high-speed stock trading and the SEC’s recent call for reining in some of the transactions?

High-frequency trading is not new at all, but there are no significant speed limits. Trading at high volumes … that’s competitive capitalism at its best. But the devil is in the details. The huge profits these firms make, the canceled orders, the insider trading, the “dark pools” that are mysterious and should be transparent … These computer-driven markets cry out for careful regulation.

What would you tell investors or young millennials just starting out in the investment world?

With any investor who asks me, I always say: there is one way and only one way to invest. Buy an S&P 500 or total index fund and put money in it regularly. It will get you through. You don’t have to worry about picking the right (investment fund) manager or picking some hot mutual fund. Do that for five years and you’ll capture your fair share of the market. After five years, you can reappraise, but you’ll likely want to do exactly the same thing.

Among your investing peers, Warren Buffett is said to be a big fan. Do you converse with him much?

Periodically. In his annual report, he said he was leaving his wife’s portion of their estate to be invested 90 percent in a Vanguard low-cost 500 index fund. I’ve got write him a note to thank him for that.

Do you have a succession plan like he does?

I’m no longer chairman (of Vanguard). I’m just running the Bogle financial markets research center, which is me and two other people. It’s not General Motors. But I’m a big voice for ethical, human standards for serving individuals and investors. I’m much more interested in human beings than algorithms.

You were recently named to CNBC’s list of the Top 25 Americans who’ve had the most influence on finance and business … those who’ve “disrupted industries, sparked change and exercised an influence far beyond their own companies.” How did it feel to be No. 9, sandwiched between Facebook’s Mark Zuckerberg and Oracle’s Larry Ellison?

One of them has $28 billion in net worth and one has $48 billion. I’m right in the middle and I do not have $38 billion (chuckling). I guess I’d be surprised if I was not on a list of people being (business) rebels and disruptive… I’m no Steve Jobs or Bill Gates or the three guys who started Google, but I did something worthwhile. So it’s nice.

You asked about California’s Bogle Vineyards winery, here in Sacramento’s backyard. Is there a family connection?

I don’t think there is a family connection, but because of the name, a lot of people think they’re very smart giving me a bottle of Bogle wine. … The Chardonnay is very good and very well priced.

When (winery proprietor) Christopher Clark Bogle died, awaiting a heart transplant, I saw his obituary within a month of receiving my heart transplant. (Chris Bogle, 45, died in February 1997.) There doesn’t seem to be a family connection, but I did write to his wife and tell her about ARVD (arrhythmogenic right ventricular dysplasia), the disease I had.

I used to carry around a defibrillator all the time, in case my heart stopped. I wouldn’t be here without a heart transplant. It’s getting a little bit old, but I’m thankful for yet another Father’s Day … and for my wonderful wife of 57 years.