MARIA: WELCOME BACK.
OUR NEXT GUEST IS A LEGEND IN
THE INVESTING WORLD, JACK BOGLE
FOUNDED THE VANGUARD GROUP IN
1974, TURNING IT INTO THE
LARGEST MUTUAL FUND COMPANY IN
THE WORLD.
THE VANGUARD 500 INDEX THAT
BOGLE STARTED AND CREATED IN
1975 WAS THE FIRST LOW-COST
INDEX MUTUAL FUND DESIGNED FOR
THE AVERAGE INVESTOR.
JACK NAMED BY FORTUNE MAGAZINE
AS ONE OF THE FOUR GIANTS OF THE
20th CENTURY IN THE
INVESTIGATIONMENT INDUSTRY. INVS
INVESTIGATIONMENT INDUSTRY. INVM
INVESTIGATIONMENT INDUSTRY. INVN
INVESTIGATIONMENT INDUSTRY. INVT
INDUSTRY.
HE'LL TALK TO US ABOUT HIS NEW
BOOK.
JACK BOGLE IS WITH US THIS
WEEKEND.
THANKS FOR JOINING US.
>> MY PLEASURE, MARIA.
ALWAYS.
MARIA: LET ME START OFF WITH
NEWS OF THE WEEK.
THIS WEEK WE LEARNED THAT
HOUSEHOLD WEALTH REACHED A
MILESTONE, JACK, $100 TRILLION.
AMERICANS WEALTH SURPASSED
$100 TRILLION MARK FOR THE FIRST
TIME EARLY THIS YEAR, WHICH IS
AN INCREDIBLE NUMBER AND THAT
HAS TO DO WITH STOCK INVESTING
AND THE PRICE OF THE HOMES.
JACK BOGLE, YOU ARE THE PIE MERE
IN THIS BUSINESS.
WHAT HAS CHANGED SINCE YOU
STARTED VANGUARD?
>> I GUESS I WOULD START BY
SAYING EVERYTHING HAS CHANGED.
THE MUTUAL FUND BUSINESS IS A
TOTALLY DIFFERENT BUSINESS.
IT'S NOW PROBABLY 70% OF THE
CASH FLOW, SOMETIMES 100% OF THE
CASH FLOW IS GOING INTO INDEX
FUNDS, WHICH ISN'T EXIST WHEN I
STARTED VANGUARD ALL THOSE YEARS
AGO.
AND INDEXING IS UP TO I THINK
AROUND 45% OF MUTUAL FUND,
EQUITY MUTUAL FUND ASSETS.
SO IT'S BEEN A REEVE
SO IT'S BEEN A REVVE
SO IT'S BEEN A REVOLUTION,
INDEXING HAS, AND IT'S CHANGED
THE NATURE OF HOW PEOPLE LOOK AT
INVESTING.
AND MOST IMPORTANT OF ALL, IT'S
MADE PEOPLE START TO THINK ABOUT
COST.
COST IS EVERYTHING IN THIS
BUSINESS.
BECAUSE WHEN YOU THINK ABOUT IT,
WHERE ARE RETURNS GENERATED FOR
WE INVESTORS.
THEY'RE GENERATED BY CORPORATE
AMERICA.
THEY EARN MONEY, THEY PAY
DIVIDENDS, THEY REINVEST THE
REMAINED NER THE BUSINESS AND
THAT'S WHERE VALUE IS CREATED.
THE FINANCIAL MARKETS ARE THE
WAY WE ACCESS THAT VALUE.
BUT THE FINANCIAL MARKETS DON'T
GIVE US ALL OF IT.
THEY TAKE THEIR SHARE FIRST AND
THEN GIVE US WHAT'S LEFT.
BEING WE INVESTORS.
SO ANYTIME YOU CAN SHORTEN THE
GAP, BRIDGE THE GAP, MINIMIZE
THAT GAP IS A GOOD THING FOR THE
AMERICAN INVESTORS.
MARIA: YOU MAKE A GREAT POINT
ABOUT COST.
PEOPLE ARE NOT FOCUSED ON THAT
UNTIL YOU PUT IT FRONT AND
CENTER WITH SUCH LOW FEES AT
VANGUARD AND NOW YOU'VE GOT
INDUSTRY OF INDUSTRY TRYING TO
COPY VANGUARD, WHETHER IT'S THE
INDEX INDUSTRY OR BROKERS TRYING
TO TAKE TEAR FEES DOWN.
IS THIS A RACE TO THE BOTTOM,
JACK, IN TERMS OF HOW LOW FEES
ARE GONE?
>> WELL THAT'S REALLY A GREAT
QUESTION, MARIA.
MOST OF THE FEE COMPETITION IN
TRUTH IS IN THE ETF, EXCHANGES
TRADE AND FUND AREA, BECAUSE
THAT'S WHERE A LOT OF THE
ACTIVITY IS, A LOT OF THE CASH
FLOW IS.
AND THE COMPETITION IS MODERATE
FOR ACTIVELY MANAGED FUNDS AND
REALLY VERY LIGHT FOR WHAT I
CALL TRADITIONAL INDEX FUNDS,
TES, INDEX FUNDS, TIFs, I
SHOULD SAY, INDEX FUNDS OF THE
TYPE I STARTED IN 1975 THAT ARE
BOUGHT AND HELD TOGETHER
FOREVER.
LET ME EXPLAIN IT THIS WAY.
WE CHANGED THE BUSINESS, THE
INDEXING BUSINESS FROM AN INDEX
PASSIVE INDEX HELD BY PASSIVE
INVESTORS TO PASSIVE INDEXES
HELD BY ACTIVE INVESTORS.
A LOT OF TRADING GOING ON IN ETF
LAND AND THAT'S NOT SUCH A GOOD
THING.
THAT'S WHERE THE COMPETITION IS,
BECAUSE YOU CAN MAKE MONEY
STARTING A LITTLE COMPANY, I
CALL THEM FINANCIAL BUCCANEERS,
TRYING TO FIND A LITTLE HOLE
THAT NOBODY ELSE HAS FILLED, A
LITTLE NICHE IF YOU WILL.
AND IN THE OTHER -- THERE'S NOT
MUCH APPETITE IN THE TRADITIONAL
INDEX FUND BUSINESS FOR LOWER
COST BECAUSE, AS I SAY, OFTEN
SAID, THE PROBLEM WITH INDEX.
FUNDS IS ALL OF THE DARN MONEY
GOES TO THE INVESTORS.
AND THE MUTUAL FUND BUSINESS IS
A BUSINESS THAT IS PEOPLE COMING
TO THE FUND BUSINESS TO MAKE
MONEY FOR THEMSELVES AND THEIR
MANAGEMENT COMPANIES.
THEY WANT TO MAKE MONEY FOR
THEIR INVESTORS, SURE.
BUT THE MORE THE MANAGEMENT
COMPANY TAKES TWB LESS THE
INVESTOR MAKES.
MARIA: AND THAT'S THE ISSUE.
A LOT OF PEOPLE DON'T REALIZE
THAT.
THE FIRST QUESTION IS HOW MUCH
IS IT COSTING YOU.
THE MONEY IS COMING OUT OF YOUR
RETURNS.
JACK, HOW DO YOU ANSWER THE
CRITICISM -- I SAW IN YOUR
INTERVIEW RECENTLY ABOUT THE
CRITICS OF THE INDEX FUND TODAY
SAYING THAT YOU'RE NOT
ALLOCATING CAPITAL PROPERLY.
IT'S BECAUSE THE BIGGEST STOCKS
MAKE UP THE BIGGEST PERCENTAGE
OF MOST OF THE INDEXES, MIKE
VOFT, 3.2% OF THE S&P 500 AND
WALMART IS HALF A PERCENT.
NEW MONEY MEANS THAT THE LARGE
STOCKS TAKE A PROPORTIONATELY
MORE MONEY THAN OTHER STOCKS.
SO IS THAT DESTABILIZING?
>> THAT'S NOT ONLY NOT
DESTABILIZING, MARIA, IT'S NOT
TRUE.
IN OTHER WORDS, IF WE HAVE 4% OF
ASSETS IN ALPHABET OR GOOGLE, WE
PUT 4% OF OUR NEW MONEY INTO
THAT.
IF WE HAVE HALF A PERCENT IN
WALMART, AS YOU SAID, WE PUT
HALF A PERCENT, IT DOESN'T
CHANGE THE EQUATION.
WE'RE INVESTING BASED ON THE
MARKET VALUES OF THE COMPANY.
AND WHEN THE PRICES GO UP, THE
PRICES GO UP IN THE REGULAR
MARKET, IF YOU WILL, BY
INDIVIDUAL INVESTORS, BUT THEY
ALSO GO UP FOR THE INDEX FUND.
MARIA: OKAY.
>> RISING PRICES CREATES ZERO