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Jack Bogle, founder and retired CEO of The Vanguard Group, speaks during the Global Wealth Management Summit in New York June 17, 2014.
Jack Bogle, founder and retired CEO of The Vanguard Group, speaks during the Global Wealth Management Summit in New York June 17, 2014.
Shannon Stapleton—Reuters

Listening to Vanguard founder Jack Bogle speak is one of the highlights of the annual gathering of the Bogleheads investor community, dedicated to Bogle’s principles of simple, low-cost investing. And talk the 87-year-old former Vanguard chairman did, per usual, at the latest gathering held in Philadelphia this week, appearing on stage for a combined three hours of prepared remarks and Q&A.

Here are highlights of his comments on 10 topics of interest to individual investors.

On the fund industry:

“I’ve seen this go from an industry that sells what it makes to an industry that makes what will sell,” he said. He dated that switch to the late 1950s, when a court decision allowed fund management firms to become public companies beholden to their corporate shareholders as well as to the shareholders of the funds. In launching Vanguard, which is unusual in being a mutual company owned by the Vanguard funds and fund investors, he said, “I did my best to disrupt an industry that was sadly in need of disruption.”

On ETFs:

“Exchange-traded funds are fine just so long as you don’t trade them,” Bogle said. That sounded almost like praise from a man who has long criticized ETFs as flat-out dangerous and wrong-headed—although he subsequently referred to ETFs as being sold by “financial buccaneers.” If you use ETFs, aim for broad diversification like that offered by traditional index mutual funds, he told the more than 200 Bogleheads in attendance, and avoid the “lunatic fringe of ETFs,” such as funds that let you place a triple-leveraged bet on what the market will do today.

On his sometimes prickly relationship with Vanguard:

Bogle said one of the best things that happened to him over the past year was the achievement of “mutual harmony” with the current management of Vanguard, under chairman Bill McNabb. Bogle, who founded Vanguard in the mid-1970s, has had an office and small research staff on the Vanguard campus in Malvern, Pa., since he retired as senior chairman in 2000. But there were years when he found his high profile and opinions weren’t particularly welcome by the company's top officials. Now, “all the arguments have been settled or put aside,” he said, leading to “the best relationship I’ve had with Vanguard.”

On the reason low fees are more important than ever:

“People have to pay attention to costs more than ever,” Bogle said. His reasoning: Today’s low stock dividends and the muted outlook for corporate earnings growth suggest investors will earn relatively low returns—maybe 4% a year on average—from stocks in the next decade. And bond yields are super-low too.

On what index funds can and can’t do:

With funds such as the Vanguard 500 Index Fund, which had its 40th birthday earlier this year, ”we promise you your fair share of the market return,” Bogle said. That’s been a winning proposition over long periods, but with some ugly declines along the way. “Don’t forget you’ll get your fair share too when the market goes down,” he said.

On his most often criticized advice:

It’s become common wisdom that investors should hold foreign stocks and bonds along with U.S. securities. Some investment pros, including those who manage Vanguard's target-date retirement funds, commit something like 40% of stock portfolios to non-U.S. shares to line up with the breakdown of stock-market values around the globe. But since the 1990s Bogle has said investors get plenty of overseas exposure through the foreign operations of U.S. companies—and he says he is sticking with that view, despite it being “by far the position that everybody tells me I’m wrong in.”

Overseas stocks have performed worse than U.S. shares in recent years. But they still may not be a bargain, he said: Those valuations may simply be appropriate compensation because they are riskier.

On the value of keeping things simple:

“One thing you have to do is protect yourself against your own weaknesses,” including thinking you are going to be able to make smart decisions about when to shift your dollars around, Bogle said. The Vanguard founder said his personal portfolio is roughly 50-50 stocks and bonds, mostly using index funds. He said a portfolio of only a couple of funds—or even a single stock-and-bond fund such as Vanguard Balanced Index Fund—could be perfectly reasonable.

“Sometimes we complicate simple things,” he said, giving the example of people who think they need to rebalance their portfolios every time the asset allocation varies only slightly from their long-term target asset mix.

On buying dividend stocks as an alternative to bonds:

In recent years, some income-oriented investors have concluded that dividend stocks are more attractive than bonds at super-low interest rates. A small shift in that direction could make sense, the Vanguard founder said. But a wholesale shift “would be insane” and expose investors to too much stock risk, he said.

Reaching for yield often works out just fine…until it suddenly doesn’t and investors are hit with unexpected losses. “The investor has to accept the rate of return that is available in the marketplace. Doing otherwise means you are accepting greater risk,” Bogle said.

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On the impact of the fiduciary rule for retirement-account advice:

Bogle said the new Labor Department rule requiring financial advisers to put retirement investors’ interest above their own “is going to make a much bigger change than anyone now envisions.” While the rule only applies to advice on accounts such as 401(k)s and IRAs, he predicted that financial firms and individual advisers would tend to apply the same standards to other accounts, such as regular brokerage accounts. Also, he predicted that at some point the Securities and Exchange Commission would extend the standard to nonretirement accounts.

On the right mix of government and corporate bonds:

Treasury bonds and other government-backed debt now represent about a combined 70% of a widely used index of high-quality U.S. bonds. Bogle said he would lean toward a 50-50 split between government obligations and high-grade corporates. (Currently, using Vanguard funds, that would provide just a bit more yield.)