Bogle: Don't Reach for Returns

Looking to nonconventional asset classes to chase extra return is akin to heading to the racetrack, says Jack Bogle.

Christine Benz 21 October, 2010 | 9:49AM
Facebook Twitter LinkedIn

There has been a stampede of assets going into bonds and bond funds over the past few years. Christine Benz, Morningstar’s Director of Personal Finance, asks the founder of the Vanguard Group Jack Bogle about his take on this trend. People have been disillusioned by the crash and they see bonds as pretty much the only alternative to equities, Bogle explains. He also says that while bond returns may get lower, you have to have limits when chasing returns.  This is the second in a series of interviews with Jack Bogle. Earlier this week, we published his take on why you should Keep Bonds for the Bumps in the Road.


Christine Benz: There has been this stampede of assets going into bonds and bond funds over the past few years. What's your take on that? Is that a rational response to what investors have been through or is there perhaps some performance-chasing going on?

Jack Bogle: Well, of course, there is some performance-chasing or maybe not so much performance-chasing as antiperformance shunning. That is people are very much disillusioned or have been by the big crash in the stock market. And therefore, they are looking for an alternative, and there really isn't for the man on the street, woman on the street, much of an alternative than bonds.

So, if you're putting money away and your choice is stocks or bonds and you don't like stocks that leaves bonds, it's not very complicated. It's been said that there's a bond bubble; I don't believe that. The bond market – what we have is a bond market that's going to produce much lower returns than it has produced in the past, just because of the numbers we talked about earlier. So, you got to be prepared for that.

Then I would say this, combined if bonds produce 3.5% and stocks produce 7%, a balance portfolio is going to produce say 5% just for the fun of it, and you say, well I can't live on 5%, so I want more. Don't do it. You have to be limited by the market return, and if you want to do it and go beyond--say going to something higher-yielding or something riskier--it's very much like saying when you go to the racetrack, which is something might I don't happen to do. But when you've lost on the first seven races, so you bet everything you have on the eighth race. It's not a good bet, you may win, but the odds are just terrible.

So, don't go beyond the conventional markets; my opinion.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Christine Benz

Christine Benz  is director of personal finance at Morningstar and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures