Some Jack Bogle for your Friday

From yesterday, Morningstar's 25th Investment Conference:

On retirement: “We’re headed for three train wrecks.”?
Echoing language he’s used before to describe the current U.S. retirement system, Bogle cited three areas of concern: underfunded Social Security (it can be fixed, he said; all that’s required is some political will); dramatically underfunded state and corporate pensions (they know their expected returns are unrealistic, but they all say they’ll hire good managers), and over-reliance on defined-contribution plans that aren’t strict enough to ensure success.

On defined contribution (e.g., 401(k)) plans: “We’ve taken a thrift plan and turned it into a retirement plan.”
Bogle says the plans are too lenient on investors, giving them too many options to cash out. “We need to be much more strict on withdrawals,” he said. “There is too much ease of access. The system has too much flexibility.”

Bogle further added that we should have a federal retirement board that determines eligibility for an investment firm to get into the retirement management system. “We need to get the costs out of the system and the discipline in,” he said.

On government bonds: “70% of the [Barclays Aggregate] bond index in Treasuries is too much.”
Echoing his sentiments from a recent Morningstar.com video interview, Bogle argued that the index’s stake in Treasuries and agencies is disproportionately high. Should it be 0%? No, he said. But neither should it be 70%.

On the Role of Social Security: “It’s probably the best fixed-income position you’ll ever have.”
With its steady payments and cost-of-living adjustments, Social Security is a key piece of retirees’ portfolios. But Bogle said we need to look at Social Security in the whole portfolio picture. If your investment portfolio is entirely fixed income, and Social Security is also playing that role in your holistic financial picture, is it too much fixed income?

On occasions that he disagrees with Vanguard: “It doesn’t happen.”
Rather, Bogle asserted, Vanguard disagrees with me. “They’re in a tough place,” he added. “Here’s this old guy who keeps saying what he thinks. Would he just shut the ….”

On the strength of his convictions: “I’m too old to speak out on an issue I don’t vigorously believe in.”
Given the positive impact Bogle has had for fund investors over the decades, we're glad he didn't wait to speak out.

On the role of fund shareholder activism: “Corporate America needs a lot of cleanup.”?
Bogle estimated that the fund industry owns 35% of all stock in the U.S., and actually much more given that many of those same managers also run institutional money. “We control corporate America,” he said, “and corporate America needs a lot of cleanup, house cleanup. … If the shareholders don’t speak, nobody is left.”

On the human factor: Human beings are the most important part of any equation. ?
The human beings with whom we serve, and whom we serve at Vanguard, Bogle said.

On public fund companies: Matthew 6:24
How can corporations be fiduciaries to their shareholders and to their fundholders? Bogle got biblical, citing Matthew: No man can serve two masters, for either he will hate the one, and love the other; or else he will hold to the one, and despise the other.

On improvements in the fund industry: “Keep working.”
The industry has gotten somewhat better, Bogle said. “But for heaven’s sake…success is a journey, not a destination. Once you think you’re there, it’s not a good idea. Keep working.”