Jack Bogle Full Interviews with CNN and Business Insider

If you haven’t gotten a dose of Jack Bogle wisdom recently, check out this full Business Insider interview transcript and this 16-minute CNN video interview. There is a lot of ground covered between them. Here are my selected notes:

S&P 500 dividend income reliability. Bogle seems to support the idea of relying on S&P 500 stock dividends to supplement Social Security:

The basic idea of retirement income is, to me, to get a check, two checks every month, one from your fixed income and one from equity account. And you want them to grow over time. Social Security is a cost-of-living hedge, and in the equity account dividends grow over time.

The record of the S&P 500 dividends is almost a complete up trend with only two big declines going back into the ’20s. One would be in 1930s — ’33 or ’34 — and the other is when the banks stocks eliminated their dividends, back in 2009. Those are really the only significant declines in the dividends.

Investors make a big mistake by thinking too much of the value of the account and not enough about the monthly income they want to get. We could have a significant decline in the market with dividends unchanged.

Here’s a chart of the S&P 500 dividend history via Multpl.com:

Helping investors improve their behavior. For example, 401(k) plans were not designed to be your primary retirement vehicle, and thus have a lot of flexibility built into them. However, this flexibility means a lot of people take money out of their 401(k) when they switch jobs or for loans that never get paid back. A similar thing when people chase performance:

With actively managed funds, people have big behavior problems. With funds that have done well, they put their money in, and when it has done bad, they want to take it out. The index fund always gives you the market return. It may be bad sometimes — it will be bad sometimes — but there’s just no evidence that active managers can win [long term].

Why you don’t see performance-based incentive fees for fund managers. I didn’t know about the SEC symmetrical rule:

The active managers have their work cut out for them. One thing they could do is put in an incentive fee. Get 10 basis points or five [0.10% or 0.05%], unless they beat the market. We’re paying people to beat the market when they aren’t doing it, and when you think about it, that doesn’t make sense.

They can put their expense ratio at 5 [basis points, 0.05%] and get another 1% if they beat the market by X. But they have to, under the SEC rules, be symmetrical. So if they lost to the market by 1%, they would be out of pocket. Managers, at least in this context, are not stupid. They know perfectly well they are going to lose that bet.

What happens if index funds continue to grow in popularity:

Right now I believe indexing to be about 22% to 25% of the marketplace. It’s not disturbing anything. Could it go to 50% and not disturb anything? I believe it could. All you’re doing is immobilizing X percentage of the shares in the market. The remaining 50% can trade away to their hearts’ content.

Could it handle 90%? I think it could, but we’re so far away from that, I don’t spend a lot of time thinking about it. The reality here, however, is that even if the market would reach a level of inefficiency, which everyone says then the active managers can win because then they can find underpriced stocks. [Laughs] It’s such a ridiculous argument it hardly bears refuting. The fact is, if the market is more inefficient, it would be easier for half of the managers to win and by definition easier for half of the managers to lose. Because every purchase is a sale and every sale is a purchase.

This is not a problem that I worry about very much. Markets stay relatively efficient because there continues to be big rewards for those that can figure out any small inefficiency, even for a short period of time. Those rewards aren’t going aways, so markets will stay efficient, and low costs will continue to matter.