Vanguard founder Jack Bogle spoke today with FBN’s Liz Claman and David Asman about investment strategies amid the developments of Libya, Japan and the oil markets. He said that investing in cash is “the one way I know of to guarantee you will earn no return from now to your retirement” and while cash may seem like a haven, getting in and out is actually “a loser’s game.” He also presents warnings about investing in real estate and bonds, but concludes that, “you’ve gotta put the money somewhere or it’s not gonna earn anything.” Excerpts from the interview can be found below, courtesy of Fox Business Network.
On how to still profit despite the volatility since Japan:
“Stay the course. Don’t let these distractions get in the way of an intelligent investment program. There is a long trail between today and the retirement of most people. The whole idea of investing is to build a sum for your retirement and there’s no better way to do that than stocks. They will be good in the long run, but not as good as in the past because dividend yields are so low.”
On investing in cash:
“Cash is a terrible long term investment. It is the one way I know of to guarantee you will earn no return from now to your retirement. Why would anyone want to do that? It’s looked at as a haven, things are disruptive now and I’ll go to cash but I will jump back in when things look good. Well you may get out now, but a good example is Japan. That cash was probably raised at the bottom of the US market and Japanese market even more and people are probably now saying I didn’t get back in quickly enough, but getting in and out, I regret to say, is a loser’s game.”
On putting cash in real estate as an investment:
“I wouldn’t put it in real estate because it has no liquidity. It’s been proven over and over again that owning real estate in a stock form is not at all the same thing as owning real estate. Even the mighty Sam Zell, the great real estate investor and the guy who can make a lot of money at the expense of an awful lot of other people, says watch out when real estate gets securitized. So, be careful about real estate.”
On real estate funds:
“Cohen & Steers does a great job in their real estate fund. If I liked real estate and was capable of putting up with the risks or willing to put up with the risks of that securitization, I’d say invest in an index fund based on real estate and then you’re not taking any manager risk at all.”
On what happens to safe havens, like bonds, once rates increase:
“This is a very difficult time to invest because the alternatives to stock are not all that attractive. Money market funds, to be candid, are really kind of a bad joke. With bonds, I worry about rising interest rates; it’s highly likely, but I don’t think anything is a certainty. I would confine my bond position to intermediate term bonds or limited-term bonds. So be careful, but you’ve gotta put the money somewhere or it’s not gonna earn anything.”
On commodities:
“The problem with commodities, gold included, is they’re completely ranked speculation while the ways of delivering stock and bond return are easy. Stocks are riskier but they grow at the rate of our GDP. I think this is gonna be a good decade for that, but I’m worried about the obvious aberrations we’re facing in a political system that doesn’t’ want to respond to current events that gravely affect our nation.”
On dividends:
“I happen to be in favor of owning everything, but the dividend strategy is a fairly conservative strategy. It’s looked pretty good over most cycles in the past, but you have to worry a little about dividend yields. A dividend yield oriented fund that produces probably today a yield of 2.75%, or maybe 3% is reasonable, less volatile, more attractive than the market.”
On if you should diversify your portfolio in funds:
“No. There’s going to be a lot of duplication likely. You’re going to get an index fund return. You’re paying a lot of money for that, a higher expense ratio, probably sales loads and transaction costs as these funds trade securities back and forth with one another. It seems paradoxical. If you want real diversification, diversify the entire market. Get taxes, transaction costs, expenses, and sales loads out of the picture and then you’ve got a fighting chance to win.”
On if he is planning to write another book:
“Confession being good for the soul: I’m thinking about another book.”
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