Jack Bogle: Sell Your Index Funds At All-Time Highs?

I don't know anybody who has ever been successful in, uh, timing the market. I don't even know anybody who knows anybody who has ever been successful in timing the market.

[Music]

This video is brought to you by Sharesight. Seek of tracking your performance manually, track capital gains, dividends, and currency fluctuations easily. And when it comes to tax time, have everything you need ready to go with just a click of a button. Try Sharesight for free or use the referral link in the description to get four months free when you sign up to an annual plan.

Jack Bogle is a name in the investing world that most people haven't heard of. However, he probably had the most far-reaching impact worldwide of any single person in this space. Why? Because he founded the Vanguard Group and created the world's first index fund. He is the godfather of passive investing.

So, if you've bought an ETF before or something similar, maybe hold a similar product in, say, a retirement account or anything like that, all of this—this whole movement—started with Jack Bogle. So, pretty impressive.

Jack was a very intelligent, very rational investor and always loved explaining the benefits of passive investing, regardless of the weather in the market. And that's why I wanted to make this video now, because I know a lot of you, most of you in fact, are at least partially passive investors. And I am too. But how hard has it been mentally to show up recently and buy more ETF shares when the market looks like this? It almost feels wrong, doesn't it?

So I thought let's turn to Jack to provide his timeless wisdom on how we should be navigating this period in the stock market. And this clip, I believe, is from 2008 by what he says, but notice just how well it reflects what's going on today.

Let’s talk about the current market environment. It's crazy! Give us your take on what's going on and what do you think investors should be doing?

Well, of course, I've only been in this business for 57 years and I have never seen anything like it in my life. I've never seen anything like the amount of speculation that's going on in the market, which is basically twice as much stock trading—twice as much turnover as we had in 1929, the previous high.

And we have these frequent days, we've had 37 of them in the last year, where the market's going up or down two percent or more. When I came into this business in 1951, we might have had three or four days a year like that. Twelve times as many wild and wooly days as history would have said.

So we've just— we've taken the whole focus of market participation in our capitalistic system here in the U.S. from one of investment to one of speculation. And I happen to think that's a tragedy in which the investors are the losers and which, of course, somebody's a winner—Wall Street wins.

So like 2008, right now there is a lot of speculation going on, and he's right. You know, investors lose during these times. Long-term investors see overvalued prices, which makes it painful to buy. Speculators are simply just gambling; they're buying at terrible times, which is obviously not good for their long-term performance.

So that leaves the only winners: the brokers, the people collecting commissions for all of the trades that are being made. So in all honesty, I think Jack would absolutely hate these conditions we're currently in right now.

But what does that mean for passive investors? Should you stop buying and wait for this all to settle? Last month on Lewis Rukhiser, you summed up your investment philosophy as buy everything and hold it forever. Do you still subscribe to that in light of what the market has been doing, or would you unload some things now?

No, I—my theory is not subject to the ups and downs, the peregrinations of the stock market. It's painful to do, but I think the idea of owning the stock market is the best approach to equity investing.

And perhaps I didn't make that thoroughly clear there, but I think the idea of buying and holding forever and not trying to make adjustments requires that you've gotten it right in the first place. That you can only—you can only hold tight if you've bought right, if you will.

And that is to say, have an asset allocation that has something to do with how many years you have to accumulate money, how much resources you have at stake, how much income you need, and how much courage you have to ride out the peregrinations of the market.

So you've got to take all that into account. From that simple statement, there you go. How nervous and unsure does the presenter sound? You know, do you still subscribe to that in light of what the market is doing? Then Jack Bogle just comes in, laughs it off, and says, "No, my theory is not subject to the ups and downs of the stock market."

Full stop! Aka, passive investors should not care what the market is doing; they should just stick to their dollar cost averaging strategy, and that's it. And he acknowledges that sometimes it is painful to do.

But we, as passive investors, need to remember that to get the average market return, we need to be investing no matter what's going on—in the highest of highs and the lowest of lows. Then I like what he says: you can only hold tight if you've bought right.

So if you are relatively young, you're investing money that you don't need, and you're properly spread across the market through something like a market tracking ETF, then you can trust that you've bought right. You know you are on the right path. The path might be bumpy, but you'll still get to the destination.

Here's Jack talking about his strategy, particularly at a time when speculation rules and common sense isn't so common.

Then what? So one thing I've been thinking about—if you are not a speculative investor, if you're a long-term investor, and yet there are these speculative investors buffeting your returns, about what should your reaction be? Should you be doing anything differently?

I think basically you should not be doing anything differently. I mean, investment is a pretty simple thing. Investment is owning businesses—or I would say, being an inveterate index fund person—owning all of American business, owning every company in America, letting capitalism do its work.

Those companies will grow at probably around seven percent a year. They'll pay you about a two and a half—somewhat lower than history—but a two and a half percent dividend yield, and that should over time bear you out of anything that happens because of the wild swings.

I mean, if you visualize investment as growing in kind of a steady line, which it does, and visualize the crazy market as being all these jags up and down around this steady line—upward, always upward—I think then you've got to say, I know I'm not smart enough to get out at the high.

I know I'm not smart enough to get back in at the low, so I'm just going to stay the course, as we would say at Vanguard. I love that from Jack! You know, go and pick a moment in the last 10 or 15 years and just draw a trendline through the S&P 500.

What you're going to see is lots of spikes—short-term spikes above the trendline and short-term spikes below the trendline. Like I said before, there will be bumps in the road. But then if you zoom out and you just look at that trendline, it will always be up and to the right.

And as a passive investor, that is all you care about. As he says, tell yourself I'm not smart enough to get in at the low. I'm not smart enough to get out perfectly at the high. All I know is that over and over and over again, this trendline of the market goes up and to the right. That's all I know.

So I'll bet on that. And the way you bet on that is by investing small chunks of money on a regular schedule and doing that for a long period of time.

Okay, sure, passive investing makes sense now. Yes, we should definitely keep going. But still, the market is very high. And of course, the higher you fly, the larger you fall. So should I instead perhaps give my money to an active fund that gets about the same return as the market but is run by people that can try and sidestep any major market crashes that may be just around the corner?

Let's hear what Jack has to say on this question. You are the godfather of index funds aimed at the, uh, average investor and this questionnaire points out that, uh, actively managed funds have outperformed an indexed over the last two years. Is there a case then for, uh, market timing? What should you do when the index funds are losing money?

Well, as my friend Jim Glassman quoted me in his op-ed piece in the Wall Street Journal yesterday, I quote, "I don't remember where I made, but it said, um, I don't know anybody who has ever been successful in, uh, timing the market. I don't even know anybody who knows anybody who has ever been successful in timing the market."

Last year, these last two years, the S&P indexes outperformed roughly half of the funds—a little bit less last year, just about half this year. I don't regard that as a significant long-term sign at all.

The reality is, no matter what the statistics tell you, indexing always wins. I say that because index is delivering the market return, and all those investors out there are, by definition, getting the market return themselves—less cost.

So statistics don't capture that index advantage; it will be corrected in the next year or the next year. And, by the way, if you look at the—even the last 15 years, counting those last two years, the indexes outperformed about 75 percent of all active managers.

So there you go! Back then, the index was still outperforming 75 percent of all active managers. So really all things considered, despite their ability to get in and out of the market whenever they want, active funds will still most likely underperform the index.

So it shows you that trying to time the market really is a fool's errand, right? But that was back then. What is it today? Well, guess what? In the U.S. still today, 75 percent of active funds underperform the index.

Canada: 98 percent of funds underperformed their index. Mexico: 80. Brazil: 86. Europe: 75. Australia: 81. It is amazing how many funds underperform the index of their own country.

And I think this makes a pretty good case for good old-fashioned vanilla passive investing through dollar cost averaging. So overall, despite the market being high, you don't want to stop investing if you're a passive investor. Your target is to get the average, and to get the average, you invest no matter the weather.

And I think Jack Bogle really hits that nail on its head in those clips. Stay the course. Yes, it's painful in a high market, but passive investing will serve you well over the decades if you do it right. Most importantly, don't try and time the market. You will fail.

Just keep on keeping on and just start planning all those overseas holidays you're going to get to go on in a few decades from now.

Alright, that's it for this video, guys. I hope you enjoyed it. I hope Jack Bogle's voice was maybe a little bit calming in this time of extreme market valuations.

But yeah, passive investors, we just have to keep on keeping on. So anyway, that will do us for today. Leave a like on the video if you did enjoy it, guys. Subscribe to the channel if you are new around here. If you're interested in how I go about my passive investing, then you can check out Stock Market Investing for Beginners.

That is a four-hour course which runs through the whole passive investing strategy that can be found over on Profitful, which is my business that I started up. And that'll just about do us for today, guys.

I hope you enjoyed the video. Leave a like on it if you did, and I’ll see you all in the next video. Thanks again to Sharesight for sponsoring this video.

So recently, I finally decided to stop being lazy, and I imported all of my stock portfolios across into Sharesight. Finally, I should have done that a hell of a lot sooner!

So with Sharesight, you sign up, you link your Sharesight account with your stock broker, or you just add your positions manually. And then from there, Sharesight tracks everything for you. It tracks your capital gains, it tracks your dividends, it’ll track your dividend reinvestment plans, it’ll track gains and losses from currency fluctuations.

Seriously, this is by far the most thorough portfolio tracker I have ever seen. And because they track and record everything so thoroughly, they can provide you with all of these reports.

So from literally simple performance reports to complex predicted future cash flow reports if you're a dividend investor. But here's the really good thing: they also provide all of these detailed reports for tax time.

So send these reports to your accountant—done! You know, plug these numbers into your tax return—done! Simple as that. It's a big, big help.

And most of these features are available for free, but to be honest, to get the best experience, I would personally bite the bullet and upgrade to a paid plan. Honestly, this is one of the few stock market-related subscriptions that I would actually recommend.

It's very, very helpful, particularly when it comes to tax time. Anyway, if you did want to sign up, simply use the referral link in the description, or you can go to sharesight.com forward slash new money, and Sharesight will give you a special offer of four months free when you sign up to an annual plan.

So at least sign up for the free plan; it will make your life easier. But that's it for today, guys. Thanks very much to Sharesight for sponsoring this content, and I'll see you guys next time.

[Music]