JACK BRENNAN has spent more than 40 years in the fund management industry. He is Chairman Emeritus and Senior Advisor of Vanguard, one of the world’s largest investment companies. He served as Vanguard’s CEO from 1996 to 2008 and Chairman of the Board from 1998 to 2009. Now he’s written More Straight Talking on Investing: Lessons for a Lifetime — an updated version of a book he wrote in 2002 — in which he encapsulates what he’s learned about investing and what ordinary investors need to know. In this interview with ROBIN POWELL, Jack explains why, in his view, now is a great time to be an investor.
RP: Jack, why did you decide to write this book?
JB: I’ve had it in the back of my head and I’d been keeping notes about it. And frankly, given some of the things that go on in the marketplace today, I felt like retail investors needed a more sensible voice. The reaction we’ve had suggests that it’s a timely and important book. People want to hear about something other than Bitcoin, or Robinhood or “meme stocks”. That’s really what this book is about: how serious people should invest serious money.
What would you say are the main takeaways that people can take from this book?
One, certainly, is that balance and diversification — two fundamental principles of long-term investing — work in every market and over every time period for those who are thinking about retirement or long-term goals. Point number two: it’s a great time to be an investor. All around the world, costs are down significantly from what they were as little as a decade ago, and you have a great choice of low-cost, diversified investments to help you execute the plan. And the third point I’d make is that your options for getting advice today are far better than they were.
Yes, it’s a good time to invest from a choice and cost point of view. But global stock markets are at or near all-time highs, and some would argue that, if you’re not invested already, you’ve missed the boat.
I might challenge that premise because most of us have very long-term time horizons. So I would put it differently: manage your expectations. Stock market returns are 80% better than average over the 12 or 13 years since the end of the global financial crisis. Don’t expect that to reoccur, but don’t go into a shell because markets have done well. Most of us have decades of investing ahead of us. So, be very realistic and conservative in the way that you plan, but don’t try to time markets. Nobody’s ever done it well, including the professionals. If you’re disciplined in the way you approach investing, I think you’re going to do just fine over whatever meaningful time frame you have in mind. Putting your money under the mattress is not a good way to build wealth.
More and more young people are buying and selling stocks through the rise of new technology and trading apps like Robinhood. How concerned are you about that?
I’m in two minds about it. On the one hand, I’m glad people are interested in the markets because, after the financial crisis, there was a risk of a lost generation of investors. So that’s the good side of this. The downside is that nobody ever traded their way to wealth.
The question is, how badly will this end for people? What I hope is that most of these young traders we read about are investing their serious money in a company retirement plan. They’re not trading it every day and buying meme stocks with it. So I think the reality is not as worrying as the headlines suggest. I’m optimistic that this is a craze that will pass.
Remember the old joke: the quickest way to make a small fortune is to start with a large one and trade a lot. Many people will learn that the hard way. But it will be with their play money that they lose – their “gamified” money, if you will. The gamification of investing — that’s a term that sends a shiver down my spine, I have to say.
Cryptocurrencies are particularly popular with young traders. Jack Bogle was famously not a fan of Bitcoin. What’s your own take on it?
I don’t think it has any relevance to anyone who is trying to invest for the long term. It’s a trading medium, right? There’s no inherent, intrinsic value in Bitcoin. Look at gold. When gold got released from Bretton Woods, it was a hot commodity, but it took decades for it to recover its highest price in the 1980s. Personally I think crypto is analogous to gold. It’s an interesting trading vehicle for someone who wants to trade, but it shouldn’t have a role in a serious investor’s portfolio.
Crypto is part of the noise in the marketplace that is one of the reasons I wrote this book. I want to try to convince people to tune out the noise and implement a disciplined plan. I think that’s so important, but the popular media always wants to write about the latest new thing. Crypto’s the new thing, meme stocks are the new thing. Ignore them, at least with your serious money.
What about your own financial goals, Jack? Have you achieved those?
I’ve exceeded any goals I had. Earning wealth was never something in my game plan; it’s not particularly important to me personally. By most standards, I’ve been an overly aggressive investor in diversified low-cost equities over time. And over a 45-year working career, it has served me and my family very well. Our goals are to give as much to society through charity as we possibly can.
We’re fortunate that we’ve lived a disciplined life, way below our means. That gives us a lot of freedom and it’s advice I’d give to everybody. People ask, “What’s your best financial advice?” I say, “Live below your means.” It gives you freedom to accomplish what you’d like to do.
When I go on a website and put in my asset allocation, they say, “Are you crazy? At your age, you should be much more conservative.” but the website doesn’t understand my income statement or my balance sheet. So I hope I’m creating a pool of charitable resources that my kids will do a great job of stewarding long past my lifetime.
What are your overriding thoughts on your time at Vanguard?
I joined in 1982, just before the great bull market of the 80s and 90s started. The overriding memory is that it was a small enterprise — not well-known, kind of a fringe player in the fund business in the States, with no presence at all in the global marketplace. But we had a pretty disciplined strategy of delivering great service at low cost, and that’s really what enabled us to have such an impact on investors’ lives.
When I look back, I feel so privileged to have worked there, to have led the company for an extended period, and to see what it continues to do on behalf of investors. Costs in the US have gone down immensely over 40 years and we believe that Vanguard’s had a lot to do with that, by putting pressure on competitors. As has the advent of indexing. We’ve shown that discipline and low cost win the game. Now you see the Vanguard way of investing taking hold in the UK in a pretty rapid way, and It will come into other developed markets, because it has to. It’s a great story that I couldn’t have made up: coming out of graduate school, falling into this opportunity, and Vanguard having such a huge influence over the decades.
There’s plenty of chatter about private equity at the moment, and it’s something that Vanguard wants to get into. But, as academics have shown, PE is very opaque in terms of performance and fees. Are you concerned about that?
I happen to think that private equity is a legitimate asset class. It’s not for everybody, but many investors should have some exposure to it. As it becomes more available, disclosures will become better, and I suspect pricing will come down.
But the challenge I think investors have to deal with is how to be a better buyer of private equity. You have to understand what you’re paying and what the incentives are. You have to understand the fact that this is not a mutual fund where you can get your money on demand.
Most importantly, you have to understand who the sponsor is and how your money is going to be invested, because although the top performers have done well, the average performers and below in my view aren’t worth the price.
So, just like the best institutions are now, retail investors are going to have to be discerning buyers. You have to make sure you’re not paying two-and-twenty for average performance that gets you less than you would have got by putting the money in an index fund.
Do you think ESG is something investors should be concerned with. And, financially speaking, will they benefit or lose out from investing with their conscience?
I think the advent of ESG-focused investments has been a great thing because some people want to make that choice and invest according to a certain set of principles. So I think it will continue to grow. There’s no reason to think you’d pay a penalty for it. There are lots of examples of principles-based investments that have delivered outstanding results.
If you think about it in the long run, all good companies either are or should be following ESG principles, and they will be the winners. So I don’t think anyone should think this is something they have to give something up to pursue. My own sense is that there’ll be a melding over time as more and more traditional investment managers place a greater focus on ESG, because that’s what good companies should do to get great results.
Vanguard is increasingly offering financial advice as well as asset management. What do you think the future holds for the advice profession?
I think the advent of more choice, more price points and more delivery methods has been one of the best things to happen to investors this century. It’s only going to get better all over the world.
It’s true, you can manage your finances on your own, but there comes a point in our lives when you need to get advice. My own view is that if you’re going into retirement, or if you’re already in retirement, you should have an adviser. Yes, you have to pay them, but a good adviser will recoup that money for you.
So I think it’s a very exciting prospect for investors across the board. New technology and competitive pressures are bringing the price down. You may want to pay 100 basis points for a very involved service, but for a quarter of that price now, you can get high-quality advice delivered from a trusted firm that wasn’t available to you 20 years ago.
Finally, Jack, what do you hope your book achieves?
Well, the proceeds of the book are going to a charity that helps underprivileged pre-school kids. So that’s an important objective.
But for readers, what I hope the book achieves is to challenge them to understand the big picture and then show them the smaller steps they need to take to get to their goals. Not your goals or mine, but their goals. It challenges the conventional wisdom that the new thing is the way to get there, so I hope it’s disruptive to people in that sense.
Also, I love getting stopped by people who say, “I read your book — thank you.” That to me is the ultimate compensation for the effort to put it together.
More Straight Talking on Investing: Lessons for a Lifetime is published by Wiley.
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