Bogle: Old Principles of Asset Allocation Hold

Jason Stipp: I'm Jason Stipp for Morningstar. As the market continues to face jitters and uncertainty, and investors may be getting that sinking feeling of 2008 again, we are checking in with some noted experts to find their outlook and their take on the market today.

I'm pleased to be joined on the phone with Mr. Jack Bogle. He is the founder and former chairman of Vanguard Group. Thanks so much for joining me, Mr. Bogle.

John C. Bogle: Yeah, my pleasure, Jason.

Stipp: Much has been written about a new environment that investors are supposedly facing. One in which there could be slower growth. There could potentially be more volatility, a lot of folks have been saying. And I'm wondering what your take is on some of the recommendations that are out there for the need for a more active asset allocation, what's known as a tactical allocation.

A lot of folks are saying that investors really must be much more opportunistic now, shift their assets around much more frequently. And I'd like to get your take on whether the old "set your asset allocation based on your needs and your age and re balance," is that something that's in the past, and must investors rethink allocation in today's market?

Bogle: I do not believe that we should rethink the old principles of asset allocation. You know, it's fine to say, "Be opportunistic," and expand the list of your diversification options into commodities or gold or private equity or whatever else it might be. I don't happen to buy that.

First, anything that's opportunistic is by definition, I believe, a market-timing issue when to do it and when not to do it. If you could do it perfectly, I strongly commend it, but I don't think anybody is able to do that.

So I would set much more a strategic asset allocation, and beginning with, because I perceive that there are going to be some challenges ahead--We can talk a little bit about that--but I perceive that we're in for some tough times, and so I would emphasize an asset allocation that begins with this crude rule of thumb of having your bond position equal to something relating to your age. So if you're 60, 60 percent bonds.

Having said that, I want to quickly add that you've got to take all of your assets into account, when you figure that asset allocation, because for example, your Social Security investment, when you're say 60 or 65, has a capitalized value of something like $300,000, and it's going to continue to pay. It may pay a little bit less. I hope we can solve that problem, but it's not going to go away.

And so if you have a $100,000 to invest, I don't see why you would not put it all in stocks at that stage of your life. That would be 25 percent then in equities and 75 percent in effect fixed income with an inflation hedge. It's a good investment.