Bogle: The Standard Bond Index Suits Me Fine

Christine Benz: There's recently been some conversation about fixed-income indexing and whether by indexing the fixed-income market, you are taking ever larger shares and the most profligate borrowers, and is that something you want to do? I would like to hear your response to that concern.

John Bogle: Well, I don't happen to be very much of an expert of that. I have been very happy with standard bond indexing, which is cap-weighted: If a bond has a lot of value, a lot of maturity value, a lot of face value, principal value, then it has a bigger position in the fund. I don't see anything the matter with that. I want to be very clear on this – it's not as if the borrowers are more profligate; a giant company is going to have more debt than a teeny company, and I would say that there is at least a 50- 50 chance a little teeny company with a tiny amount of debt is going to do worse than the giant company. They are probably not going to be as stable and things like that.

So I'm a tried-and-true market-cap-weighted indexer, whether you're talking stocks or whether you're talking bonds. I'm always dubious when someone says, here's a way that will enable you to beat the market--whether it would be the bond market or stock market--forever. There is no way to beat the bond market and stock market forever.

I mean the reality is, as I've said to Rob Arnott, the problem is, Rob, that if you're right, you're wrong, and that is if he is right, that value-weighted indexing in either case is a certain winner in the future, then everybody will put their money into it, and then they won't be a certain winner in the time that follows.

So there is a lot of self-correcting, reversion of the mean, if you will, in the system, and I wouldn't say it's beyond the realm of possibility that his strategies could produce an extra half a point of return or an extra point of return over a long period of time, but there is an equal possibility they'll produce less. They are actually not that different from the regular, cap-weighted indexes. So I'm satisfied with the returns from the index, and I don't think we should be doing much to enhance it.

And that's not to say I am not worried about debt. I am worried about U.S. Treasury debt. And, of course, that worry is much broader, because worrying about U.S. Treasury debt is worrying about the U.S., and we have a whole lot of problems in this country that are very intractable and very discouraging. We see our political system that seems to be stalemated, a political system at this point, momentarily before the election, if I see one more political ad, I think I am going to throw my television set out the window. I mean they are all disgusting on both sides, appealing to our basest instincts and not appealing to our good citizenship. So I worry about that, too.