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Bogle: The Standard Bond Index Suits Me Fine

The Vanguard founder says he's dubious that value-weighted bond indexing can consistently beat the market.

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.