Bogle: Don't Reach for Returns

Christine Benz: There has been this stampede of assets going into bonds and bond funds over the past few years. What's your take on that? Is that a rational response to what investors have been through or is there perhaps some performance-chasing going on?

Jack Bogle: Well, of course, there is some performance-chasing or maybe not so much performance-chasing as antiperformance shunning. That is people are very much disillusioned or have been by the big crash in the stock market. And therefore, they are looking for an alternative, and there really isn't for the man on the street, woman on the street, much of an alternative than bonds.

So, if you're putting money away and your choice is stocks or bonds and you don't like stocks that leaves bonds, it's not very complicated. It's been said that there's a bond bubble; I don't believe that. The bond market – what we have is a bond market that's going to produce much lower returns than it has produced in the past, just because of the numbers we talked about earlier. So, you got to be prepared for that.

Then I would say this, combined if bonds produce 3.5% and stocks produce 7%, a balance portfolio is going to produce say 5% just for the fun of it, and you say, well I can't live on 5%, so I want more. Don't do it. You have to be limited by the market return, and if you want to do it and go beyond--say going to something higher-yielding or something riskier--it's very much like saying when you go to the racetrack, which is something might I don't happen to do. But when you've lost on the first seven races, so you bet everything you have on the eighth race. It's not a good bet, you may win, but the odds are just terrible.

So, don't go beyond the conventional markets; my opinion.