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Bogle: Target-Date Funds Have a Flaw

The Vanguard founder says many target-date vehicles are underallocated to equities, and investors need to consider combinations of dividends and other retirement income when setting a specific target date.

Christine Benz: One thing I'd like to get your take on is I often talk to investors who say they want an advisor, and it often comes up in the context of, "I know I won't live forever, I’m comfortable managing our portfolio, but I would like my spouse to have someone take this over, because he or she has no interest." So, I'd like your take on the question of, do most investors need an advisor and how do they begin to conduct due diligence on advisors because it's difficult and there's kind of a lack of transparency?

John C. Bogle: Well, when you think it all the way through, and I try to be pretty balanced about this, I think an awful lot of investors do, in fact, need an advisor. Getting started in investing, for example, if you've never invested before. I can tell you a young person, for example--and I do tell them when they're getting out of college and they're trying to start an IRA or employee savings plan, a thrift plan--just buy a total stock market index for five years and then let's talk about it. You can't go wrong doing that. If the market goes way down, well, how much do you have at stake? Maybe $3,000. It's a drop in the bucket compared with the long run. So, that's the way to start and get used to the market.