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Bogle: Better to Play It Safe in Bonds

Rather than speculating in the bond market, investors should use the asset class as an 'anchor to windward' in tough markets, says the Vanguard founder.

Benz: One hugely vexing issue for a lot of investors is what to do with their bond money. In 2014, we've had very good returns from the bond market, but I think investors are still trying to feel their way given these widespread expectations that yields will eventually go up. What's your counsel to investors against this backdrop?

Bogle: If you buy a bond today--a good bond and not a junk bond that is fairly assured of paying its coupons, which is where the value is created--it shouldn't surprise anybody to know that the odds are at least 91%, I would say, that your return on that bond will be about 3% over the next 10 years. And if it's a 10-year bond and it gets paid off at the end, you know that's going to be the case. So, it's a good rule. And we are looking at basically not speculating in the bond market but signing a contract, in effect, saying, "I understand that I will get 3% a year for the next 10 years, and I think that's a good deal." Whether it is or not is a wholly different question; but it's very close to a contractual guarantee.

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