Bogle: Corporate Bonds a Sensible Way to Pick Up Yield
Adding more investment-grade bond exposure to the total bond index might be a good way to boost returns without too much additional credit risk, says Vanguard found Jack Bogle.
Christine Benz: I'd like to get your thoughts on fixed-income instruments. In the past, you've argued--and you've just argued today--that investors could reasonably consider tilting their bond portfolios a little bit more toward corporate bonds than is the case with the Barclays U.S. Aggregate Bond Index.
Jack Bogle: Well, it will be diversified in a different way, but it will be a slightly longer maturity and it will be slightly lower quality. For the average corporate-bond fund, AAA has just about vanished, as you know. The average is maybe somewhere between AA and A plus for the average corporate bond. And that's not AAA. So, is credit risk possible there? Of course. You're quite right. So, you're taking a little more risk. But I often use our intermediate-term bond index, which is about 45% governments, I think, rather than 70%. And I often use some investment-grade corporate fund, which is very much like an index fund and has an R-squared of something like 98 or 99 with the Aggregate Index. That's very indexlike, and you can get almost an extra 1% yield.