Vanguard's John Bogle Says 'Enough'

The founder and former CEO of The Vanguard Group shares his views on executive compensation, Wall Street and the financial system as a whole. His thoughts on the importance of ethical, moral and spiritual values are in his new book, Enough: The True Measure of Money, Business and Life.

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John Bogle has fans. They're called bogleheads. Online they discuss his every move and comment about the United States' financial system. And it's understandable. Mr. Bogle is the founder and former CEO of The Vanguard Group, the trillion dollar mutual fund, one of the largest in the world. Now, his new book isn't so much about investment advice as it is a philosophical look at how much wealth, fame, and power one person really needs and why those running our financial system are dangerously addicted to accumulating more and more and more. The book is called "Enough: The True Measure of Money, Business, and Life." John Bogle joins us from member station WHYY in Philadelphia. Mr. Bogle, thank you so much for spending some time with us.

Mr. JOHN BOGLE (Founder, The Vanguard Group): Great to be with you, Alison.

STEWART: Now, I almost hesitated in mentioning how much money Vanguard holds because after reading your book you devote a whole chapter to explaining how Americans rely too much on counting things like money to determine success. Tell us the pitfalls of constantly counting.

Mr. BOGLE: There's a sign in Einstein's office that I describe in the book that says there are some things that count that can't be counted and some things that can be counted that don't count. And that really summarizes it up. We've got this counting society, and we rely on numbers to give us facts that are really not facts. If someone's corporation, for example, says their earnings were $1.32 per share, the amount of financial engineering that's gone into that number is usually rather breathtaking. It's an engineered number. And the idea that you think you know something when you see a number is just greatly overdone. We think we can count everything that's important, and we can't do that. You can't measure character, you can't measure integrity, you can't measure moral conduct, you can't measure love, the things that are really important in our lives, in our society.

STEWART: You mention that a lot of your book is about character. And right now good character is not something that the average taxpayer necessarily would attribute to some people's performance who got us into this financial mess. Was there some moment, some legislation, some action that you think helped lead some financial leaders to forego good character?

Mr. BOGLE: Well, I'd take a half a step back, I think, Alison, if I may, and just say this is not just a financial problem of - problem of the financial sector of our economy. This is really an economy-wide problem, a societal problem where there's too much greed everywhere. But admittedly the worst part of that greed is certainly in the financial side of society because the financial side is playing games with paper and, you know, things with numbers on them rather than manufacturing things that mean something like, you know, jet airplanes, for example. And so most speculation takes place on the financial side. So that's the worst manifestation and the easiest place by far to indulge your own greediness.

STEWART: We're speaking with John Bogle. His new book is "Enough: The True Measure of Money, Business, and Life." I'm wondering if you think that October 2008 is a good, long-term buying opportunity.

Mr. BOGLE: None of us really know that because we don't know what's ahead for the economy, which is important here. However, the stock market itself is a different kettle of fish, one might say, and that is it's anticipating, obviously, a very severe recession, and it's down something like 40 percent. And I would say no plunging, no diving into the stock market, but starting an investment program today if I was a young person, I would put it all into stocks and invest monthly over the rest of my life. And I will do very well. I'm absolutely confident of that.

But I do want to give one rule that I think is very important, and that is as you near retirement, more and more bonds, less and less stocks. And your bond allocation should be approximately equal to your age, rough rule of thumb. So if you're 60, 60 percent bonds, and if you retire at 65, you'll be 65 percent bonds. And that kind of a program would have served you very well in a difficult year like this.

STEWART: As I mentioned in the intro, this book is fairly philosophical. You might get some financial advice out of some of your thoughts about the way we spend money and our relationship with money. Why did you choose to write this kind of book at this time in your life?

Mr. BOGLE: Well, I started to look at what was going on in our financial system, and to be honest, Alison, I got outraged. I did some research and found out the financial system costs $600 billion a year. And that means whatever the markets deliver, we investors get $600 billion less because we pay it to this institution or this series of institutions, mutual fund managers, hedge fund managers, stock brokers, investment bankers that we call, loosely, Wall Street.

And that means we lose to the market by, you know, over a half a trillion dollars year after year after year. And investors have to know about that because it speaks to a real flaw in our system where the financial system is consuming an excessive share of the economy's resources compared to things like manufacturing or health care or technology, but it turns out the financial sector subtracts value from society.

STEWART: John Bogle, the founder of The Vanguard Group, thanks again for your time.

Mr. BOGLE: Good to be with you, Alison, always.

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