Vanguard Group founder John Bogle has a well-established track record not only as an advocate for low-cost investment strategies, most notably indexing, but also as a proponent of investing for the long run who argues against trying to time the market. "I believe the U.S. is the best place to invest," Bogle told Bloomberg recently, noting that he remains fully invested in U.S. securities, splitting his personal holdings 50/50 between stocks and bonds. True to form as the person who launched the first index fund in 1976, his portfolio is entirely indexed, Bloomberg adds.
By remaining bullish on U.S. securities, Bogle seems to be swimming against a surging tide of opinion. Investors are increasingly worried about high U.S. stock valuations. Meanwhile, various strategists and analysts are advising clients to shift funds from U.S. to European stocks. To cite just a few, Bloomberg lists BlackRock Inc. (BLK), Morgan Stanley (MS) and Deutsche Bank AG (DB) as firms making such recommendations. (For more, see also: Catalysts Abound for Europe ETFs.)
"I Was Right, Really Right"
The S&P 500 Index (SPX) is up over 400% since 1993, when Bogle began advocating for investing largely, if not entirely, in U.S. assets, per Bloomberg. This is about four times the performance of the MSCI index of world equities minus the U.S. over the same period, Bloomberg says. Meanwhile, they add that European stocks are up 180% during this stretch and Asian stocks have gained only 40%. "So I was right, really right," Bogle told Bloomberg in reply.
Bogle does find more potential right now in emerging markets than in developed markets abroad. However, he would limit his exposure to only 5% of his portfolio. In the long run, though, he does not feel that emerging markets will do as well as the U.S., he told Bloomberg, because they are riskier, more sensitive to interest rates (including moves by the Federal Reserve) and less diverse. (For more, see also: Formidable! Why Europe Stocks Are Hot!.)
Tour Legendary Investor Jack Bogle's Office
Since 1993, so far there have been only two full-fledged bear markets for the S&P 500, using the generally accepted definition of a 20% drop. These were during the financial crisis (2007 – 09) and, prior to that, the popping of the dotcom bubble (2000 – 02), per S&P data cited by Yardeni Research, Inc. From 1993 onwards there also have been two corrections (drops between 10% and 20%) that came very close to being bear markets: a 19.3% pullback in 1998 and a 19.4% decline in 2011, according to the same sources. Investors who lack Bogle's patience and long-term perspective are understandably worried that the bears are long overdue for coming out of hibernation, and thus may be motivated to lighten up on U.S. stocks right now.