MICHAEL REGAN You started the first index fund at Vanguard in 1976. How’d you celebrate its 40th anniversary?

JACK BOGLE We had a lunch gathering for the underwriters just recently. They were the kings of the world in those days. At lunch one of the underwriters said he remembered thinking, “We can do $250 million on this!” Before long it became, “$200 million seems like something we can do!” Then maybe $150 million or $100 million. Later it was, “We’re still trying to get to $50 million.” And, at the end, “We’re hoping for $25 million.” Finally the check arrives: $11,300,000. And he brought up this paradox, that what may well be the worst underwriting in the history of Wall Street turned out to be, 40 years later, the most powerful idea in finance—one that’s reshaped the entire industry. “Let’s get together again 10 years from now,” he said. And I replied, “What do you think about five?”

MR A lot of people now use index funds, either yours or those of your competitors, but it’s still a fraction of the overall pie. How do you see the trend progressing from here?

JB What’s clear is we’re in the middle of a revolution caused by indexing. It’s reshaping Wall Street, it’s reshaping the mutual fund industry. And it’s doing something very simple: shifting the allocation of stock market returns away from Wall Street and toward Main Street. We’re beyond the beginning, but nowhere near the end.

MR I want to play devil’s advocate. The pendulum seems to have swung so far that there is, to some extent, almost a backlash against indexing. Has any of that resonated with you?

JB I’ve been in this business for 65 years. I’ve seen many pendulums. Every one swings back and forth, and the further it goes left, the further it will go right. So pendulums are there, and they can be scary when something gets very popular. But this isn’t a pendulum anymore. People are going to be using more index funds in 2025 than they are today. This is an underlying, fundamental trend—not one built on opinion, but on the relentless rules of humble arithmetic. 

Cover artwork: Roberto Parada

MR Take us back a bit. How did the fox get into the henhouse?  

JB My Princeton senior thesis got me a job with Wellington Management. Mr. Walter Morgan said hiring me was the best business decision of his life. Wellington was an industry leader managing about $150 million—not a lot of money, although it seemed like a lot at the time. This industry was very simple back in 1951. The dominant funds looked pretty much like the Dow Jones average. They were middle-of-the-road, large-cap funds. I looked at them, casually, while working on my thesis—I had no access to computers or anything—but I looked at the records of this handful of funds, and they had pretty much the same records. They didn’t seem to be able to beat the Dow. Well, then I got into the business working for Wellington and I didn’t think much more about it. You come out of college, you don’t really know very much. I did anything Mr. Morgan wanted me to do, including hanging pictures where he said to hang them. Later on I was able to decide where they went. We had a wonderful relationship. Not really all that close, but certainly mutual admiration and respect. He saw something in me that he liked. It’s kind of weird that I considered myself a totally normal person without a lot to bring to the table—probably above-average intelligence, but not a lot above average. And here I am in this funny position today of being this bomb-throwing Marxist revolutionary.

MR Is that how you view yourself? That’s how some people view you, of course.

JB Actively managed funds have been losing to index funds, in terms of cash flow, for eight consecutive years now. And it’s cascading now. Investors love it; Wall Street hates it. Mutual fund managers don’t like it either. Money is leaving them and coming to us every single day. We’re now doing a billion dollars a day. This is just totally beyond anything else in the industry’s history'. 

MR A billion dollars a day?

JB I should mention, my wife and I left a little cocktail party recently, and she said, “You know, I don’t like it when you talk about business, and I really don’t like it when you brag about bringing in a billion dollars a day.” “Sorry that you missed the first part of the conversation,” I said. “I wasn’t bragging about it, I was complaining about it.” Vanguard manages $3.5 trillion, which is a nice measure of how much people love us, as is a billion dollars a day. But I was never in this business to be big. I’m a small-company guy.

MR Back to you being a bomb-throwing Marxist. A Sanford C. Bernstein strategist, Inigo Fraser-Jenkins, caused quite a buzz with a note he published in August titled “The Silent Road to Serfdom: Why Passive Investing Is Worse Than Marxism.” One thing he says is that the rise of indexing could cause stocks to move in the same direction more often: “If correlation of stocks increases,” he writes, “then that impedes the efficient allocation of capital.” How do you respond to that? 

JB Well, you certainly don’t have to worry about what he’s writing. I mean, that’s a piece of work. 

MR You’ve read the report?

JB I glance at anything favorable to indexing; I pore over anything unfavorable. You don’t need people to tell you you’re right all the time. You need people to tell you that you’re wrong. But this was an absurd paper. First, take the simple part. The stock market has nothing—n-o-t-h-i-n-g—to do with the allocation of capital. All it means is that if you’re buying General Motors stock, say, someone else is selling it to you. Capital isn’t allocated—the ownership just changes. I may be an investor, you may be a speculator. But no capital goes anywhere. This is basically a closed system. You have new IPOs and whatnot, but they’re very small compared to this vast thing we call a market, which is now around $24 trillion. The allocation of capital? That’s just nonsense. 

MR And the correlation of stocks?

JB There is some evidence that the correlation of stocks, which has always been very high—something like 65 percent, maybe 70 percent now—could very well be caused by indexing. But so what? The efficient market theory ignores the fact that for every buyer there’s a seller. I don’t know why we can’t get this through people’s heads. Cliff Asness is the one who got everything right. He’s one of the smartest guys in the business. One of his headlines was, “Indexing Is Capitalism at Its Best.” I’ll let him be the defender of that, but this Bernstein note was just a sensational thing. It’s a bit like asking your barber if you need a haircut: He has a vested interest in this.

MR Could you take us through how Vanguard emerged from the ashes of a failed merger after Wellington struggled in the go-go era of the 1960s?

Photographer: Larry Fink

JB Along comes this little Boston advisory firm, Thorndike, Doran, Paine & Lewis, which manages a fund called Ivest—a go-go fund with a hot, if dubious, record. It really was a little bit of thin air. And they also offered these “brilliant investment managers,” put that in quotes. So the Wellington Fund merged with the Ivest Fund. It worked perfectly, but only until it didn’t. The first five years you would have described Bogle as a genius. And at the end of the first 10 years, roughly, you would have said: the worst merger in history, including AOL and Time Warner. It all fell apart. Their management skills were zero. They ruined the fund they started, Ivest. They started two more and ruined both. And they ruined Wellington Fund. The company started to shrink radically, and they who had done the damage decided to fire me. I told the board the best thing for us to do is to unscramble the omelet of all those years ago and give them back their counseling business. The funds business is worthless, and we’ll buy them out. That proved to be much too much for the directors to follow, but they were willing to say “give us some options of what we can do.”

MR And a startup was born.

JB I called the new firm Vanguard. It comes from naval history: the Battle of the Nile, one of the great victories of all time, with the British sinking the French fleet in Aboukir Bay. There was a dispatch in there by Admiral Horatio Nelson off the deck of HMS Vanguard.

MR I have to ask. Here we are a short march from Valley Forge, Pa., and you have a firm that’s a tribute to the British. Am I reading too much into that?

JB Yes, and people have made that comment before. The British thing comes from Wellington and my desire to honor my great mentor, Mr. Morgan, who was a great history buff. I thought he would like the name. Anyway, we were barred—to avoid conflict from the people who’d just fired me—from going into investment management or into share distribution. Yet in two years we’d done both.

MR How did that happen?

JB I could see what a tough business this was to win at, and that old idea of an index fund came to mind. And it came to mind particularly because when Vanguard started—we incorporated on Sept. 24, 1974—we were right at the bottom of the market. The Journal of Portfolio Management’s first issue came out featuring a piece by Paul Samuelson, the first American to win the Nobel Prize for economics, titled “Challenge to Judgment.” There’s no brute evidence to show that investment managers can beat the S&P 500, he said, so why doesn’t somebody start an S&P 500 index fund? I read that a couple weeks after Vanguard started and thought, You know, there’s an idea. And it ended up being an easier sell than you’d think. The board was still divided and probably tired of controversy. They’d had enough. When I presented it to them, of course they said, “You’re not allowed to get into investment management.” But I said, “This isn’t managed, it’s an index fund.” You’re laughing!

MR Genius …

JB And believe it or not, they bought it. I think they figured, “This won’t amount to much, let’s throw a little candy to Bogle.” Plus, I had the intellectual backing of Paul Samuelson, and you don’t say, “Who is Paul Samuelson?” He was a wonderful, insightful guy with a great sense of humor, and obviously a genius. He later wrote this great endorsement of the fund in Newsweek, and in the rare instances we were together, I was totally intimidated. So the board bought it. We had the underwriting, which I described … and then not much happened for quite a few years. The second index fund wasn’t created until 1984, by Wells Fargo. In this industry, if someone perceives a good idea, it’s copied faster than you can imagine. Sometimes I think the copies get filed with the SEC before the original does. Anyway, indexing ultimately proved to be a fantastic idea—in part because it’s very difficult for investors to get disappointed in it.

MR Is it a problem if indexing gets to 100 percent?

JB It’s 10 to 15 percent now, and it could easily get to 50 percent. The example I use is stock market turnover, which has run between 150 and 250 percent of late. If we went from no indexing in this theoretical thing to half indexing, say, the turnover would be 125 percent. You immobilize half of the market. For decades the turnover was 25 percent a year, not 125 percent. We don’t need all that turnover, but we have a brokerage business in which turnover generates the returns that the brokerage business earns. And, as everybody knows, if a salesman sells nothing in a month, he brings home nothing—so he has to sell something. He has to believe what he’s doing is right. And he may be doing what’s right, but as a rule he can’t be doing what’s right because there’s someone on the other side of every trade. And all that trading means zero until the croupier in the middle puts his rake down on the table and scrapes off his share of the winnings. Wall Street is a casino, that’s a fact.

MR And the house always wins. So how does this play out for active managers?

JB I don’t know what it will take to get inefficient, but they say if it gets inefficient then active managers will win. If indexing gets to 80 or 90 percent, I think that’s probably pretty fair. But for every active manager who wins, there will be an active manager who loses at the same amount. It’s symmetrical. It has to be except for the costs in the middle. Indexing is the way. The math is the math, and I think the mathematics are inarguable. Just don’t take anything for granted if you’re an investor.

MR Index funds can’t be expected to study every proxy resolution. The knock is that too often index funds will vote the way management wants them to vote. Is that a danger as the percentage of a company owned by an index gets higher?

JB If that situation were to remain, it wouldn’t be good. As Bob Monks, the wonderful reformer in this area, said, “Capitalism without owners will fail.” Leo Strine, the chief justice of Delaware’s supreme court, says we have the separation of ownership from ownership—and that has been largely true, not entirely, but enough to make the statement pretty accurate. Curiously enough, I wrote about this in my Princeton thesis. Can you believe that?

MR You’re still defending it, 65 years later. 

JB I have a chapter that concluded, “I expect mutual funds to live up to their responsibility and to become much more active in the future.” And nothing happened. Oh, callow youth! Oh, boyish idealism! We totally failed to live up to that as an industry. There’s no question part of it is that we didn’t confront big issues. The ownership has changed and grown, and we have to bring the system in line with accepting responsibility. The fundamental task is simple: Corporations should be run in the best interest of their shareholders and not their management.

MR What’s the way forward for index funds if this threat continues? 

JB To me, index funds haven’t been the problem but the solution. The old Wall Street rule was, “If you don’t like the management, sell the stock.” The index funds can’t follow that rule, so there’s only one rule left: “If you don’t like the management, fix it.” Vote, talk, discuss, cajole, applaud—and that’s actually starting to happen in a major way. Earlier this year, a very distinguished group of people, including Jamie Dimon and Warren Buffett, came out with “Commonsense Corporate Governance Principles.” That’s not the conclusion, but it’s a good beginning.

MR What about so much power being concentrated in so few index providers?

JB There’s a brilliant academic article by three Dutchmen about that. They talk about the implications of having three institutions—Vanguard, BlackRock, and State Street—dominate index investing. At some point these funds are going to have to worry about the fact that the Investment Company Act of 1940 says—and I’m paraphrasing here—mutual funds can’t own more than 10 percent of the stock of any company. So we’re going to get up to 10 percent, and the question will be, Is it the individual mutual fund? If it’s fund by fund, we could theoretically have six funds that each owned 10 percent of General Motors. Regulators will have to think about that, because there’s such a thing as too much concentration. Where the shovel breaks, as they used to say, I don’t know. I’m sure there’s a discussion of that at Vanguard, even though I’m not part of it. I’m very happy with the way our management is performing, particularly CEO Bill McNabb. He has to worry about a business. And I only have to worry about ideals. So sometimes our views aren’t totally the same, but I think, in general, we care about the same underlying principles deeply. 

MR Is it easier to focus on the ideals when you don’t have to run a business?

Photographer: Larry Fink

JB Oh, you’re damn right. You can say anything. But I try and stay within the rules. I don’t need people to read what I’m saying and go, “That’s different from what Vanguard believes.” What Vanguard believes is how this company is going to run. It doesn’t matter what I believe. I sit here, pretty independently, in the Bogle Financial Markets Research Center. We’re three people cranking out an enormous volume of work.

MR How much satisfaction in your life comes from ideas, and proving them in practice, rather than padding your own pocket?

JB Let’s leave the “rather than” out for a minute. I’ve always been intrigued by intellectual ideas. They call it intellectual curiosity—I don’t know why they don’t just call it curiosity. This is kind of a self-serving comment, I admit, but I’ve written 10 books. They’re getting pretty close to a million copies.

MR: You need to get Hollywood interested in the movie rights. 

JB Yeah, and get Robert Redford to play me. He’s aging a little bit—and I’m not, of course. Now, when you get into wealth, you’re correct that I never really thought a lot about it. I keep reading that I gave up billions. That’s an interesting comment, but I honestly don’t think it’s true. Vanguard’s success is having the returns go to the shareholders and not to me. So if I said I want all those returns, we wouldn’t be this size, we wouldn’t be worth billions. There isn’t much of a question that we created a very valuable company. But the value goes to the shareholders and the funds. I’ve always said ideas are a dime a dozen, but implementation is everything. There’s not much question I had two great ideas: mutuality for the structure, indexing for the strategy.

MR Everyone focuses on indexing as the innovation. Is there not enough focus on the structure, the idea that the company’s profits go back to the clients who are also the owners?

JB I’d say not nearly enough. It’s a huge cost advantage. Here’s the evil thing about this business: Public ownership is the antithesis of fiduciary duty. You’ve got two masters to serve when that’s the case.

MR The mutual ownership has caused some legal challenges. A former Vanguard tax lawyer has alleged that by not charging as much as competing for-profit mutual fund managers do, the firm has avoided paying taxes on the hypothetical profits it would’ve accumulated if it did. One estimate is that Vanguard owes the IRS $34.6 billion in back taxes for the years 2007 to 2014. If you were called to testify in this case, what would you tell the court? Does Vanguard owe the U.S. $34.6 billion?

JB I want to make it very clear—I don’t speak for Vanguard, and I’m not particularly familiar with the litigation. What I’m doing here is just speaking for myself. No. 1, here’s a structure that’s stood the test of time for pretty close to 42 years without challenge. Indeed, the SEC, in approving the Vanguard plan to operate, described it as “consistent with the provisions, policies and purposes” of the ’40 Act. “It actually furthers the Act’s objectives … and promotes a healthy and viable mutual fund complex in which each fund can better prosper.” That’s such a good endorsement that we printed it in annual reports. I would think it’s absurd that there’s even a remote possibility that some court’s going to say we owe $34.6 billion.

MR Let’s talk about the Department of Labor’s fiduciary rule, which will soon require broker-dealers and advisers to take clients’ “best interests” at heart in regards to retirement accounts—unless a President Trump moves to repeal it, as some expect. What’s your pitch to him in the Trump Tower elevator?

JB I’m happy to have the fiduciary rule, but think about this for a minute: It doesn’t really matter in the long run whether there’s a fiduciary rule or not. With each passing day, shareholders get better educated, and they will move their money to people doing things right and serving them properly and away from people who are doing it wrong. That is crystal clear to me. I think we need the rule, but if the rule goes, we will fall back on the very essence of capitalism. What Adam Smith wrote way back in 1776 in the Wealth of Nations: The sole role of the producer—or money manager, in this case—is to serve the consumer.

MR Something I find interesting that I don’t think a lot of people realize about index funds is securities lending, or loaning shares to short sellers and then charging them a fee. That’s another trick to keep the fees down on index funds. How did that come about, and did you ever have any qualms about that?

JB When I was running Vanguard, securities lending wasn’t anywhere near as pervasive as it is today. I have to say, I don’t proclaim any expertise of what’s going on out there today. I do know, however, this simple fact: Vanguard’s fees, all of them, go back to the fund. At most other firms, the manager keeps a half, a third, or maybe a quarter, and none of it goes back to the fund. That seems irresponsible. Whether the manager should get anything—maybe a tenth would be fair?—I just don’t know.

MR Do you have any regrets about your approach to the ETF business?

JB First, let me make an important distinction here between the traditional index fund and the exchange-traded fund. What I started in 1976 are based on very broad market segments, operated with low turnover, low cost, and held by an investor forever. That’s the traditional index fund. We have almost 80 percent of that market. Now the ETF is a very different business. It doesn’t need to be, but it is. It turns out to be a trading business. We could’ve launched the first one at Vanguard, but I turned it away. People have said I must be the stupidest person in the world. I don’t feel stupid. You stand up for your principles. We’re doing fine without it, and we started our own ETF business that sells in a different way than most firms in the business, and I think a better way because we emphasize long-term funds. We don’t have a fruit-and-nut fringe in our ETF business. We’re not focused on market timing, or figuring out if the market is going up or down and giving you that return times three—that doesn’t have anything to do with long-term investing. It doesn’t really have anything to do with speculation, either. It has to do with gambling.

MR Your outlook is that we have pretty high valuations, very low interest rates, and very low growth. That makes for pretty measly returns—maybe low single digits—in the near future. Is that an invitation for people to start chasing performance and making risky investments to juice returns? 

JB Let’s say trading costs you a couple percentage points a year on your return. The future market return on stocks is going to be 5 percent. That 2 percent is 40 percent of the return. It matters. Just mathematically, trading is going to be even more shunned in an era of low return. Trading can never enrich investors as a group, because—I’m glad you’re sitting down—there’s someone else on the other side of every trade.

MR Well, everyone thinks they’re on the right side.

JB Great markets don’t go on forever. We’re certainly looking at an era of much lower returns. I don’t think 4 or 5 percent for stocks is a bad guess. You might get lucky and get 2.5 percent on bonds and maybe almost 3 percent if you get into some corporates. But you put the 5 and the 3 together, and you have a 50-50 balanced fund, that’s 4 percent for a balanced portfolio. Then you take out inflation—say we’re lucky enough to have 1 percent. I don’t think we’ll get that lucky, but it should be lower than in the past. Maybe it’s a 3 percent real return? Then you have your friendly mutual fund managers taking 2 percent. Easy math.

MR What do you think of robo-advisers?

JB I think their time is here. In a world where you’re picking stocks, this wouldn’t work at all. In this new world of indexing, where you’re selecting an asset allocation—usually big market sectors—I think robo-advisers are in a position to do it right. Shops like Betterment are doing basic allocation using Vanguard funds. I don’t think robo-advisers can add a lot of value, but for investors who need a helping hand, I think it’s good and fairly priced. I happen to think our way of doing it at Vanguard is better, but it’s more expensive—and you’ve got a live body, or at least the availability of one. It’s going to make it tough on brokers and registered advisers, though.

MR Something else that’s creating some buzz is impact investing, or ESG [environmental, social, and governance]. I’m curious what you think about it?

JB I’m very much on the ESG bandwagon. I believe companies should be way more sensitive to these issues. I don’t know exactly how to measure any of it, though. And what do you do about a company that has good social values but bad environmental values? Or Berkshire Hathaway, with its governance model? They’re well-governed, so no simple thing gives you an answer to a complex situation. So while I like the idea of ESG, it’s still pretty fuzzy. And if you don’t run a business, you won’t do any good for anyone at all—it can’t be at the expense of doing business well.

MR How did Trump’s election change your outlook? 

JB It’s going to be a long, long road. I am hoping that, when confronted by the responsibility of walking into the White House with the enormity of his responsibilities, I’m hoping he will be Saul on the road to Damascus. That’s a little Biblical reference to when Saul had his complete conversion to Christianity. I don’t know how likely that is, or whether you can really change that inner man that we’ve seen too much of. Even more important, in the long term this nation will be deeply hurt by the failure to be the nation we’ve always been, which is a place everyone else in the world wants to come. Walls make no sense. Any substantial reduction in our trading with the rest of the world has negative effects—on our society, our economy, and our markets. All these things are negatives. And there are many others that are part of his platform that he’s going to have to move away from. There’s a chance he will. Whether he’ll be Saul on the road to Damascus is another question.

MR What other issues have your attention?

JB I would be appalled if they did away with the inheritance tax. Of all the useless changes that help only a tiny percent of Americans, what is the point? It’s almost sick to think about eliminating the inheritance tax.

Infrastructure has to happen. We can borrow now at low rates. But how much debt can we handle? One of the problems with our great republic is that it’s so easy to borrow in the short term. So easy. Imagine a platform that says we’re going to fix everything that’s broken in the U.S.? And we’re going to give you a tax cut to boot. I mean, the cheering would go on forever. Those are short-term effects, and the Congress being the Congress, and the market being the market, they will look at those short-term effects very positively. Now whether we can get the Chinese to buy more long-term bonds, I don’t know.

Social Security has to be fixed, too. It’s a political problem, not an economic one. Congress is just going to have to make sure it works mathematically.

MR Do you feel like your accomplishments exceeded your ambition, or were you always confident?

JB I was never the type who had a particular ambition. I had friends in college who would say, “I want to be a vice president by the time I’m 35 years old.” A lot of people had these career plans. I didn’t have any. I thought if I did my best, good things would happen. I could’ve gone to work for the Philadelphia Bank—it’s long gone—where I had a nice job offer: $250 a month, the same amount as Mr. Morgan paid me. It sounds small now, but that was the going rate when you were a college graduate.

I do want to say that another really great part of my life has been working with young people. I’ve had about 150 students on my scholarships at Blair Academy and another 150 on my scholarships at Princeton. This present generation, they’re bright. I mean, they’re unbelievable.

MR Is there a difference between them and past generations, or is it just that optimism of youth?

JB Well, certainly they’re smarter. Certainly they’re more internationally minded. Certainly they’re less personal wealth-oriented. They’re happy to have their wealth measure by what they’ve accomplished. These are generalizations. They’re just great young men and women.

MR You sound optimistic. Is there anything you’re worried about that the rest of us need to look out for?

JB Sure, the stock market isn’t cheap, and so I worry about that. Cash is so hopeless that you almost can’t afford not to invest, but you’ve got to be fairly conservative. I wouldn’t go long on the interest rate side. I would personally maybe go half short, half intermediate. Even though in the long run, longs will do better because their interest is higher. So we have market risk, and then we have all the other risks: war, religious uprisings, nuclear weapons, disease, global warming. We live in a risky world. But you have to invest. If you put nothing away for retirement, I can tell you, to the last penny, how much you will have when you retire: nothing.

MR I just remembered another anniversary you celebrated this year: your heart transplant. Still ticking away 20 years later?

JB I have problems with it every once and a while, but it’s still tickin’.

MR How are you feeling otherwise?

JB I don’t get around as well as I used to. Traveling is really getting difficult. Just getting through the airport is tough. My wife made me take a wheelchair last time. I buried my face in my hands so no one would recognize me. But I really feel, more so than in quite a while, pretty good about my life. We also celebrated our 60th wedding anniversary this year. I have a wonderful wife, six kids, 12 grandchildren, three great-grandchildren. There’s no perfection in family life, and certainly we aren’t perfect, but we’re probably about as close as we can be. I almost hate to say how proud I am of my career and, most of all, helping folks get the returns they deserve. And that’s what these people are saying in these letters I get almost every day.

MR Do you still respond to every one?

JB Every single one. I love it, but it’s hard to get it all done. I find myself doing my e-mail on Saturdays.

MR What’s one of your favorite letters?

JB One of the nicest was from an airline pilot who had retired. My advice to investors is just to throw their 401(k) statements into the wastebasket. Don’t peek. Open the envelope when you retire and have a cardiologist standing by, because you’re going to be totally amazed. “Dear Mr. Bogle,” this pilot wrote me. “I peeked. And all I want to do is thank you.”

Regan is a senior markets editor at Bloomberg News in New York.