While poking around doing research on municipal bond funds, I ran across this 2010 Marketwatch article about the personal portfolio of Jack Bogle, founder of Vanguard.
The 81-year-old Bogle said that for his personal portfolio he follows an age-based formula. The founder of the Vanguard Group has 81% of his personal assets, including his retirement plan, in bonds and 19% in stocks. [...] “I’ve always had in the back of my mind this incredibly simplistic idea, that your bond position should have something to do with your age,” he said.
[...] In his retirement portfolio today, he’s got two-thirds of his bond portfolio in the Vanguard Total Bond Index fund and one-third in the Short-Term Investment Grade bond fund. In his personal portfolio, Bogle’s got two-thirds of his bond portfolio in the Vanguard Intermediate-Term Tax-Exempt bond fund and one-third in the Vanguard Limited-Term Tax-Exempt bond fund.
Now, you have to remember that Bogle is 81 and even though he didn’t take the Goldman Sachs private yacht route, it’s safe to say he doesn’t worry about wringing every last penny out of his investment returns. Of course, I don’t think he’d want to own something that would tank in price, either. I’m sure he thinks of his portfolio as more of a lesson to other investors than anything else. As such, here are my takeaways:
Age in bonds. Bogle said age in bonds, not bet the house on bonds as the article seems to suggest. If you’re 25, that’s just 25% in bonds which provide some needed stability to your portfolio. Look at 2011 year-end returns as just one example. At age 65, that’s 65% in bonds. Even if you think the stock market is going to outperform bonds, do you really want to expose yourself to 70% or 80% stocks in retirement? Even if you don’t follow this rule exactly, it can serve as a rough guide.
(As for the 19% stocks, you can reference this older 2006 Morningstar article where he lists the Vanguard Total Stock Market Index fund as well as some active holdings in Wellington, Wellesley, Windsor, and Explorer. These are sentimental holdings – he was once Chairman of Wellington Management before founding Vanguard – which aren’t index funds but are still very low-cost.)
What kind of bonds? In tax-deferred accounts, he holds the Total Bond index fund (mix of Treasuries, GNMAs, corporates) and some short-term high-quality corporate bonds. In taxable accounts, he holds intermediate to short-term municipal bonds. The Vanguard muni bond funds are actively-managed to maintain diversification across states and counties, and all maintain relatively high credit ratings. I currently hold the same muni bond funds (limited and intermediate). I also own TIPS, which is not mentioned in this article but was in his portfolio as of 2006.
Now, he is obviously pro-Vanguard but an important thing with bonds is low-cost. With Treasuries and TIPS, the credit risk is all the same so you could technically buy them directly yourself. Otherwise, low-cost funds and ETFs are the only thing I hold. Bogle also doesn’t extend his average bond duration very long in any case, which protects you somewhat in the event of rising interest rates. I also gather from this that he does not fear widespread defaults in the muni bond arena. I don’t know where Bogle lives (I think Pennsylvania) but he chooses not to use any state-specific muni bond funds.