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How to Have the Perfect Portfolio in Investment – John Bogle’s view

But now this brings us to the main point of 
our discussion with you which is to get your   advice for our viewers about what you consider 
to be the perfect portfolio now we know there's   no such thing as perfect but i suspect that TIFs 
will play some role in this what would you say to   the typical investor now today looking forward how 
should we be managing our wealth well let me um i   tried to cover this you'd be surprised at some of 
the what i've done in the asset allocation chapter   of my book a little bit because i've come to 
conclusion there's really not a very good answer   and i've concluded that regular rebalancing is not 
terrible but not necessary i've come to conclude   that it's 60%, 40% portfolio is probably the best 
option rather than going from 80 20 to 20 80 in a   target retirement plan uh maybe right and i may 
be wrong on that and i find it something very   individual uh and and you know and clearly i mean 
everybody knows this intuitively at the beginning   there are no easy answers to this so i'll come 
to exactly what i'm doing uh but what i was what   i did i got a letter from clearly a young man 
who was really worried about how he should be   investing and what his allocation should be and he 
said you know the dangerous risky world out there   and he didn't mention it but of course he's right 
you have potential nuclear war global warming much   more than just potential and racial division in 
the country uh right now uh threats to world trade   and division of wealth all over the world but 
most often very heavily in the us between the   haves and the have-nots all those things 
are worth worrying about but i said to him   you don't know and i don't know what's going to 
happen to any of them the market doesn't know   nobody knows so you just have to put them out of 
your mind and forget it what you want to think   about is how much risk you can afford and that's 
very much a personal thing and it has a little bit   to do with whether you're investing regularly 
and things like that and then i said to him if   it's helpful to you i'll tell you what i'm doing 
now i'm 88 years old and have an unusual kind of   planning my estate and i said i'm 50 bonds and 50 
stocks i don't happen to rebalance around that it   just seems to come out that way particularly in 
recent years and uh it's been higher than that   and been lower than that but right 
now i'm very comfortable at 50 50.   although i spend half my time worrying that i have 
too much in stocks and the other half of my time   worrying that i have too little in stock and i 
think that's the way most investors feel they   don't know what the right number is and when the 
market's going up they say god why don't i have   more stocks when it's going down so your own worst 
enemy in all this yes but having some stability   without automatically rebalancing i don't think 
you need to do that and and it's very clear   you know and anybody understanding economist 
certainly understands this that the more the   less you rebalance the more you're going to 
have because you're always selling the better   performing asset and you don't know whether it 
will do in the long run but i also look at it   as as very importantly uh and this is this is kind 
of an interesting thing i think the most important   thing you need to know about the performance 
of the stock market in the next 30 40 50 years   is what is the GDP of the united states going to 
do corporate profits are correlated at 96 percent   s p dividends are correlated at 96 percent with 
with the gdp of the united states the GDP doesn't   grow quite as fast but not a big difference 
6.7 compared to 7.5 or something like that   and then they'd be nominal and uh i think so 
what interests me is in peter lynch's book   something about wall street uh one up on 
wall street or something he says there's no   number that could interest him less than the gdp 
number is it going up or down and what that is is a statement that the short term is more 
important than the long term and i don't   believe this the short term is more important than 
long term and then you even get in freakonomics   those wise guys they did a nice interview with 
me i'm heard all of it yet but i will someday   um say pay no attention to the GDP well it's 
everything right but it's not everything today   and tomorrow right you know the gdp probably 
rose today about two three hundred and sixty   fifths of one percent or something whatever it 
is uh and uh we don't pay any attention to it   but it all comes down to for your you know the 
best portfolio is are you an investor or are you   a speculator and if you're going to keep changing 
things you were speculating because we can't know   if you're going to put commodities in there the 
ultimate speculation it has nothing going for it   no internal rate of return no dividend yield no 
earnings growth no interest coupon nothing except   the hope largely vain probably that you can sell 
to somebody else for more than you paid for it   how that could be even considered goals 
let's say an investment uh i do not know so   it's i'd like to take the mystery out of it and 
say that the perfect portfolio first i think for   a huge proportion over 90 percent certainly of 
the investors should be limited to marketable   securities they don't need the liquidity today but 
and we may have you know too much marketability   and that is too much sensitivity to prices as they 
change day by day but you want to get out of the   idea that you always have to do something and uh 
i have said in my books and you know something   happens and the federal reserve does something 
and the traders all at the beginning of the day i   think it's going to cause the market to go down so 
they sell and everybody else says it has nothing   to do with anything for you and when you hear news 
and your broker calls up and says do something   just tell them my rule is don't 
do something just stand there   and it's it's a lot of the rules that apply 
to the investment are not rules that apply to   ordinary life right and uh so don't do something 
just stand there so get a rough idea of what you   want to allocate your money to now i i do i'm 
really entirely indexed at my 50 50.

Uh although   oh my and i can't give you the proportions 
because i don't remember them but   my bonds that are in my retirement plan are 
bond index funds and the bonds that are in my   my uh personal account are municipal vanguard 
missile bond short intermediate and so i'm   reasonably comfortable with that so i think 
i'm too conservative for the average investor   so i'd say the perfect portfolio and it should 
be well let me just mention one other issue and   try a little bit differently uh blair academy i 
have a scholarship fund that i'm allowed to manage   and i don't i don't want to spend any time on 
and i don't so here is exactly what i've done   on the assumption that nobody will touch it for 
a long time and when i'm gone i mean maybe they   will maybe they won't but what i did this is 
probably ten years ago um we say put half of   it in Wellington Fund and have it balanced index 
fund the idea was not all on balance index fund   because there could be things that happen that a 
manager needs to adjust to neither of them have   an international component and that's fine with 
me that's i believe that's the better strategy so   that's and they would be together 90 of the fund 
and then against two contingencies um just in case   i put five percent in the emerging market index 
and i hope you're sitting down five percent in   gold really yeah in the event just a five percent 
hedge against some kind of catastrophe now   i wouldn't call that the perfect portfolio but 
i i mentioned only because that's one there's   distinctive meaning you cannot touch it and uh at 
least theoretically can't touch it it's designed   to be held through all extremes and so that's 
going to give you with the two balanced funds   uh roughly 62 percent in equities that's going to 
be with wellington fund more corporate bonds than   the index fund has i think the index is something 
that we should be very very careful about because   it has the one of a better expression too damn 
much in governments right i don't think any   individual would have a a bond account 70 in 
governments and 30 corps right maybe it should   be the reverse i think that makes more sense can 
i prove that no i'm sorry i can't so it's looking   at the long term looking at the numbers looking 
at cost above all there's no there's no ideal   portfolio perfect portfolio that ignores cost 
now you know i've seen these articles saying   well for example commodities no internal rate 
of return silly including gold except that's the   if nobody's gonna nobody's looking and we 
have something explosive that will help and   it probably shouldn't hurt you too much this 
portfolio actually had done rather well in the   last couple of years and it's fine in the long 
run and uh so you know and actually it may be   doing better than my own but i don't but i look at 
my performance because i'm so conservative right   uh i look at i look at the funds yeah but it's 
almost all indexed and i do have wellington fund   from those days with Mr Morgan and i wouldn't give 
that up as a sentimental matter but but i should

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