Tags: john bogle | turnover | investors | stocks

Vanguard's Bogle: Impatient Investors Quickly Flipping Stocks a 'Highly Negative' Trend

Vanguard's Bogle: Impatient Investors Quickly Flipping Stocks a 'Highly Negative' Trend
In this file photo, John Bogle, founder of The Vanguard Group, talks during an interview with The Associated Press in New York. (AP Photo/Mark Lennihan, File)

By    |   Tuesday, 26 July 2016 07:17 AM

Investment legend Jack Bogle, founder of the Vanguard Group, says today's generation of investors have too short of an attention span and have embarked on what he sees as a "highly negative" trading trend, MarketWatch reports.

"Turnover in the stock market has gone from maybe 25% a year to 250% a year. And so people are doing more and more swapping back and forth with one another creating value for Wall Street and subtracting value from themselves," Bogle recently said in a Vanguard webcast.

"The same thing — very few people I think have thought about this — the same thing is happening in the mutual fund business. When I was in this business at the beginning, the typical redemption rate was, let me just take a slight guess at this, was about 8% a year," he said.

"And that meant if you had 100 shareholders in the beginning of the year, eight would leave during the year. And now that redemption rate is up to 25% a year," he said.

As a result, the average "holding period" for any investments is plunging.

"So the holding period the way we do it in this business, an 8% redemption rate suggests the average holding period is 12.5 years, and a 25% redemption holding period suggests that, the redemption rate suggests that the holding period is four years," Bogle said. "That makes no sense, none, nada, nil," he said.

He also shared some of his other investment insights.

"Basically I don't care for long-term bonds. They will provide the highest returns over time, but they're quite volatile and apt to scare people. When interest rates go up, they can go down 25, 30% in price. And I don't think most investors are just up to that, up to really staying that way in the long term in a bond account," he said.

"So there, because when the market gives us one of those 50% drops of which I've seen three, if you're 50/50 stock bonds, that 50% drop is going to be 25% in your account. It moderates the volatility in your account," he said.

"Now I happen to believe that's a good idea, but if an investor says, "I can handle the volatility," and I believe them, I'd say, "You don’t really need any bonds at all." And so we have a little rule of thumb, no more than that, of having— Start thinking about your age as the percentage of bonds you have in the portfolio," he said.

"So in the abstract—and this is a rule of thumb, this is not a rule—20% in bonds when you're 20 and 80% in bonds when you're 80. Now what comes into there, I don't want to make this too complicated, but it's a very important thing for just about every single person on this webcast, and that is you also have Social Security; the vast majority of people do. And that has much more kinship with a bond than a stock. It pays you income every month."

(Newsmax wire services contributed to this report).

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
StreetTalk
Investment legend Jack Bogle, founder of the Vanguard Group, says today's generation of investors have too short of an attention span and have embarked on what he sees as a "highly negative" trading trend
john bogle, turnover, investors, stocks
510
2016-17-26
Tuesday, 26 July 2016 07:17 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved