(PUB) Investing 2015

a currency-hedged index for Total International Bond Index renders much of its diversification benefit moot In coming months, we’ll have a con- versation about Vanguard’s array of for- eign funds. In the meantime, stick with me andwith themanagers at International Growth, and we’ll be just fine. n

last month, the move to add mainland Chinese shares to Emerging Markets Index is a marketing coup, but may not move the needle much for shareholders. I still recommend that the prepon- derance of your assets remain invested in domestic rather than foreign stock and bond funds. Vanguard’s use of

indexing apostles who suggest that hav- ing roughly 50% of our portfolio in foreign stocks is the scientifically surest route to take. You have to look beyond the raw data to find the best strat- egy for maximizing potential returns while avoiding exposure to excessive risk. I believe investors with a long-term growth perspective are best served by investing anywhere from 10% to 40% of their portfolio in foreign stocks, depend- ing very highly on their risk tolerance and investment time horizons, as well as the state of the global economy. For investors with more conservative goals combining growth and income, I often recommend a commitment of 10% or less. And I can even see going to zero for the most risk-averse investors. Why? Because it may be too much to ask of some conservative investors to take on political and currency risks on top of the other risks inherent in their investments. Où est Vanguard? Vanguard’s approach to foreign investing, as I’ve said, has been a moving target. Founder and former Chairman Jack Bogle was always pretty adamant about keeping investments local, rath- er than venturing overseas. As foreign markets were beginning their big move ahead of U.S. markets in the mid-2000s, he questioned investors’ fealty to for- eign investments, telling Barron’s that the popularity of foreign funds begged the question of whether those investing in them then were making a bad timing decision. It turns out they weren’t. Former Chairman Jack Brennan was more reasoned. He seemed to have the philosophy shared by many asset alloca- tors that one should have decent expo- sure to foreign markets in a diversified portfolio of funds. He said international equities should make up no more than 20% of the stock portion of a diversi- fied portfolio of stocks, bonds and cash. His less-than-rousing endorsement was only that international stocks “ may [my emphasis] benefit your portfolio.” Vanguard’s moves to put 40% of investors’ equity assets into foreign stocks and 30% of fixed income assets into foreign bonds are but the latest iteration. And, as I reported to you

QUOTABLE Jack Bogle Changes His Tune

IN AN INTERVIEW in the August 2015 issue of Money Magazine , Vanguard founder Jack Bogle says that if it were up to him, “I would have made it mandatory that we continue to disclose executive compensation.” Bogle has done a complete 180° on the subject, given that he and Vanguard sued me and my newsletter publisher in 1992 after Forbes Magazine reported my estimates on his own compen- sation. But let’s back up a bit. First of all, Vanguard never disclosed executive compensation volun- tarily, nor did it do so with transparency. So Bogle saying he would have continued to disclose the data is just wrong. Adhering to an SEC rule, Vanguard only reported the contributions that its largest funds made towards compensation for its chairman, Jack Bogle, and its president, Jack Brennan. In other words, if a fund was large enough, that fund’s Prospectus Part B, Statement of Additional Information, included a table that broke down how much money that particular fund paid towards Bogle’s and Brennan’s compensation. However, many Vanguard funds fell under the limit and hence did not break down the executive’s compensation. Plus, because different Vanguard funds reported financials on different fiscal years, the numbers couldn’t be easily compared or added up. So there wasn’t a whole lot of real disclosure going on here. However, in 1992, I used disclosures from all the funds that gave specific details on Bogle’s and Brennan’s compensation, plus the broad numbers from funds that didn’t, built a model that took the varying fiscal years into account, and estimated Bogle’s and Brennan’s full, calendar- year compensation. Forbes , in its September 28, 1992 issue, reported my findings. Vanguard sued to shut down my newsletter shortly thereafter. They also stopped making the disclosures. As Bogle said years later, “I didn’t see any reason to disclose.” However, the tactic to shut me down didn’t work—Vanguard withdrew the lawsuit, and in a Philadelphia Magazine profile in August 1993, Bogle admitted that he’d told a “bare-faced lie, to understate it,” when he was quoted in The Wall Street Journal saying that my numbers were “off by 400 percent to 500 percent.” Later, in a May 12, 2006, article in the Boston Globe on an SEC proposal to force funds to provide better disclosure, Bogle went even further and admitted that my numbers were “about right,” saying he was paid roughly $2.5 million. (I told Forbes I’d calculated it at $2.6 million.) So you can imagine my surprise to see that Jack Bogle is now on record telling Money Magazine that he “would have made it mandatory” to disclose compensation. In fact, Bogle echoed the arguments I’ve made over the years, saying. “I think openness is important if you’re a company like Vanguard because these people own not only your funds but the management company too. They’re entitled to any information they want.”     Years ago, in the May 2006 issue of The Independent Adviser for Vanguard Investors , I labeled Jack Bogle a hypocrite for his turnabout on disclosure, now that he was a public citizen rather than an industry executive. According to the Boston Globe , “Bogle called Wiener’s charge of hypocrisy “fair enough to say” and acknowledged he didn’t like it when [Wiener disclosed his compensation].” But in the Money interview, Bogle really goes the full monty on his hypocrisy. “If it’s painful to disclose,” says Bogle. “Well, that’s too bad.” Well said, Jack. Well said.

The Independent Adviser for Vanguard Investors • August 2015 • 7

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