John C. “Jack” Bogle, the Founder of The Vanguard Group, Inc., and President of Vanguard’s Bogle Financial Markets Research Center, has witnessed more than a few presidential elections in his lifetime. The most current election cycle, though, stands out as “at least the most chaotic within my memory.”
He’s not alone. In August, the usually reliable FiveThirtyEight website “emphatically predicted” that Donald Trump would not secure the Republican nomination, putting his chances of winning at less than 2%. Other media sites followed suit, claiming that Trump couldn’t possibly win over GOP voters. And yet, Trump is expected to accept the nomination as the Republican Presidential candidate when the convention convenes next month in Cleveland, Ohio.
Bogle claims that voters don’t exactly know what they’re getting with Trump. The presumptive Republican presidential nominee has, says Bogle, “big ideas but no specifics” – and that’s not terribly good news for investors. Bogle says, with respect to Trump, while there is “little chance he’ll get what he wants, if he does get what he wants, it will likely not be good for the stock market.”
You may be getting the sense that Bogle isn’t a fan of Trump. Since both are successful businessmen who built their wealth in the private sector, you’d think that Bogle would champion Trump. He does not, saying, “I don’t believe that Trump has the character and background to be President.” Bogle then added, “And I’m a Republican.”
That doesn’t necessarily mean that Bogle is willing to talk up Hillary Clinton. On the presumptive Democratic nominee, Bogle is pragmatic, saying that “we know what she plans to do if she gets elected.” Calling her plan for the economy “well-articulated,” Bogle contrasted the specifics of Clinton’s proposal with Trump’s declaring, “[w]e may not like it but we know what she plans to do.”
Bogle went on to clarify that even without specifics, “we still have a Congress.” No matter who goes on to win the election, he says, “Congress will decide what happens.” In fact, he stated, “whether there will be a Republican or a Democratic Congress is the more interesting question of the election.”
With that kind of – for lack of a better word, I’ll use Bogle’s – chaos, how can you election proof your portfolio?
You can’t. That’s Bogle’s simple answer. The real problem, he notes, is that there are so many unknowns to consider. There has been a lot of chatter in this election but, he says, we’re not focusing on the most important issues. For example, Bogle states that there has been “very little talk” about what he believes to be the single most important concern in the economy: the “soaring cost of health care.” Perhaps that’s because we’re managing it – but only for now. Bogle says if nothing is done to control costs now, the consequences will be “catastrophic” in the next 10-15 years. “Something,” he says, “has to be done about this.”
What does managing the cost of healthcare look like? Bogle isn’t sure. Perhaps, it could be, he said, found in greater efficiencies in the healthcare industry or more disciplines drug prices. Bogle reflected on his own heart transplant, performed at Hahnemann University Hospital in 1996, calling it a good example of how technology can be used for our benefit. There must be, he mused, “some way of taking advantage of the huge advances in medicine and technology” when it comes to managing health care costs.
Of course, without managing those costs, the obvious alternative would be to raise taxes. Bogle quickly dismissed the notion, though, as not possible. He stated the obvious, especially during an election year: voters don’t want to pay more in taxes. That’s because, he chuckled, taxpayers like for “taxes to go up on everyone else but themselves.”
Even though Bogle is talking about health care costs, our presidential candidates aren’t. With the real consequences at least an election cycle away, nominees seem content to continue to kick the health care cost can down the road.
But what about now? With all of the potential uncertainty and volatility lurking after November, it’s hard to know what to do when it comes to investing. Bogle offers four pieces of advice for taxpayers who are worried about the economy in an election year:
- Keep investing. Keep putting money away. Despite fluctuations in the market, Bogle says that investors should continue to save. And if the market dips? That’s okay, Bogle explains, since a lower market can be beneficial for funding longer-term goals such as retirement and education. Saving is always a good idea, and if you can add to savings when the market is low, you may be in a better position when the market goes back up.
- Pay attention to asset allocation. A good starting point for asset allocation, according to Bogle is a portfolio consisting of 65% stocks and 35% bonds. That’s it. “Stay out of the exotic stuff,” he says, however, noting that the allocations of assets may change depending on age and circumstances. If you’re younger, for example, you might skew towards investing more in stocks: you have time to take more risks. However, if you’re older, you might consider putting more in bonds, typically more conservative and consistent. But don’t tilt too far in either direction, he warns, noting that you should pay attention to the norms.
- Expect lower returns. For years, the market was flush and paying out significant returns. That’s not going to continue, according to Bogle. Bogle expects to see lower stock returns for the next 10-20 years, noting that 12% returns moving forward isn’t realistic. The same is true when it comes to bonds, he says, claiming that 6% returns are not in the cards. Managing those expectations is key.
- Don’t pay attention to fluctuating markets. Echoing his earlier advice, Bogle says to keep putting money away so long as you are able. Remember that the markets – and your own investment strategy – may change over time. That shouldn’t make you so nervous that you bail. “Stay the course,” advises Bogle
Despite his optimism about the economy, Bogle admits that he is frightened about the election. But not just about the election. He is, he says, “frightened about the two-party system and frightened about where we are in American politics.” The measure of our success as a nation, he says, has long been tied to the answer to one question: Have we lost our ability to govern ourselves? “We are not there yet,” he says thoughtfully, “but we’re getting close.”