John Bogle speaks via video at the Morningstar Investment Conference (Credit: Wyckoff-Tweedie Photography)

Vanguard founder John Bogle shared insights he’s learned during his 66-year history in the industry – including how he came to persuade Vanguard’s board to approve the “creation of the world’s first indexed mutual fund” – with the audience gathered at Morningstar’s annual investment conference.

In a prerecorded video, Bogle, 87, gave a speech at Morningstar Investment Conference in Chicago. Bogle then joined live via video for a question-and-answer session.

Here are a few insights that Bogle offered on a wide range of topics.

1. On indexing:

“Once considered unthinkable, indexing has triumphed,” he said. “And active managers will have to either join the index revolution and/or expand their range of investment options by developing new active investment strategies. Or, do nothing. Whatever the case, active fund managers are not going to vanish from the earth.”

2. On fee compression:

“The investment advisor is almost pushed into using lower cost funds, including index funds,” he said. “…The advisor is changing its own role – it seems to be more asset allocation and broad investment advice than the stock-picking role.”

Bogle said he looks at the fee structure as evolving.

“I don’t think we’ve reached the final compensation structure for investment advisors, and that may change more like legal advice, legal services, lawyers. I think like that. There’s a fee for service,” he said.

3. On a 50/50 portfolio:

Bogle shared a letter he’d recently received from “a young man” who was worred about global disease and pandemics and religious war, nuclear war, global warming.

“He said, ‘I don’t know what’s going to happen here, what should I do?’ And I said, ‘Well, look, young man, you know as much about those risks coming to fruition as I do. You still should think about your asset allocation. You don’t want to abandon stocks. You just want to get something you can live with pretty comfortably,’” Bogle told the full crowd gathered at Morningstar.

Bogle added that he thinks a 50/50 allocation is fine – although “probably a little more aggressive” for younger people.

“For me, I’m about 50% stocks, 50% bonds. And I spend half my time worrying about why I have so much in stocks and the other half worrying about why I have so little in stocks,” Bogle said.

Bogle admits the answer is not simple.

“The problems are so multifaceted that I think you’re better setting your allocation – I would say somewhere between 70/30 and 30/70 – and just hanging on,” he said. “Stay the course.”

4. On environmental, social and governance (ESG) investing:

Bogle believes that index funds and the index managers are the key to strong corporate governance.

“Think about it this way, if the active manager owns the stock [and] if he doesn’t like the management, he sells the stock,” Bogle said. “But the index manager can’t sell the stock. What can he do? He can improve the management.”

Bogle added that management ought to be taking a serious look at ESG.

“I think the index funds right now, including Vanguard, are asking for a lot more information about how a company [approaches] those issues,” he said. “They’re important issues.”

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