10 Questions for John Bogle

By Barbara Kiviat

He is a hero to investors and a royal pain to money managers. Thirty years ago, John Bogle founded the Vanguard Group and invented the index fund--a low-cost option that revolutionized investing. At 76, he's still an iconoclast, most recently in The Battle for the Soul of Capitalism, which is coming out this fall (Yale University Press). He talked to TIME's Barbara Kiviat.

WHAT'S SO WRONG WITH CAPITALISM TODAY?

The rewards paid to managers have gotten completely out of hand. The way to get rich is to take advantage of loose accounting and give the market earnings guidance, so the stock goes up. You focus on the short term and exercise your options and leave the public holding the bag. We have a parallel thing going on in the investment world. We've turned this from an own-a-stock industry into a rent-a-stock industry. You're in and out, and you don't give a damn about all the ownership things that are going wrong.

DO YOU EVER THINK YOU'RE NOSTALGIC FOR A TIME THAT NEVER WAS?

No, I don't think so. Times always change. The age of the robber barons was very much like today. We go through these eras, and this is another one, but in between, the system works. It worked quite well during the '40s and '50s.

IF THIS IS A CYCLE, WON'T THE SYSTEM CORRECT ITSELF?

I got a group of fund managers together to talk about these issues, and one of the guys said, "Wait a minute, Jack. I understand what you're saying, but these things come and go. Why don't we just let Adam Smith's invisible hand take care of it?" I looked at him and said, "For God's sake, don't you know that we are Adam Smith's invisible hand?"

UM, ISN'T IDEALISM SUPPOSED TO FADE WITH AGE?

I'm more idealistic now than I ever dreamed of being when I was a college senior. You can't give up. We have a responsibility to look after the country, not just ourselves.

WHAT DO YOU THINK ABOUT THIS TREND OF COMPANIES ARRANGING ADVICE FOR EMPLOYEES PICKING 401(K) INVESTMENTS?

We've created a system based on witchcraft, and people think they have to know a lot, but they really don't. Never underestimate the value of simplicity. Your bond position should equal your age. I won't tell you this is the best investment advice you'll ever get, but the number of pieces of advice that are worse is infinite.

YOU STOPPED GETTING INVITED TO INDUSTRY EVENTS A WHILE BACK. DOES THAT HURT?

I have to tell you, to the best of my knowledge, it doesn't affect me one damn bit. If someone were to take a poll within the financial business of who the most unpopular person is, I not only think I would win, but I'd have to spend a lot of time thinking about who would come in second. On the other hand--and this is why it doesn't bother me--if you were to take a poll of investors of who the most popular person within the financial business is, I not only believe that I'd win that hands down, but again, I don't know who would come in second.

ARE PEOPLE SURPRISED TO FIND OUT YOU'RE A LIFELONG REPUBLICAN?

What I say to people who are surprised is that I'm starting to think about deserting. This is not the party I grew up with. I still am a Republican, but I don't vote straight down the ticket.

YOU'RE A DIE-HARD INDEXER, BUT YOUR SON RUNS AN ACTIVELY MANAGED FUND. WHAT'S THANKSGIVING LIKE?

It's not a problem. Over a 50-year period, about 4% of all managers will beat the market. If you think I'm going to tell you it's impossible for my son to be in that 4%, you don't know me very well.

IF YOU COULD GIVE ALL THE NATION'S INVESTORS ONE BOOK TO READ, WHAT WOULD IT BE?

I did my best to provide that book in Bogle on Mutual Funds. I'd say, if you're really a basic investor, Bill Schultheis's The Coffeehouse Investor. And if you're more sophisticated, I'd certainly do Burton Malkiel's A Random Walk Down Wall Street.

YOU HAD A HEART TRANSPLANT IN 1996. HOW HAS IT CHANGED YOU?

It's a pretty strange thing to be given a second chance at life. I still play squash, and I can be with my wife and children and grandchildren a lot more. But has it made me a better person? Alas, I'm afraid I'm the same old, fallible fool. I try, but we are who we are.