“I do worry that the concentration of indexing is so powerful in three firms—BlackRock, State Street and Vanguard,” he said, noting that the three companies combined own roughly 21 percent of the traded shares of U.S.-listed stocks.
“I don’t like the idea of concentration,” Bogle continued, adding that it potentially could raise the ire of government regulators. “And it’s hard for anyone else to break into that circle. For someone starting an index fund business, how will they ever get the economies of scale to able to compete with these three giants?”
Seems like an odd thing for someone in Bogle’s shoes to say, and one wonders about the seriousness of his follow-up when he said, “I didn’t get into this business to build a colossus. But I was too stupid to realize that if we gave investors the best deal they ever had or probably ever will have, then I’d be building a colossus.”
But one thing he did seem pretty serious about is his belief that investors shouldn’t expect the moon when it comes to investing in stocks during the next decade.
He noted that the S&P 500 has returned 12.1 percent annually since 1982, but cautioned that there is little if any chance of repeating that performance in the coming decade. Why? Because it is dangerous to apply to the future what happened in the past, particularly considering that price-to-earnings multiples are much higher—and dividend yields are lower—than the averages from the past 35 years.
That, he believes, is another reason why the low-cost index fund revolution will keep rolling along for the foreseeable future.
“It’s obvious that if future returns on stocks will be lower, fund expenses will take a larger chunk out of returns,” Bogle said.
As such, he added, investors are “foolish and courting disappointment” if they don’t save more money every month. And pension funds that are assuming future investment returns of 7.5 percent annually are in for a big let down.
“Here,” Bogle said in reference to pension funds, “the word ‘crisis’ seems appropriate.”