Wednesday 01 May 2019 by Darryl Bruce General

Do you own your age in bonds?

In January this year John (Jack) Bogle died. He was 89 years old. Unlike many people that have had a profound impact on the investment markets Jack was not a household name and he had not accumulated the vast personal wealth that might be expected of someone of his standing. However, in 1999 Fortune Magazine named Bogle as one of ‘four investment giants’ of the 20th Century alongside Warren Buffet, George Soros and Peter Lynch. Indeed Warren Buffet stated that “if ever a statue is erected in honour of the person that who has done the most for American investors the hands down choice should be Jack Bogle”. 


So who is Jack Bogle, why is he seen in the same light as other luminaries of the investment world and why is he of particular interest to us as bond investors? Jack Bogle was not from an affluent background. Growing up in New Jersey his parents lost their house during the Great Depression leading his father to become an alcoholic – so far, not so good! However Jack was clever, with a particular enthusiasm for maths, and his academic record eventually led him to Princeton where he studied economics and investment graduating in 1951.

Skipping forward a couple of decades, in 1974 Bogle founded The Vanguard Group and in 1976 he launched the first Index Investment Trust. Many of his peers at the time were critical of the idea of index investing however Bogle was profoundly of the belief that low cost index funds were an ideal investment vehicle for many investors. It would seem that history is on Bogle’s side with Vanguard now being the second largest asset manager in the world with c.US$5trn (AU$7.1trn), yes trillion, under management. As such it is no surprise that Bogle is considered to be the father of the index investing movement.

From FIIG’s perspective, as bond investors, Bogle is particularly interesting as he coined the phrase “you should own your age in fixed income”. By this he meant the percentage allocation to fixed income in your investment portfolio should be the same as your age i.e. if you are 65 years old you should have 65% of your portfolio in fixed income.  This is a philosophy that is closely followed by many international investors and now as the Australian bond market opens up and becomes deeper and more liquid investors here can also follow suit.

The principle behind the quote is not necessarily to slavishly adjust your asset allocation after your birthday each year – it is more focused on gradually reducing the risk in your investment portfolio over time. Obviously as you get older, and particularly once you are retired, your ability to replenish any lost capital is severely diminished. Whether this means precisely allocating your age as a percentage to bonds or not we firmly agree with Jack Bogle that it makes sense to steadily de-risk your investment portfolio over time by increasing your exposure to fixed income.   

What percentage allocation do you have in fixed income? Please contact FIIG to find out how to invest directly into corporate bonds.