Mutual funds, which have topped $13 trillion, are the way many Americans interact with the financial markets. You may have come across mutual funds when you set up an individual retirement account or a company-sponsored retirement account like a 401(k).
A "basket" of stocks, bonds or both, mutual funds are seen as safer to own than individual stocks. Having many in one basket spreads the risk, especially over time. But high fees, lack of diversification, or a focus on short-term gains can put your nest egg at risk.
John Bogle, founder of the Vanguard Group of mutual funds and a giant in the mutual fund industry, is known for his long-term approach to investing and for his faith in the stock market. Bogle, who is 83, is president of Bogle Financial Markets Research Center and the author of several books, including The Clash of the Cultures: Investment vs. Speculation.
He spoke recently with NPR's David Greene about the need for a government "gatekeeper" to protect Americans' retirement savings.
On whether mutual funds are a safe place for people to have their money
"It is as safe as the stock market, which is to say — to be quite blunt about it — not safe on any short-term basis. But when you look at the long term, look to what investment can I own for a lifetime. We know — as much as we can ever know — that stocks will do better than bonds over half a century, let's say.
"If you're in your 20s and you're going to be investing for the next 50 or 60 years, it's an excellent long-term bet. [But] in any given year? The market can drop 50 percent. I've seen now three of those 50 percent drops. They're all scary. At the bottom, you think they're going to last forever. But they don't."
On giving the government more of a role in limiting the kinds of funds that can go into retirement accounts
"Corporations have shifted risk from their own backs in the typical pension plan to the backs of the individual investors. We're basically moving risk from generally sophisticated institutions to gravely undereducated investors. So I think we need a regulation that limits access to the retirement plan system of this country to those that are doing their best to give shareholders a focus on long-term investment, on low cost, on broad diversification. ...
"I'm not a big believer in government regulation, but this is a little bit different. It's basically a gatekeeper to say that if we're entrusting the largest part of future savings of American investors — if you're going to enter that system by offering savings plans, thrift plans and IRAs — you've got to meet certain qualifications: You can't have very high fees; you've got to have a long-term focus. How do you get into that? Well, you say, 'Here are the rules' ... there's a way to do this, and we're going to end up doing that. I'm absolutely confident."