Okay, at this time, I'd like to introduce our distinguished guest of honor. He's the founder of Vanguard and president of Vanguard's Bogle's Financial Research Markets Research Center. He created Vanguard in 1974 and served as chairman and chief executive officer until 1996 and senior chairman until 2000. He entered the investment field immediately following his graduation from Princeton University, Magna Cum Laude, with a degree in economics in 1951. If I listed all of his honors and achievements, which most of you already know, we wouldn't have any time to listen to Jack. So I'll dispense with that and ask you to please welcome our special guest of honor, Mr. Jack Bogle. We normally, I'm going to steal a couple of minutes from Jack's speech for something that's very important. We normally do our recognition ceremony at the end of the event on the last day, but we've got something very special to do this time and I think it deserves its own time on the agenda. The person we're going to honor today is a very special individual. I've had the pleasure of working with him for the past 18 years. We've worked together, helping to build the old Vanguard die-hards form into the number one form on Morningstar and then later building the Bogle Heads org form into the number one investing form on the Internet. We worked together to host the first Bogle Heads conference with Jack in Miami. We worked together writing the Bogle Heads books. We've raced together in the weekly Biscayne Bay regatta. We've celebrated birthdays together and we've spent weeks cruising together. So to say I know this person is really an understatement. He's an ace through and through and a real gentleman. Since he no longer cares to travel, this is for all practical purposes his last conference. So I thought it only proper that we acknowledge the great contributions he's made in the establishment and continued growth of the Bogle Heads community. Jack calls him the king of the Bogle Heads. I call him my very dear friend. Would you all please give a rousing round of applause to Taylor Laramore? Will you please come up and accept this award, Taylor? I'll read the award. It says the John C. Bogle Center for Financial Literacy Lifetime Achievement Award presented to Taylor Laramore for his service in World War II, his exemplary government career, his leadership in founding and building the Bogle Heads community, a lifetime of being a kind, decent, and helpful human being, presented at the Bogle Heads 2016 Conference Philadelphia PA, signed John C. Bogle Honorary Chairman, and Mel Linda, our president. Everything I know I learned from Jack Bogle. Move quite as fast as I used to. Sorry about that. It reminds me.  I mean, whoever would have thought that and whoever would have dreamed that 15 years ago. There's only one person. Of course, that's Taylor Laramore, my dear friend, and so here we are this morning with two founders, founder of Vanguard and the founder of the Bogle Heads. I'm always proud to be in his company. I really love the guy and wish he and Taffy, his companion, the very best. They're a lovely, lovely couple, still taking all the flags and burgies at the regattas down in Florida, and I'm brilliant on a boat without a crane, but I try. Welcome to all of you, and thank you for coming. Congratulations to the Bogle Heads, Mel, and all the rest of you for, I think it's three million posts, over three million. Sorry, I'm always given the understatement. You all know that. And what did I see? Mel, 35,000 members. How many members? I'll underestimate him again. And I want to give special thanks at the beginning to Mike Nolan, starting a six-year in penal servitude, who has been a fantastic help to me. We work together on just about every project. He travels with me, partly because I think he enjoys being on the venues that I'm speaking at and working at, and for that asset, he has the liability of traveling with me. And getting me through Union Station in Washington is not easy, but when we get there, we always call an Uber. So Uber has made our lives worthwhile. And I'll mention at the same time, you couldn't do anything without you, Mike, and I appreciate your friendship, your loyalty, your commitment. He's a tremendous hard worker, probably got to the office in what, 6.15 this morning? 5.50. 5.50. I wondered how he beat me. That's not what it takes anymore. I don't work as hard as I used to. And I also want to now thank all, thank her publicly later on. Emily Snyder, Mike, all Mike is starting a six-year here with me. Emily is starting her 26th year with me. And her, whew, don't ask, don't ask. And I won't tell how she puts up, but I don't know, but she is a lovely woman, young woman really, gracious with everybody she comes in contact with. A prodigious worker, loyal to the fault. And I don't know what I'd do without her either. And that's it for the Bogo Financial Markets Research Center. People think that there's like 40 people down there creating and cranking out all this work that I do, or that we do, that I publish, but we do. And no, there are only the little three of us fighting our way through each day, which is, in truth, not quite as easy as it used to be. I still enjoy it, but I tire a little bit. I suppose that's fair enough for someone who is celebrating 65 years, essentially with the same company I've been involved with, Welling and Fund. Leave aside the names of the management companies ever since 1951. Talk a little bit about that later on, 62th anniversary in the industry. The 40th anniversary which we celebrate this year, first index investment trust. Somebody actually bought shares in first index funds, so I'm here today. And that's now the S&P 500 been renamed. But we were proud to have that first stamp on our name. So I want everybody to thought it was, we'll stamp, talk about stamped. Everybody thought index funds should be stamped out. You saw that poster, I think, and some of the things that I've done. And best of all, as if 65 and 40 aren't enough, you're not going to believe this, because I'm a very difficult character. My 60th wedding anniversary. And Malthus being Malthus, our family now is 31, accounting in-laws. I don't know, a little difficult when gift tax times come along. And I also want to say something important. I'm not going to join you for the reception this afternoon. But that's mainly because my wife wants me home a little bit earlier. Because I don't want to be, you know, as if I'm spying on people. I've been asked three or four times to come, invited. No question about that. And it's going to be one run by, the moderator is going to be one of our great up-and-coming young managing directors named Chris MacIsaac, who's become a good friend of mine over time. And I'm really a great admirer of Chris's, and you'll see him in action. And Michael will report to me whether he does a good job or not. And I don't think I won't be watching. And I also want to say one of the best things that's happened this year, I want to try and say this tactfully, is that we've come together, the Vanguard management, prison management. And I have come together, and we have kind of mutual harmony. All your arguments have been settled and put aside. And so it's the best relationship I've had with Vanguard, which has been, as everybody knows, I think, a bit rocky along the way, say the least. And so that's another highlight. So this has been a good year for me. And I'm happy to be with you to talk a little bit about that. It's been a year when, oh, we've got that up there, when I got a couple of nice headlines. I want to flip that slide, right, to that article in the Wall Street Journal, which I most must say it just couldn't have been nicer in every way.  I know I don't know a lot, but I've got more than that. But the Holman-like, the Holman-Chengethy, Walter, I guess, gets to prove it right. And I don't know where he got that ghastly sweater and jacket, but I haven't been known to wear a Tweet anyway. So it's a good try. It was really nice. One of the non-highlights, I don't know where this comes from, but people comment on these articles in the press now. And this one got, I think, around 220 comments. And too many of them, maybe as many as 15 or 20, really did not like the article. How could you ever vote for Hillary? And one of them was a little biting. It said, if you're that dumb, I'm glad you're not running Vanguard anymore. It goes with the territory. And just to be honest, I don't like answering political questions with that kind of question. But I built name and reputation for integrity and candor. And I'm not about to say I'm not going to answer your question, which is not my style. Gets me in trouble a lot. But I think the payoff is getting the respect of people for speaking as honestly as I can, do well as interviewing when you're talking to me. So that was a nice one. And then there was this business of indexing is worse than Marxism. And it was quite a diatribe, only about 40 pages, and published by Sandra Bernstein, county of big investment advisor and broker. And they can't stand indexing. So they got somebody to write an article. One of their staff, who said I was going to rule in the world, it seems to me it's more likely to save the world. But that's another story. But my good friend Cliff Asnes, the head of AQR, a huge hedge fund manager. They probably run, I don't know, $80 billion. And he wrote a rebuttal to the article in Bloomberg, wrote the article first appeared. And he said indexing is capitalism the best. He got it. And I take some pride in having friends in the hedge fund business. And if they're doing a good job and have the right posture, integrity, and all that, I have no problem in borrowing them. Well, Cliff describes himself as Jack Bogle's least hated hedge fund manager. I think my son would be in that category too. So it says at the bottom, all that glitters is not gold. But it is gold. And I just thought I'd mention a little bit, I don't know, bragging. Couple of gold medals, one that I got and one that I will receive. And you heard about the first one. The Gold Medal for Distinguished Service to Society, which is pretty big. And the Pennsylvania has a big party in New York every December for about 110 years. 115, I think it is. And the first award winner was Andrew Carnegie, who's older than I am, if you can believe that. And getting these awards, basically, we're telling the truth, spreading the word. And that I do. No question about that. It's all about simple stuff, common sense investing in the title of two of my books, sound investment principles, investment costs and returns, trust, and the role of integrity, which has come into sharp relief with that really bad piece of work done by Wells Fargo. And the bank probably had the best reputation, had the best reputation of any bank in the country. And so that can happen to anybody any time. And I spend a lot of my time here in the incipient years, the early years, trying to make sure I touched every base. I could be around and we started being part of 28 people. It's about that table and that table and that table and maybe one more. And so I was on top of everything, all of the tales. I love the tale of the business. I was watching, I was listening to make sure that very kind of thing. We didn't have any incentives for selling more. People on the phones don't get paid if you send us money. I can't imagine any more idiotic, anything that was more cutting to your integrity. So I've put in 60 years, 65 years, and how many hits have I had and how many errors have I been through just about all of them. And as you saw this chart last year, I've seen a scope of an industry that sells what it makes to an industry that makes what it sells. I won't spend a lot of time in this list. You can see them up there. But all these different things we thought through. And starting Vanguard in the middle of all this, you couldn't possibly, possibly think of a company that's had a poorer chance of surviving. It's a company with a new name in industry that is back on its heels. And its predecessor, Welling and Management Company was among the leaders in companies that were back on their heels. Redemptions pouring into the industry, more to us, market share plummeting. We were obliged to keep the same managers that ruined the funds in the first place under the deal with the directors that let us form Vanguard. And the outlook is grim. Mutual funds, the industry dropped in its assets by a third. We dropped by even more previous company. So, and then you got a new idea. It's called the index fund, never tried before. What chance is a company like that with its new structure we call it the Vanguard experiment?  It was mutual into before. So what are the chances that company will succeed? I don't know, I'd say one in a thousand. Maybe push me into a corner, I'd say one in a million. But here we are today. Well, I'll get to the size of the industry now. I just did my best in all this period. I say in my note here, did my best to build a better industry. But I think a better phrase was, I did my best to disrupt an industry that was sadly in need of disruption. And that is happening, and you'll see it in these slides. And I preach about my convictions. The preacher, Ecclesiastes, it all begins with, and I love this quote from the musical Hamilton, I don't know if any of you have seen it, we have seen it. And then Miranda was actually in it, and we felt very happy about that. But with the interducers, you can see this on the video. You can go to one of the video sources and find it very easily. Alec, and then Miranda Hamilton, the White House just put that in, you'll see it. And he says in this thing, talking about Hamilton, all on the strength of his writing, he embodies the words, ability to make a difference. And I've done my best to emulate that. I am no Hamilton, no question about that. But I've tried to emulate that all through my career. And I'll get to the preaching in a minute, but we've started to get much more recognition for how much our structure and our strategy, mutual structure and the index strategy has saved our investors. And Bloomberg came out with an article. It puts that number at $1 trillion. Now, it should have said, is saving, rather than has saved, because they look ahead for five years as well. And it should have also said, they were wrong there. If you do the math using their formula, it's actually $2 trillion. And here's the data. And the first three boxes are just what they do. They talk about it's lower expense ratios, lower trading costs, the effect on our competitors. Where are we here, $200 billion? And the future savings will get doing that in our project for the next years. The original savings come right out of the Vanguard calculation, which is what our principal competitors charge, minus what we charge, and we'll apply that number, expense ratio number, it's probably about 70 basis points or something, 60 times a trillion dollars and you're talking real money. And so it's right there and it's made us into the nation's second most important company, according to Fortune. And there they are, they said, Fortune said, it was a tie with Fidelity. Are you kidding? I mean, Fidelity is yesterday, pal. And as I said in that Wall Street Journal story, which I probably should not have said, they'll probably sell the company in the next five years. You know, I don't think that was a smart thing to say, but I believe it. And so we're tied with Fidelity, they say, even though they're limping badly. I feel kind of badly, they just built a company on flashy performance and then it was over. And they can't, they're struggling to keep up all the time and they fail. And I don't wish them ill, I wish them well. My good wishes don't seem to, they seem to have fallen on deaf ears up there, but I do wish them well. And you're probably saying who's the most, this is the most important private companies, which is something to do with it, although Fortune doesn't quite say it, the most valuable private companies. And it's quite remarkable because people have forgotten that we have shareholders and they have a value. And the Johnson money goes to the Johnson family and our value goes to our shareholders. And I don't think anyone's ever looked at it that way before. So after telling the Wall Street Journal that I appreciate the recognition that we are a private company, it doesn't have a value. Very rare. I then take on, explain to them, please explain to me how they got Fidelity and a tie with us. Of course, I haven't heard back from them, but it was only six months ago, so we'll be patient.  Any guess out there? Uber, Uber, Uber, I love to say that. Should we, how are they coming now? Mike, they have always communication. There are probably three I'm waiting out in front. But a lot of that value has been created by, I think, communication. That's the Hamilton part. And I do a lot of papers, journal papers, which I'm very proud of, 25 and all on these two, these two magazines, 15 and the Journal of Portfolio Management. And that bottom one, David and Goliath, this is a speech I gave in May. And one of my better ones, if I do say so, we will provide copies to all those who'd like to see them. And they're right there on my website. And Financial Analyst Journal happened to won an article. I can't remember whether they asked me for the article. No, I think I did it. And sometimes they ask for one. And sometimes I just say, here it is. And they print them. I think a little casually, but that's their problem. And so I think acceptance in the academic community is a very, you don't think much about it. You don't hear much about it. But it's a very important part of Vanguard's standing in the world's eye, standing up to the academic challenge. And we do that well. I will say quickly that in that David and Goliath speech, I took a shot at Professor Andrew Lowe, who was the king of the academic finance guys, a professor of MIT. And he had written some stuff I just took issue with. And I sent a copy of the speech. I didn't want to do it on his back. He was late getting to the point of the cube root meeting where I spoke.  And he sent me this lovely letter, two page letter. Thanking me for being so gracious about my dissent. He thought I'd made a lot of good points. And I should know that Lowe family has lots of money invested in Vanguard funds.  Go figure. So the books of course are another huge communication thing, and it's amazing to me that little book of commonsense investing. And then Wiley told me they wanted me to do it. I said, you know, I don't really want to do it. There's a lot of ego here. But I'm the only one that can write the kind of book that investors want to have. So we're on much more simple way, much shorter way, shorter words, shorter paragraphs. And it's been the number one best seller for almost nine years now. Or more than nine years. And 216,000 copies. Typical investment book sells 3,000 copies. And the reviews are fantastic and they get better. The 2016 reviews, 72 on that note here, are the highest, much higher, say the first two reviews I got. Not a lot higher, but higher. So it's very gratifying. And we'll probably go ahead and do another copy of that book on this 10th anniversary or maybe 11th, if I'm so damn busy. But it's just short, it's simple, it's persuasive. And it's not all of the book thing. It's, here's just how book sales are in the last few years, 80,000 copies. And amazingly, a common sense on mutual funds, a complex book. And came out in the 10th anniversary edition. And it really helped that David Swenson, the genius, I think he's a genius and he's certainly a hell of a nice guy who runs the Yale endowment, the most successful endowment in America. I wrote a forward to it. So yeah, I've got Swenson on my side and I've got Buffett on my side. But I've got Bill Bernstein on my side and Peter Bernstein. And God knows who else, Andy Lowe, I suppose. Who can be against this? This is the same guy. So all my books together come up to about 895,000 copies. And I suppose if I could live to about 130, which seems unlikely, we would cross the million dollar, million book sales mark. But I'm not the world's greatest writer, but I know how to write. And I know how to write expository prose. It's a lot easier to do what I do than write a novel or something like that, which I have no intention of trying. It'd be totally incompetent. But I really am proud to have those books. Sort of a monument to be around for a long, long time. Now you'll notice at the bottom there is a book called Enough. And I'm gonna say just a word about that, not yet. I showed you this slide last year. And it has a rival. Somebody else is trying to grab my territory. And a year ago when I showed you this slide, you all laughed. You laughed. You're not laughing now, slide. I've had so damn much fun in this life, it shouldn't be allowed. So let's take a look at Vanguard. Vanguard's growth. And I think at the end of this section, we'll take a little break for you and me and show you about 15 minutes of video. Mike Nolan put it together. He was still working on it this morning. He's a worker, that guy. And so we're gonna show you that. We'll have a little break. I'll do this one first. And let me say, the Lord did not put me on this earth to run a three and a half trillion dollar company. I had many more questions about size than I had no interest in bragging about size. It's a greater responsibility. And for me, a constant worry. I'm gonna say constant. Where was it that I first started to really speak out that the problems Vanguard might face when it grew? Well, I gave a lecture to the crew and it talked about growth and the value of growth. And that we better be careful lest we look like some giant insurance company, mutual insurance company where nobody cares about anybody, nobody knows anybody and everybody does what they're told, leaves it, comes in at nine, leaves at five every day. And that's it. That's not the kind of company I wanted to have. I wanted the crew to be involved, not automatons. And yet even when I gave this talk, I was worried about comes with growth is, well, you'll hear it right now on this quote from the speech. And that is for God's sake, let's always keep Vanguard a place where judgment has a fighting chance to triumph over process. Well, believe me, process grows as a percentage of what you do and judgment shrinks. The bigger you get, it's not anybody's fault. You can do things to hold the tide back, but it's, you know, and you do a little bit back and came my to stand, but it gets harder and harder as you grow. So when was that, when was that, when did I worry about that? 1997, what were Vanguard's assets in 1997? When it's, this is in one of my speeches and character counts, 47 billion dollars. So if I said three and a half trillion in that speech, everybody would have thought I had maybe one martini too many, but I've always been worried about it. And I think present management doing as good a job as can be done in trying to keep the place human, keep small groups together, try and have a bunch of small little companies in this large corporation. And we're not really huge, 15,000. I guess it is 16,000, I think they say crew members all over the world. And it does get harder and you work at it. And so, and I work at it. I should tell you that I spend a lot of time, probably at least say 25% Michael, maybe, 25% of my time working with the crew one-on-one. I meet now with each award for excellence winner. They bring team meetings into my office. I do 20th anniversaries, 30th anniversaries, retirements, and it gives me a chance to appear before them and my fellow crew members and let them know that there's a living human being still hanging on, trying to keep this place personal, warm, and friendly. It's not easy, but we do it. So the nomination of Vanguard begins with really the huge impact of indexing that we have. And we have dominated industry cash flow and industry took in the last year, 12 months, $178 billion of which, $269 billion was being going. So all of our other competitors put together had $91 billion going out and we had $261 billion. And the cash flow keeps growing, as you'll see in this next chart. And you can see it's driven by, look at that blue part of the stack. It's clearly driven by stock and bond funds, and indexed stock and bond funds, and the money market funds. We're actually quite dominant in 1998, 1998. You can't see it here. There's certainly a bigger sector. And they've kind of vanished from the scene and now are leaking quite badly with the new federal regulations. So I was really amused by this. You've heard the expression, our growth is off the charts. Well, in fact, our growth is off the charts. And therefore, when mornings start, with this report out, my headline is, where's Vanguard? Take it after, where's Waldo? You'll see the underlying thing. Vanguard is not displayed in Exhibit 6 because it would dwarf all the other data points and decrease the charts legibility. Now, if that isn't the ultimate accolade, but I roughed this out, and I think the Vanguard stack on this would be maybe nine inches tall. Just to put it in perspective. So you can imagine how always we have to shrink against on the page. So the rise of Vanguard has been incredible. Three and a half trillion. You can see we're going from way behind fidelity, minus $204 billion at the beginning, 2000. And when you go from 204 billion behind a competitor to 1.8 trillion ahead of them, that's quite a shift in leadership. So the market share grows. And you can see we went through a hard time shift. We started the firm, I refer to them. Market share dropped by pretty close to a third. And then it started going, it's been going ever since just by staying the course, giving us that momentum. To a dominance, it's totally without precedent in terms of its industry leadership. So it's been interesting to know who the previous industry leaders were. Mass Financial Services was a leader for 17 years and it got all the way up to a 15% market share and it ended in 1952. Investors diversified services now called Columbia called American Express, one on one income. They've had more name changes than you can imagine and more discontinuities. They have a huge direct selling organization. They've had that kind of an organization since 1904 that weren't selling mutual funds and they were selling base amount certificates which kind of ripple off. And they held the industry leadership for 29 years and there was no stopping them when you've got all your own controlled sales force. The rest of us were working through brokers on launch. Then we had Fidelity who gets to 13.8%. Takes 15 years and we hold that leadership for 15 years up to 13.8% and then starts to drift below by the time you get to 20 or three and then Vanguard. And we've been up there 12 years now, the largest firm in the industry and our peak market share. Look at that, almost 23%. The previous high was less than 16, uniformly less than 16. So this is a, we've disrupted the industry and it's all based on index funds, almost all. And you can see the index share of our business in this chart, it's gone from zero in 1975 to 37% of our total of industry assets, I should say. And gradually zero, four, 16, 37. And three firms dominate that cash flow. And that's what's made the difference in growth. We have Vanguard with 70% of its growth, 70% of its assets in index fund. Fidelity with only 14, they don't really have their heart and as I said to people, if you're a missionary and have a missionary zeal to this once untested idea, is it at least possible you will do better than someone who is dragged into that arena kicking and screaming and hating every minute of it? You know who to bet on and you'll be right. They're only 14% but they're our biggest competitor in indexing in the traditional index fund field. They're BlackRock, 68% that's basically an index fund started with ETS and that's just what they do. American funds has this professional aura about them and they're not gonna cross that line yet. And state street of course is a rapid turn over ETF business and every year at state street, every day I should say that state street index fund standard towards spider is the most widely traded stock in the world. The most widely traded stock in the world in terms of dollar value. I think that's an uninteresting business. Trading is a losing game finally. The big shareholders in all these ETS, the big ETS are exchange traded funds or banks and other financial institutions are trading with one another. And I'm not the smartest guy in the world but I know that both sides do not win. Am I doing okay? So that's been a huge portion of what we do. I think we'll pause and give you a little relief and I'll have some coffee and Mike will turn on the video. Quite a number of questions about whether the popularity of index funds, they're pretty ubiquitous at this point actually might be problematic or whether index funds work in this more volatile market environment. So how would you respond to that? Well indexing take the market environment the easy one first. Indexing works in all environments. You just have to understand one simple thing. All of us investors own all the stocks in the stock market. And so those that are indexed own them in their proper proportion, the market value, capitalization, weight. We're things like Google and Alphabet as it's now called to the largest. And everybody owns two thirds of that. Everybody put the indexers roughly and the index owns one third. So it's volatile for us, the index fund. It's volatile for the investors. They're all one because investors own the market. And they can either do it the intelligent way on an index fund that holds it or trade with one another. And one trader trades with another trader. It must be obvious there can be no value added there. Just who owns the stock? Ah, but there is something nice going on here for Wall Street. The man in the middle, the broker in the casino, the guy with the rake takes his share out. So the other investors and the non-index investors are playing a losers game. And people have figured that out. And I get letters pretty close to every day, Rebecca, saying I wish I'd read your first book earlier. That's now 20 years old, 25 years old I guess almost. And I wish I'd listened to your ideas earlier or I did and I'm now retired. Next question, shifting gears from retirement, is from Christian San Jose, California, who says congratulations, Mr. Bogle. May you live longer and provide sensible financial guidance to us all. I have two sons ages 23 and 20. So what is the one single piece of advice you give them so that they are financially secure when they retire? So what's the one thing investors just getting started right out of college really should know? Start to invest now. Continue to invest as you have the money. Increase your investments as you make more money. Have a little note in your budget so that let's say 15% of your compensation goes into a mutual fund investment, a low-cost mutual fund investment, or even better an index fund investment. And that's only because I believe it. I'm not trying to sell anything. Well that's okay, you can sell. It's a Vanguard webcast. So, but make sure that your contributions go up with your income. And then I would say another rule that I use, it's a little overdone maybe, don't peak PEEK.  Don't look at your account every month. I tell people that if they don't look at it, they start investing when they're 22 years old. And they don't peak at their 401K statement or IRA statement until they retire. A caution, have a good cardiologist next to you. Because when you open that final statement, you're allowed to open it at the end, you will probably have a heart attack.  It's so remarkable what long-term compounding plus, well the magic of long-term compounding returns without the tyranny of compounding costs is magical mathematics. And if you're aware of that, that's really all you need to know. Start early, save often, don't look. Sounds good. All right, let's take another live question. This is a good one. And certainly a lot of sentiment around this. This is from Loretta and she says, everyone is saying that the markets are currently in a state we've never seen before. Do you think we can still rely on the historical principles we've always relied on today? Is it different this time? This time is not different, but stock valuations are higher than they've been and the prospects for the future are lower than they have been in a long, long time. And on the period I've been in this business, the stock market has averaged a return of about 12% a year. And that's just not gonna happen again. Because at that time, during that period, the dividend yield on a very important component of stocks, stock returns, was about almost 6%, clawed five and a half. Now it's two, that's a dead weight loss. The average earnings growth was pretty close to 6%. I don't see that earnings growth happening in the future. I think it'll be, if we're lucky, 4%. And stocks have high valuations. The price earnings multiple, the essential nature, the essential measure of value, is around 22 times earnings and the norm is about 16. So putting those three things together, all dear, expensive, if you will. And so we can look for maybe stock returns on a balanced, an interest rates are five and a half percent during that long period of my time in this business. And now they're 2%, actually 1.6% on the 10 year at intermediate term treasury. And so bond returns will be lower. So I think that we'll be lucky to get a return of four or 5% from a balanced portfolio in the next decade. I don't look at this and I don't want the viewers to look at it as saying, he's predicting something for the year. I have never predicted anything for the year. I don't believe in year long period. Too many things can go wrong. But in the long run, and this gets to the heart of that question, the same reason for generating returns, the reason that stocks generate returns is the same as it has always been. The earning power of corporations, they make earnings, they pay some out in dividends, they reinvest to build newer, faster, innovate, whatever they do. And that's where earnings growth comes from from that reinvestment by and large. So dividend yields are lower and the reinvestment will be lower. And so the returns will be lower. I think that's almost certain. And so just relax because the one thing that will guarantee your retirement plan will have an asset value of zero is don't invest at all. True. Yeah, and actually you should save more. No. So what's hard and very important for the audience to understand is you have to accept the market returns for what they are going to be. Don't reach beyond them. Don't do something speculative. Don't lever up to make up the difference. It just is highly unlikely to pay, well it certainly will not work for everybody and highly, highly unlikely to work for very many people. So Mr. Bogo, we have actually gone over time. Obviously thousands of questions and tweets left. Maybe we can get you to answer a few tweets after the end of the broadcast. But I did want to give you the opportunity to have some final thoughts and you can share them right with the shareholders that are watching if you'd like. Sure, well I've had a great time in this business. Almost unimaginably great. Yeah, I've accomplished something that has not been done before. The idea of index fund investing is kind of taking over the world. And it is taking over the world and it's gonna continue by the way. I warn my actively managed competitors. They're gonna have to do something somewhere to protect themselves. But the whole core of everything we do here, most notably and easily measurable in indexing is putting the client first and giving you your fair share of whatever market returns develop. They may be good and they may be bad and I warn you that owning an index fund is not a free ride to prosperity under all circumstances. When the markets are bad and they will be bad from time to time, particularly in the short run, the index fund will give you your fair share of those bad returns. So don't think of it as a miracle. Think about it as an intelligent policy that puts you in the focus of the system and fortunately we've given Vanguard structure. We're able to deliver on that promise a mutual company in which the shareholder comes first, last and always. Or as I would put it in a more simple way, you'll recognize the Cadence Vanguard is a company of the investor, by the investor and for the investor and you all are those investors. And I thank you deeply for your kind comments about me. And I thank you for your confidence in me and in Vanguard. I should say that that last little segment was totally un-tipped off to me. I'm gonna get that question at the end. Totally unscripted and totally unrehearsed. And I think it's better than what I do when I'm totally scripted and totally rehearsed. Joining us now to discuss the future of indexing and what lies ahead for active management is the one and only Jack Bogle. He joins us from Valley Forge, Pennsylvania. Jack, great to see you. Thanks so much for joining us. The numbers here when it comes to passive investments are staggering. Since 2008, active funds have seen $600 billion in outflows. $961 billion meantime have moved into index funds. Bill Ackman recently referred to an index bubble. What part of the rise of indexing has caught you by surprise? Well, I guess it's strength, although I'm disappointed by how long it took. And of 40 years a long time, it actually took until the mid-90s. We started the fund in 1975. It took until the mid-90s before indexing caught on. And then it caught on with a real flourish and now totally dominates the industry. And in an industry in need of some creative destruction, we're destroying a lot of old tenants' old ideas and making life difficult a little bit for active money managers with high costs. Active money managers with low costs are doing a little bit better than that. There's been a bit of criticism brewing, I'm sure in part because of that success, Jack. In fact, recently an analyst at Sanford Bernstein wrote a note saying that index investing is worse than Marxism. I'm sure you've seen, I'm sure you've heard these kinds of criticisms before because index investing doesn't participate in the price setting mechanism. How do you feel about that accusation though? Well, I don't know if I can find the right words. Idiotic would be one. A totally wrong headed would be another. A silly attempt to get across an argument that is terribly flawed. The article in the Marxist article, if you will, that says that any field of endeavor that subtracts value from society is doomed to fail. Well, the index funds, indexing in general, particularly in the mutual fund industry is adding huge amounts of value to our society to investors. So if they don't understand that, I'm not sure what they do understand. And it's a funny article, it's long detailed. I'm not sure how many of the readers can get through all those or can understand all those formulas that are printed page after page. And the comparison with the financial business of the mining industry struck me as absurd until I realized they were both extractive industries. The mining industry is taking gold and coal out of the ground and the financial industry is extracting value from the clients it serves. And at what point does indexing make the market much less efficient? And the reality is that you could get to right now, indexing is around 30% of the total market. And I'm sure you'd get to 50 or 60% before it would even be noticed because the index has just removed a certain portion of the market from trading activity. And if it got to 90 or 95%, it would be, it might at least make it easier for active managers to win or so it is alleged. What the people would say that don't get is when the market is less efficient, it's easier for the good guys to win. And it's easier for the bad guys to lose. They have to balance each other out. There's just no way around that. So I just fall back on the simple mathematics. I don't worry about it. It doesn't seem to have any dire effects so far. And the reality is the year after year, in terms of performance and investment returns, indexing outpaces active managers. And this year it's like 8% for the S&P 500, 6% for the average large cap growth fund. I'd say, here is a 33% margin six over compared to eight.  It has to do with taking costs out of the equation. And those costs are fund expense ratios and those costs are fund turnover, but the fund industry turns over its portfolios a lot. And well, you don't know how much that is. You know it's large. And if you take those two numbers together, you're gonna pick up about 2%. Where's 2% on a properly constructed comparison should be the margin by which an S&P 500 fund beats the average large cap fund. Simple as that. And I'm glad Jack mentioned costs because fees of course for active funds were 99 cents in 2000. They've since dropped to 77 cents today. That's really the Vanguard effect at work. Right, and our Eric Balchunis wrote a story about the Vanguard effect. Just a couple of weeks ago and Jack, he estimates that you and Vanguard have saved investors about a trillion dollars over the last four decades. Do you reckon that's a fair calculation? Actually, I think it may even be, believe it or not, understated because they compare our expense ratios with the average of our competitors. And the fact that we aren't trading, which is a huge cost saving, but they don't take those savings each year and earn a return on the accumulated savings. In other words, the cost of capital kind of an argument. So if you put some kind of a return on the money that we save investors each year and look at it over 20 years or so, you find a huge staggering number, whether a trillion is the right number or a trillion and a half, I wouldn't know. But it's big, very big, and it's good for the investor. That's the important thing. Okay, I'm buying it. I believe. These things are, I've been accused of, even in my books of just selling my own ideas to help Vanguard. And that really has nothing to do with my motivation. We don't need any more money coming in. We don't need any more sales. We're happy to have what we have. I'm doing this because I am passionate about it. And it's true and it works. So what the heck are you supposed to say? You know, I can't say, well, an investment management, an active management will win. A few will win here and there. I'll talk about that later. And they're never seen again. I mean, think about something like Magellan. It was a $120 billion fund. And now I think it's eight. That's a lot of disappointment. Actually, if I was better, I could tell you it was $112 billion worth of disappointment. But in any event, we'll now turn to part three of the changes in the fund industry. And I'm gonna go pretty quickly here. I don't wanna run, what's my time up? Oh, I've got till 9.25, I might even be able to finish this. But maybe I can get an extra couple of minutes. So what's happened to this industry since I joined it all those years ago? Here I am in my 60th anniversary. Industry leadership, the industry has grown, number one. And it's grown in a very different way from domination by money market funds, which is about half of the industry at one point here. And then all of a sudden, the long-come index funds, you can see that green line. And it's only a matter of time since the index funds will be, although those are all equity funds there, 37% equity fund assets are indexing. And back in the day, there was not even an index fund. So we have today 3.1 trillion, we use different numbers on these, 78% equity and 22% balance. And so balance and bond, I guess that is. And so we're growing at 14% and that doesn't seem to show yet. But the industry has changed. Think about changing leadership. MIT, now MFS, has dropped out of the top 10. They still make a lot of money for their parent companies in the life of Canada. And they don't seduce a well for their shareholders. Vanguard is going from Wellington fund number six to number one. Fidelity wasn't even on the chart in 1951, when we sort of knew they were a competitor in number two. BlackRock didn't even exist back then. The American funds did exist, although they're too small to be here, they're probably $3 million back in 1951, something like that. The numbers are really remarkable. And State Street knew, JPMorgan knew, on the bandwagon, Tinco knew. Conventional fund advisers are very strong competitors, probably one of our two strongest competitors actually. And so the industry is less dominated by these 10 leaders. It used to be 72% of the total and now they're 60%. But the change in leadership is quite striking and the new leaders have come along, including Vanguard. In this huge growth, expense ratios haven't gone down, which you would think they would go down. With the economies of scale that are available and rife in this industry. But the problem is that the investment managers and their parents, the companies that own them, most of them owned by conglomerates or by the public, and taken all the economies of scale and allocated to them to their own benefit, rather than the benefit of shareholders. So you can see, I mean, nobody would believe this, but if you look at just the straight average of the expense ratios of the funds in 51.62, it's going up 72%, even though the industry is going up, or this part of the industry, is going up from one billion of assets to four trillion of assets. And their expenses have gone up almost the same amount. So the new model, Vanguard, has assets of three and a half trillion, slightly different number, and expenses are four billion. So the privatization of the industry, indicated by these firms that are in red, has been directed to the financial conglomerates that own all these firms. It's pretty disgraceful, because they're in business to make money for themselves and not for the fund shareholders. Not that they don't want to make money for shareholders, of course they do, but they don't want to do it at their own expense. So this terrible flaw that's brought about this public ownership that you can see there and private ownership, conglomerate ownership in red, goes back to 1958. Very few people know this. Supreme Court, US Supreme Court, had determined not to review a decision by the California Ninth Circuit Court of Appeals that allowed a California company, very small one, to sell its trusteeship at a capitalized value of trusteeship. And that shouldn't happen. It shouldn't have happened. It was a bad decision, the Supreme Court ratified it, and all of a sudden we have each mutual fund, except for one, you know what that one is, has two masters. And as Luke will tell us, no man can serve two masters. We really hate the one and love the other, or hold the one and despise the other. And you know who gets the love and who gets held on to it. And that's the management company, because the management company directors control both the fund board and the fund. As well as the management company. That's the industry's principal ownership structure, unlike it what it was way back in 20, in 1951. And now we have publicly held companies 11, conglomerates 28, that's 39 companies, probably 10 are privately owned and one mutual. And that includes the three largest firms in the industry, which has something to do with one of the largest firms in the industry. They haven't let the conglomerate be first. But there are lots of, this is a bad change for the industry, and it's almost totally unrecognized. When I talk to people in the industry, they never heard of the ISI decision, which is the name of the California case. But it's changed the character of the industry for the worse than the expense of shareholders. And then we have, of course, the rise of the index fund. I won't belabor this one. But since 19, well, if you could go all the way back, the industry's grown at a very healthy 13% rate traditional index funds. And we don't have any data for ETFs back there. But if you look at the last seven years, actually the traditional index funds are growing faster than the ETFs. And I think that's as it should be. The ETFs are heavily used as trading vehicles. And that's not the way to success in money management. So I think we will see some kind of a shakeout. I'll talk about this at the end. And then you really know all this, the difference between traditional index funds, TIS, an acronym that has never been used by anybody but me. But I can still stick to it. So what? And ETFs, you know, first index funds set the principles, first index investment trust, only whole market, diversify the end degree, minimize transaction costs, tiny expense ratios, and bought to be held forever. Exchange traded funds don't have those principles. Pick your own index. There are only 1,900 indexes represented, so-called indexes, represented in these ETFs. Diversify, but only within the sector you choose, could be very narrow. Lower expenses higher than the Vanguard prices mostly, but sometimes not particularly low over 50 basis points. And then there's the fringe, a lunatic fringe of ETFs. If you would like to bet on what the market is doing today, and decide in your wisdom whether it's going up or down, you can do so and get triple leverage on your bet. And I would call your broker, he's probably there by now. We'll do it at the first break.  What a way to run a business. I mean, it's, let me say, but not all ETFs are the same. I think we're doing the best job of any of them. I have my questions about ETFs, everybody knows. And everybody laughs at me. You know, they are a very important marketing element. But our turnover, 200%, is far below. Look at State Street, 2,200%. All the big guys have about a 900% turnover. And these little nuts have a turnover of 4,000. 952%. It just makes no sense at all. They're marketing gimmicks. So it's the ETF that provides long-term consistency, the maximum consistency, long-term investor. And that's the secret. So that's a change. And I hope people are using ETFs wisely. And I will tell you that there are plenty of perfect good uses for ETFs. Just don't trade them. Exchange, traded, funds are fine. Just so long as you don't trade them. That is an oxymoronic statement. I don't know what is. But it is the traditional index fund that has had remarkable consistency. You see it in this chart. And we redid that chart I gave to the board back in 1975 to endeavor to persuade them that this was a good idea. And the index had beaten an essentially large cap group of mutual funds, which was why the industry wasn't almost an entirety. But 1.6 percentage points a year. We redid that and it's just an accident. The market did almost the same in the second 30 years, the first 30 years, 11.3% and 11.2%. That's just crazy. It's that close. But look at the difference. 1.6 percentage points in each period. So we've now done this for 60 years. And if that's not persuasive, I don't know what to say. And the index is just the right way to go. And you'll notice that we've shifted there to the average large cap fund because the industry is so diverse, that's the fair comparison. And you'll see that standard deviation, the index is just a hair more volatile. And look at the R squared. How much of the return of the average large cap mutual fund is explained by the motion movement of S&P 500%, 99%. And for the funds on average, and the index fund can only do 100%, haven't explained by the index. So it's a very fair comparison. And those numbers prove it. Improves its success. So the question is, can you do better? Take the right manager, we'll say that. Beating the market. Well, this is a chart from Morningstar. Vanguard did some editing out it, but it's still correct. This shows a number of percentage of active funds in each category outperforming their index benchmarks. And you see, you've got to get all the way over to small growth, really, some extent small blend at the bottom there, over at the right, to see that in general, about 7% is the chances of winning the game. 11% overall, if you count that big 30% at the end. So people say, well, I'll just pick, this is an interesting chart. I'll just pick the above average funds as if the past tells you anything. And here's how you would have done. And we gave you a similar chart to this last year for the five years ending in 2014. This is ending in 2015. Five year return, just look at this, it's amazing. So you went to the highest best performing funds in the highest quintile, highest 20% and 16% of those funds, 16% of them repeated. And it had been in the lowest performing group, 24% of them repeated. Your odds were better to pick the lowest performers than the highest performers. And then look at down at number five, the lowest. 15% of them moved to the highest quintile. Only 9% remained in the lowest quintile. And then look at the frightening thing over at the side. Even if you pick a good fund, the odds are 25% would go out of business in five years. Think about that, it's amazing. And you can see that the worst the performance has been since the beginning of the period, the greater the percentage gets folded up, 40% of the lowest quintile funds are merged or closed and only 13% of the highest quintile. That's very intuitive and not very hard to accept. So we have not only index funds, but we have what I started talking about at the beginning of Vanguard before we even had an index fund. What we want to accomplish here is to give our funds relative predictability, relative to their market standard, market index they match with their competitive group, relative predictability. Because if you get very good, you're gonna be very bad. And the money comes in when you're good, bad when you go out. So it's the right thing to do for investors and it's the right strategy for the firm. So relative predictability goes way beyond the index funds for Vanguard. I'll show you some numbers on that. But 91% of our assets have very high relative predictability. Their average pre-cost returns and their superior post-cost returns. If you can be average, if we can be average and are taking an expense ratio of 25 or something, 35 in our actively managed funds and five in our index funds, you're gonna beat everybody else who's charging 100 basis points give or take and has very high turnover cost, which the index fund lacks.  And here's how they look. I mean, it's kind of amazing. Relative predictability is going to high R squared, high amount of funds return, the percentage of a fund return that's explained by the action of the market. And you can see the index funds 199, but the active funds, look at the active funds. Star, 99, correlation, explore, 99. Wellington fund, 98% of its return is explained by its index, which is 35% corporate bond index and 65% S&P 500. 98%, it's managed to the tune of 2%, can't get very far and out of line. And so on down, on average, in all our equity funds, we have 96 correlation and even the industry is at 92.  Now, let's take a look at how funds do and you can see the relationship, of course, in the far right column to the net positive score. And you'll see how many funds each firm has and we rank them, just add them up and divide them. How many one and two star, that's the lowest the morning star does and four and five, that's the highest for morning star subtract and get the net. It's not very complicated, but it's a good system because the morning star system itself is good. So you can see there's Vanguard at 0.18, 69%, T-Row price in the virtual tie or in a tie. Schwab is better than I would have expected. D'aw, dimensional fund advisor is very competitive. T-A craft, competitive. And then you get down to fidelity and they have a problem. Not only high expenses, but it's money going in and out and they have 25% in the lowest performing group and compared to our 4%. You win a lot in this world by not losing in the world of investing and they have 25% of their funds that have been losing. State street global, kind of normal. Shouldn't waste much time on that. Same for BlackRock, wisdom tree, pretty disgraceful. 33%, it's an bottom, 36% at the top for a score of two, but that's good compared to Goldman Sachs, look at them. Look at them, 62% in the bottom group, 13% in the top group, net score, minus 49 percentage points. Mass financial, minus 54. Franklin Templeton, 64, minus 70% at the bottom, 6% at the top, no wonder there's kind of a shrinking ship, sinking ship. And then you have the all-time champion, pardon him, struggling, and minus 73%, 75 at the bottom, three at the top. I don't see how these people get dressed and come to work in the morning. Honestly, doesn't look like as much point. So the lower the cost, the higher the rankings. Here's a rough correlation, won't spend much time on this. It's a little crude correlation, but the correlation between average expense ratio and that chart and your rating is about 73%. And so that's a good correlation, but not quite as good as, not quite as even, there's a lot of variation around it. Now you saw American funds way at the bottom of that previous one, we'll put them back a sec. You saw American funds down at the bottom and how could they be so bad? We have a lot of respect for them, they're a good firm. And the answer is that they don't just have the funds you read about, investment company of America, American Growth Fund, and Washington Mutual. They have a whole bunch of series, all of which have high, many of which have high ratios, and we'll show you that right here. The funds that they track at Morningstar are Class A, and they leave out the sales charge at 575%. And then they go to ones that replace that low, no low basis, replace it with a high expense ratio, 134, 139, 140, 141. So they have a much higher expense ratio. They would produce a number of 0.58 for you, and we produce a number in this chart of 0.96%, almost twice as much. So they're down there for a reason. Another big competitor is DFA, and I'm not gonna, I'm gonna save this chart, I think Phil and I will talk about, we're gonna wanna talk about dimensional fund advisors when I talk about Bill becoming a major competitor. Now I wanna talk briefly about Wellingham Fund, and I should tell you this, that when I finally got Vanguard formed, got the no load, went no load, got the index fund started, struggled with all those redemptions, tried to get the firm going in the right direction, and kept going in the wrong direction. By 1978, I decided to do, what would be the highest, I thought the highest duty of my career. Mr. Walter Morgan, the founder of Wellingham Fund, loved the name Wellingham, and very close, when he may be the head of the company, at age 35, of course he made mistakes, and some pretty serious, but without that dumb merger that would be Vanguard, so maybe all's well and ends well. But I put my mind to Wellingham Fund and redid the entire basis of, because now we're the client. I couldn't tell Wellingham what to do when I was running the management company, because all those geniuses were responsible for investment, so-called geniuses, you'll see that record right there in 1967, 1978, a collapse in Wellingham Fund, and this is its relative returns, relative to the average balance fund, and took two years to get going. We moved it to a much more income-oriented, less growth-oriented base. He even gave Wellingham a management portfolio to show him how to do it if they couldn't figure it out. Not supposed to be my area of expertise, but it was fun to do. And did it work? Look at that. Look at the renaissance. Started in 1982, in 1980, I should say, and it took a couple of years to go to get done, to change the portfolio, but it's been almost entirely a straight line upward. Maybe look at that recent period, the Wellingham Fund return has been 11.4% compared to 8.9% of the average balance fund. That's 2.5% every year. And it's amazing because our costs are so much lower that Wellingham Fund probably runs three basis points, 28, 17 basis points, and the competitors are charging about 117, and they're turning over, say, costing them 50 basis points a year. So they're giving us, say, 1.5% at the beginning of each year, and they're very compatible, these probably 700 or 800 balance funds. The portfolios are all rather similar. So we're going on the starting line, and some nice guy comes up to me and says, Mr. Wellingham Fund, why don't you start this 100 yard dash on the 15 yard line? Well, I'll do that if that's what you want. And believe me, when you get a 15 yard head start in a 100 yard race, even I am not able to lose. So, and that whole age from the funds beginning, you see it's quite varied. It's based on our cost to manage, cost to manage. So I take this opportunity, and I should do this more often. Trying not to forget, and I never do, the founder of Wellingham Fund, and my mentor and my friend, and someone sent me a magazine article from 1990, when he was 92 years old on the cover of a local magazine, and here's Walter Morgan, my great friend. He was 92 years old then, if you can imagine that, 92. And he would live, his birthday was July 23rd, 100th birthday was July 23rd, 1998. And he died around September 5th, 1998. He used to say to me, Jack, I don't know why the Lord would keep anybody around this long. And I said, well, you know, I can give you an easy answer that I was forced to call him Walter, which was extremely difficult for me. And I said, Walter, I know why the Lord keeps you around this long, because the Lord knows how much I need you. In that article, by the way, he's quoted as saying, his best business decision was making me the head of the company. We had a couple of years to get used to that. Didn't work out very well in the beginning, but he was a wonderful, wonderful man. And so I say, God bless you, Walter Morgan, my friend, and my mentor. Never anybody quite like him. And never it will be. Looking ahead, I wanna talk about future market returns briefly, how we're doing on the tone, I guess I could look five minutes. Keep me honest, Mike, sorry. Okay, once invited, of course I will. And if you read my technical stuff, and they gave me this nice chair, you might as well sit down. With satchel pages, that's something like, never stand up if you can sit down, and never sit down if you lie down. So I made my attempt to ladder late in the afternoon yesterday, and I lie down on the office floor, and take a nap. And it used to be easy, but now I can't get up. I almost have to call for help. You might as well laugh, crying doesn't do any good. Crying doesn't do any good. But the important point is, the returns come from what corporations give us. And we call that investment return, that's the, if you know my stuff, that's the initial dividend yield, very important when you buy in, you mean the lower the yield, the better, the worse your future return, relative return will be. And the higher the yield, the better it will be. And you just add that dividend, you do this something on a rolling 10-year basis, and then you add the subsequent earnings growth. And we know the dividend yield. And we know within close ranges, what the earnings growth will be under anything remotely resembling normal circumstances. And the earnings growth, it really can't be as well as in the depression, it was never below, let me say 4%, and rarely above 10%. So you've got a very narrow range to pick your number. And you don't know the future, but you can just take the average for the recent period and that's what we do. But this is the real earnings growth plus dividend yield. And that corporate return that you get throughout through the stock market, stock market is derivative of the value created by American business. And speculative return is the other important element, but only for a short time. And you can see those bumps along the bottom changing the PE on each 10-year period and how much it added or subtracted from total return. You can see there's some traction anywhere anytime it's below one. And so the annual return, basically speculative return in the long run is zero. Happens to be three-tenths of 1% in this 19, sorry, 116-year period. So you're relying on fundamentals of matter and finally valuations don't in the long run, but valuations are everything in the short run. So with that as background, oh, well, I'll give you this one more chart. I fuss with this, you know we know the return on the stock market, we know the return on the fundamentals. And so we just do that in 10-year moving averages. And you can see it's a central point and that is 10-year returns on average are almost exactly like fundamental return or almost exactly what market returns almost exactly equal to the return for earnings and dividends. And you can see here's something to get very high. That would be 2007 up there. Something to get very low. That would be 2009. And you can see the big bumps in the market in 1975 back there. And once you get way high, and that's 10% of the market return is 10% above the fundamental, it's gonna come back. This is a chart just screams out, market returns revert to fundamental returns over time. So you can't worry about all those highs and lows in this chart. You just gotta worry about what the corporations of America and the world do for us. So as you look ahead, how does this work, does this get us? I don't have very good news for you here. You know the return over the last 55, 65 years has been 11% in the stock market, you knew that. And investment costs take about 2% of that leaving you with a net return of nine and what that seven is doing there. And the prospect of, I use 4%, 5% earnings growth, which is maybe hard to achieve. 2% dividend yield compared to 3.3% in history. So if it's 3.3%, you've got built into the record and the yield is now 2%, that is a 1.3% dead weight loss in future returns. I don't know why people don't understand that. And I look at the PE, the speculative return. This is speculative in both ways. And the, I've assumed here the market's fully valued now, not closely overvalued, but it's selling about 23 times. If we're to go down it with long-term norm of 17 times, it would take 3% a year off that 4% a year off that 7% a year investment return getting you to four. I can't tell you what'd be four. It could be better, it could be worse. That's probably kind of a low number. But I think looking at it in a low number is not a bad idea when you're saving because if the catastrophe comes and you assume the return would be too low, you'll have more money than you ever expected. So that can't hurt you. Having less money than you ever expected is pretty tough. So I think it's wise to use a conservative viewpoint in the future. And then look at those mutual fund costs. Most costs take you from 4% for the active fund to 2%. And the index fund, of course, the gross return will be the same as the active fund. And you only take 0.05 out of it for an admiral share and S&P 500 or S&P 500. And you get nearly 4% nearly double the return over the next 10 years, just by getting costs out of the equation. And the lower the returns are, the higher the burden of costs. And so people just have to pay attention to cost more than ever if we look ahead and get this for five or 6% whatever it turns out to be a market return. So not so good for stocks. How about bonds? Ooh, ouch. The average, the average US, 10-year US Treasury, that's the normal standard for the risk-free rate over this last 65 years has been 5.7%. Today it is 1.6%. I've added on a point in each case because I don't think you need to stay with the 10-year Treasury. I think it's too conservative, too short, and too entirely government and super safe. So if you take a moderate additional credit risk and a significant interest rate risk versus that Treasury 10-year note, you're gonna get a risk to return on a bond portfolio of around 2.6% compared to 6.7% in the past. And that seems like a big drop, but it's smaller than you would think because real returns on bonds, that is the bond return minus the cost of living, CPI, has dropped so much. I mean, right now we're looking at maybe 2% inflation. It could even be 1% ahead. And the past inflation was 3.6%. So the real return was 2.1% in that historical period, not 5.7%, which is a nominal return. And the Treasury portfolio of present return, 2%, we have a nominal return of 1.6% and a real return, I mean, a return of 2.0%, but minus 0.4%. And you'd be at 1.6% for the next 10 years, too bad. So how does this look in a balanced portfolio? I'm getting to the end of this thing. I thought I said 48 slides and I'm 52, so I think I made a mistake somewhere. But for the balanced portfolio, just using those numbers, the 50-year norm of returns on the markets, returns on the bond and stock markets have been 50-50 portfolio. It's been 8.75% on the nominal return, 5.15. At looking ahead, the nominal return looks like around 3.3% using those numbers that I've given you for stocks and bonds, 50-50. And 1.3% real. That's before the fund industry gets its hands on your money. The active funds are gonna cost 1.5%. Think what that does to a real return of 1.3%. And that's counting trading costs and expense ratios. Or you have your choice by index fund, which costs not 1.5, but 0.05. So it makes a big difference in indexing. We'll make a big difference to you. And don't forget also that active funds have extra tax costs to realize capital gains, marketable frequency and you gotta pay taxes on them, at least in your non-retirement accounts. And then investor behavior. And Morningstar will tell you if a fund has a return of, let me say, 10% a year, the average investor in that fund will earn 8.5% a year.  We buy in a fund that's doing very hot. And when it does hot, it's gonna do cold. And when it gets cold, we leave. So the fund return is almost inevitably for any fund you've heard of, that funds don't have much capital flow, don't have to face this problem. But for most funds, you're gonna lose 1.5%. That does not happen in index funds. Because it's never so good or so bad to draw money. Index fund is floating on an idea of capturing the market return, owning the market less cost. And that's all there is to it. That's not to say, don't worry about these huge cash flows that are coming into our index funds. And that's why I repeat whenever I can, and we promise you your fair share of the market return if I did them a video. And don't forget that you will get your fair share when the market goes down too. Market goes down 20%.  There's no way around that. So it's still the best deal in town, as we'll talk about. It's gonna change the way people invest for a whole lot of reasons. So to wrap up here, the bad news is lower expected returns in history would suggest. I'm not saying I'm right in any of these numbers. Be very clear on that.  These are not predictions. Over a decade, implications investors will have to save more. Low cost, more important to ever say the obvious. And the domination of index funds will continue and I think accelerate. The Department of Labor Petitiary Rule is gonna favor low cost and index funds, particularly in retirement accounts. And a greater recognition of the past is not prologue. I showed you that number shown in the quartiles.  And they will develop realistic skepticism of that fund manager's consistency because the more aggressive the manager is, the less consistency the return will show. And then as that fundamental returns versus market returns chart showed you that 10-year chart, reversion to the mean, RTM will become part of the dialogue. That's what funds do, they revert to the market mean and or worse. And that's what I see in the future. Let me quote closed by two quotes from Bogleheads. 14 XIV and number one, which is gonna really shape the industry. It's happening right now. The Supreme Court has taken a really tough look at mutual fund costs. In this hearing, Tybald versus Edison, unanimous ruling of the Supreme Court reaffirming fiduciary duty for retirement plan. Defense lawyer, it can't be the case that companies have to consistently look and scour the market for cheaper investment options for retirement plan options. The lawyer said, Justice Kennedy responds, what do you certainly do? And if that's what a prudent trustee would do. I mean, that's the death knell for high cost funds right there. Retirement plan area is a hugely important part, probably half of all mutual fund assets. So that will take its toll. And then finally back to the old basics that I use time and time again. You can do worse than go back to Adam Smith, 1776. And what he tells us there is the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maximum is so perfectly self-evident, it would be absurd to attempt to prove it. The interest of the consumer must be the ultimate end, an object of all industry and commerce end of quote. Turning that into investment language, fund interest of fund shareholders and the consumers must finally triumph over the interest of fund managers, producers, if you will. And that's the way this industry's gonna grow. That's the way people have come to view the industry. Are they getting their fair share? And any fund manager that's not putting the interest of a fund shareholder over the interest of the fund manager is gonna have a very, very tough time getting along, very tough, and a lot of them will go out of business. There will be a lot of change. And so, before we get to the last slide, just let me say that these varieties, this particular variety that the consumer must be put first, means that even if the fiduciary duties rule, which applies only to clients in retirement plans, even if that never develops further and I believe it should develop a lot further and even cover the people that are running all that money, 70% on the market's cap, that's probably $18 or $19 trillion, will also be held to a fiduciary duty standard. Indeed, I would, in my tough way, say if you touch a penny of other people's money, you are a fiduciary and you gotta put the share of all their interest first. That's the end game.