Scott Cooley, Morningstar’s director of policy research, asked Bogle how investors should cope in an uncertain world - the possibility of the U.K. leaving the European Union, the slowdown in China, and the U.S. Presidential election which doesn't make democracy look very good.
Vanguard founder John Bogle basically advises investors to stay focused on their investment plan.
A more detailed answer has been reproduced below.
You can watch the video here.
Well, you can only control what you can control. I think whatever your view of the world is, you have to invest. You can't put the money in the mattress and in this day and age of low interest rates, you can't put it in the money market fund or a bank CD, so invest, you must.
Now, you might want to invest regularly. For people that are investing regularly, I would say for god's sake don't stop investing now. I know the market is not doing much this year, just about where it started a little bit down, but not much and bond yields are still very low, actually lower than they were at the beginning of the year, but you have to put your money to work. The alternative is – I mean, the only way to guarantee you will have nothing at retirement is to invest nothing along the way. So, you have to take your chances.
Now, this is a risky world. You are right. And nobody knows how the implications of all those risks are. You identified some of them. The British exit, if it happens, is going to be extremely disruptive. Now, particularly if it leads to a Scottish exit from the United Kingdom, which I guess will be in effect almost gone at that point, I guess Northern Ireland will be all its left and Wales – sorry about that – so, the world is a very risky place.
And the possibility of – you didn't mention financial leverage. We have more borrowing, more leverage, more government debt relative to GDP than we have ever had with no attempt to get it down and to compound that further usually the traditional way of doing – trying to bring these things to bear is not only fiscal policy, which we view as much as we can.
I mean, monetary policy, which we view as much as we can, you really can't get interest rates much lower than they are today and negative in a lot of countries and even I don't know how to figure that one out very well. I don't think anybody does. But monetary policy has always been thought of as the twin of the fiscal policy and that means we need to take more action to do something about the government deficit. But here in the U.S. and I think around the world taking these kind of actions is politically – well, around the world it's probably difficult.
In the U.S., it seems to be impossible and we lost the ability to govern ourselves. It sure looks that way, but there is an old statement if I can mention that here that back in the 1770s there was some contest going on for the Prime Ministership of Scotland and someone said Adam Smith, his election will ruin the nation and Adam Smith said, there is a lot of ruin in the nation. Now, I don't know if we're not pushing it here in the United States whether you got that much ruin over our present list of presidential candidates. I will leave it to wiser heads and I think in a setting like this, particularly it's probably a good idea to stay away from politics.
Emma Simon of Morningstar.co.uk reports that George Soros and Nouriel Roubini have warned of consequences if Brexit turns out to be a reality, but notes that gold is being viewed as a refuge.
Legendary investor George Soros said a Brexit vote would cause the pound to "decline precipitously" – causing “an immediate and dramatic impact on financial markets, investment, prices and jobs”.
Soros famously made a fortune betting against the sterling – and the U.K. Government - when the U.K. crashed out of the European Exchange Rate Mechanism in 1992. The chaos this caused in markets the day after was known as “Black Wednesday”.
Writing in The Guardian, Soros said he expected disruption on markets in the aftermath of a Brexit vote to be even more significant. "I would expect this devaluation to be bigger and also more disruptive than the 15% devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors.”
He predicted that the U.K. currency would fall by at least 15% - and possibly by more than 20% from its current level of around $1.46. If his prediction is correct this could depress the pound to less than $1.15.
Soros warned that speculators would be the ones to profit from a Brexit, not voters. “Today there are speculative forces in the markets much bigger and more powerful [than in 1992]. They will be eager to exploit any miscalculations by the British government or British voters.
“Brexit would make some people very rich – but most voters considerably poorer.”
Soros’ comments were echoed by Nouriel Roubini, the New York University economics professor dubbed “Dr Doom” for correctly predicting the 2008 financial crash. He also warned of the “severe” consequences of a Brexit vote which could tip the UK into recession.
Strong demand for gold
Despite polls back in favour of the “Remain” campaign, the demand for gold among investors has continued to increase. This reflects continued uncertainty among investors as gold is traditionally seen as a safe haven in times of market turbulence.
Chris Howard, the director of bullion at The Royal Mint said: “As we head towards the European Referendum vote this week, our royalmintbullion.com trading platform has seen a significant upsurge in traffic with a 32% increase in transactions compared to the same period the previous month.
“This recent uplift in traffic has also helped drive an increase in revenue with nearly 150% rise on the previous month. Overall since early 2016, demand for precious metals has risen particularly with gold - our Sovereign and Britannia bullion coins and Signature Gold bars offering have all performed well this year and continue to be an attractive proposition to the investor.”
In the past few weeks, gold prices have benefited on fears over a British exit. Gold has risen 21% year to date (in dollar terms) amid worries over global growth and as the Federal Reserve has pushed back plans to raise short-term interest rates.
However on Monday, with opinion polls playing down Brexit fears – gold prices dipped as sterling and share prices rose.
“This is a market that’s going to be very emotional this week,” said Peter Hug, global trading director at Kitco Metals. Regardless of the market reaction after Thursday’s vote, Hug noted that broader economic concerns and low interest rates should continue to support gold prices.
