Jack Bogle, founder of fund giant Vanguard [profile] and father of indexing, never disappoints. He'll always say things that surprise, enrage, scare, and then, force you to accept at least a few uncomfortable truths.

That was clearly the case today during a conversation moderated by Don Phillips , Morningstar's president of research, at the 25th annual Morningstar Investment Conference at the McCormick Place conference center in Chicago.

As expected, Bogle pulled no punches whatsoever, taking aim at varied subjects such as money fund reform, the failings of the 401(k) industry and mutual funds, and his own problematic relationship with the company he founded.

Here are some of his quotes with regards to money market reform.

The probability of something bad happening in the money market is slight but the consequences of that ... are fatal.

The consequences are dire, but the possibilities are tiny.

I have a lover's quarrel with the industry. They don't like to get quite down to the truth.

What's the industry's problem? They don't want the world to know that the asset value fluctuates.

The industry has got to stop defending its own interests and start defending the interests of shareholders.

Bogle said he didn't like the reserve solutions proposed by the SEC, saying he doesn't "even know how to do it."

Regarding the SEC's floating NAV proposal, Bogle called it a "King Solomon decision," a la cutting the baby in half. Noting that the current proposal only imposes the NAV on institutional prime funds, Bogle said "they should either do it or not do it."

Bogle noted that when he started Vaguard's first money fund, he stared with the value of $10, instead of $1. He said that "it was totally unmarketable and unusable, so I caved."

He has since regretted that move, along with every other decision he says he made for marketing reasons.

"Don't do things for marketing reasons," he said.

Regarding the 401(k) industry, Bogle had several thoughts to share:

The retirement system in the U.S. is facing a train wreck. More specifically, it is facing three train wrecks.

Social security is underfunded. It could be funded with things that people wouldn't even notice.

Bogle said that social security should be consumer price-based and not wage-based. Payments should be made appropriate to retiree circumstances.

Part of the problem with defined contribution plans, he said, is that they are real thrift savings plans, marketed towards retirement.

All such plans, including 401(k)s, need to be much stricter in their rules regarding withdrawals.

"Social security wouldn't amount to anything if you took out where you felt like it," he said.

In short, he argued, plans need more discipline, less freedom for investors to take their money out, and investors doing "the right thing with their investment choices."

Bogle also felt that fund firms needed to face the music with regards to retirement. He suggested that the government develop a Federal retirement board that would determine a mutual fund firm's eligibility for getting into the retirement system. A firm would have to demonstrate long term focus and reasonable fees.

"You'd have to clear muster," he said.

He also said that retirees need to stop focusing on market headwinds.

We are all transfixed with the movements of the stock market, up and down, up and down, up and down, and that has nothing to do with your retirement, zero. What you should look at is the stream of income.

You should look at the other side of the portfolio, as long as you get those checks, you don't care if it [the portfolio] is worth a lot or a little, as long as the checks come in.

Focus on the dividend stream, focus on the fact your social security checks will come in and grow, and think about your retirement. You go out to the mail box and pull out two envelopes: your fund envelope and your social security envelope. That is what should matter to you in your retirement.

He expressed a great deal of frustration with the industry, as well as those he felt should be watching over the interests of shareholders.

"The fund industry needs a cleanup. Executive compensation is a disgrace," he said.

Bogle felt that a number of interest groups have failed in their responsibility for shareholders, including executives, the courts, regulators, and the press. Shareholders now, he said, have to draw a line in the sand.

"We are now down to the last line, the shareholders who hold the stock of these companies. If they don't speak, there would be nobody left. Companies should not be allowed to run companies as their own private fiefdoms," he said.

Bogle also spoke on this problematic relationship with Vanguard, with whom he sympathized.

"The present management, they have a problem. They have this old guy who just says what he thinks. Would he just shut the -----. I understand their problem," he said.

Regarding whether he disagrees with the company he founded.

"I don't disagree with Vanguard. I would never do that. Vanguard disagrees with me," he said. 

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE