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Jason Stipp: And I think one of the things that has a lot of Morningstar's readers concerned is their fixed income investments, especially with inflation potentially on the horizon, and higher rates on the horizon. And for retirees, who will have a much greater percentage, probably, of their portfolios in fixed income, they're concerned about what's going to happen to those holdings, and if they'll be able to provide for them in the way that they're hoping.

What is your take on some of the issues facing fixed income now? Especially for retirees that have such a large percentage in that area of the market.

John C. Bogle: Well, first let me observe, there are not a lot of places to hide. If you don't like fixed-income investments like bond funds, or municipal, corporate bond funds, government bond funds, U.S. Treasury bond funds, or municipal bond funds, that leaves money market funds. And the yield on money market funds today is probably something like a tenth of one percent, or maybe two tenths of one percent. So, following the old rule, it will take 360 years to double your money at that rate. That's a long time.

So you have to do something, and you have to do something that will be more or less durable. So my response would be, first, I'm nervous about the fixed income markets, and therefore I would not use long maturities. In the long run, as everybody should know, the long maturities having the highest yield will pay the highest return. But on the other hand, they fluctuate much more widely.

And so, I'd say some combination of maybe one half short term bonds, or limited term, a little longer than short term, or in intermediate terms. In other words, half in short and limited, and half in intermediate term, which should give you some reasonable income, and should enable you to ride with these fluctuations that are sure to come, I think, in the bond market.

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Stipp: We have noticed, at Morningstar, that a lot of money has been flowing into bond funds recently. Now, it could be, as you alluded to, the fact that some folks are looking for some sort of yield, that they're not getting in money market funds. There could be an element, as well, folks see how fixed income has done over the last 10 years, versus equities, which have been basically flat for them, what's called "The Lost Decade."

I'm wondering your take, given the amount of money that has flowed into fixed income, do you think that investors are setting themselves up for disappointment? Or do you think that this is a natural transition to the fixed income given the low rates that are out there right now?

Bogle: Well, I think it's a natural transition, but I'd caution, again, that when you talk about fixed income, you're really talking, simply put, about long, intermediate, or short; or some combination of the above, or the total bond market. The Total Bond Market Index is heavily dominated by government and mortgage backed, good mortgage backed securities, Ginnie Maes. And so, the yields are not as good, particularly on U.S. Treasury instruments, as they are on corporates. And it's the Treasuries and mortgage backed that dominate the Bond Market Index.

So you really ought to look into what kind of a bond fund you have. The index has sort of an intermediate term of maturity, and that's certainly more than satisfactory. But it's heavily weighted by government, and at these yield relationships, I'd think I'd have a little more in corporates, and maybe a little less in governments, than the index shows.

Stipp: And speaking of the Treasuries, I think that a lot of folks are also concerned about the debt burden that the United States is facing. And also we would see, especially in the downturn, such a flight to quality, into Treasuries, that the prospects for them, at least for a while, did not look especially great with those concerns on the horizon. So it sounds like you're saying to maybe allocate a little less to that area of the market then, given some those concerns?

Bogle: Yes, and I think you could argue and the markets are funny things, you could argue that a good bit of that flight to quality has already taken place.

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