Dividends are best friend of investors: John Bogle

MUMBAI: Dividends are an investor’s best friend, said John Bogle, founder of the Vanguard Group, on Wednesday.

The compounding power of dividends is amazing, he said, adding that dividends are the key to the huge wealth creation done by index funds.

“In the long run, corporate earnings and dividend yield drive stock prices,” he said.


Vanguard is a Pennsylvania-based investment advisor that manages over $5.1 trillion in assets spread across 180 US funds and 208 additional funds in markets outside the US.

In a recorded interview at Morningstar Investors Conference, Bogle said he does not believe in simple age-based formula for asset allocation.

According to Bogle, an investor must consider his financial as well as emotional abilities to withstand risk while deciding asset allocation. "Asset allocation should be in tune with emotional qualities," he said.

Bogle talked about index funds gaining popularity in the US partly because of high management fee of mutual funds.

"If you are earning an average of 7 per cent market returns and 2 per cent goes away in the name of fund management fees, it would be a lot of cost to pay," he pointed out.

"There is nothing as a stock picker market. A good manager should be able to outperform the index anyway. Index funds now manage 43 per cent of all money invested in equity funds in the US market," Bogle emphasised.