Why Jack Bogle Believes ETFs Can’t Cause a Market Crash


Apr. 11 2018, Updated 11:20 a.m. ET

Jack Bogle on ETFs

The pioneer of the index fund, legendary investor Jack Bogle, shared his views on ETFs in an interview with CNBC. Recent talk going on in the market is that too much cash going into ETFs could lead to a big market crash.

But Bogle doesn’t believe that is so. He said, “I’m gonna guess we don’t know, but I will guess the answer is ‘no.’ If you look at the hot stocks, U.S. active managers own almost exactly the same as passive index managers, there’s not much difference.”

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If we analyze the recent sell-off in Facebook (FB), we see that there’s a lot of selling going on but not much of it is from ETFs. Facebook stock fell 10.4% in March 2018. Facebook is still one of the largest holdings for more than 100 ETFs. If there is any selling pressure affecting investor sentiment, we might not see immediate reactions in index funds.

Most long-term investors invest in index funds or ETFs and have to wait some time to get a fruitful return. The SPDR S&P 500 ETF (SPY), the SPDR Dow Jones Industrial Average ETF (DIA), and the PowerShares QQQ ETF (QQQ) rose 12.7%, 18.6%, and 23.3%, respectively, in the last year.

Bogle added, “If indexing even got up to 50 percent to 60 percent of the market…still the markets would be efficient and work just fine.”

You may also be interested in reading Why Jamie Dimon Is Concerned about Higher Market Volatility


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