Theoretically, he's retired.

But if John Bogle is, it is hard to tell. Golf clubs were not in evidence. He was wearing a suit and tie so blue and conservative he could have been mistaken for an Electronic Data Systems employee. EDS Dallas headquarters happens to be where we met, only moments after he had given a speech to a group of financial executives.

Mr. Bogle is best known as the founder of Vanguard, the Valley Forge Pennsylvania mutual fund firm that takes pride in being the low cost provider of the industry and the originator of retail index funds. Mr. Bogle, a born curmudgeon, has spent years--- no, decades--- chiding the mutual fund industry on what it hasn't done and what it could do to give investors a better deal.

But that's not our subject today. Today, I've come to ask what advice he would give to people about to retire.


"First, look at all of your assets. The most important thing is asset allocation--- how much is in equity and how much is in bonds.

"Think about everything, not just your investment program. That means think about Social Security. If you're fortunate, it can be $25,000 a year. It's great money. When you do your asset allocation you want to include that. At 5 percent that $25,000 is like having $500,000 (in assets). As a life income it's more like $350,000. That should be part of your calculation."

(Suppose, for example, that your Social Security income is $17,000 a year--- a typical figure for a couple--- and your 401(k) rollover account and other financial assets are $400,000. Then you start your asset allocation with a conservative value for your Social Security at 14x the income or $238,000. Added to your $400,000 in savings, this means you have the equivalent of $638,000.  In effect, 38 percent of it is already allocated to a bond equivalent.)

"Don't count your house as long as you are going to live in it," Bogle said.

"Your bonds should be your age as a percent, including the Social Security value."

(This means someone retiring at 65 should have 65 percent of their investments in bonds. It also means, using the example above, that only a relatively small portion of the financial assets should be invested in bonds. Why? Since 35 percent of the $638,000 'full portfolio' should be in equities, you'll need to invest $223,300 in equities. That leaves only $176,700 of the $400,000 in financial assets to be invested in bonds.)

"Why would you do that?" Mr. Bogle asked rhetorically?

"Because you have much less time to recoup losses. You want to have less risk. Also, you've got a lot more money than when you were young, so you can afford to be more conservative.

"Another reason is that bonds produce income. It may not seem like much but they produce about two and a half times as much income as stocks--- call it 5 percent versus 1.8 percent. You'd need a lot of money to meet your spending plans if you only invested in stocks.

"You also get more conservative as you age. The fear factor is much larger. You could even argue, at some stage, that you should own no stock.

"And I almost forgot--- if you have a company pension you should capitalize that, too, just like Social Security."

I asked what you should be trying to accomplish.

"You want to put yourself in a position that you will never respond to the financial markets. There should be no need to slavishly reallocate. You should be able to relax.

"You also have to watch your investment expenses. Remember, in a typical fund you're losing 1.6 percent to the expense ratio, another 0.8 percent to the cost of portfolio turnover, and another 0.5 percent to opportunity costs and commissions. That 3 percent (total) is roughly equal to the equity premium. (That's the amount stocks are likely to yield over risk-free bonds.) Basically, the investor puts up 100 percent of the money and takes 100 percent of the risk but gets far less of the return.

"The fund industry has sold the world a bill of goods. When they talk about expenses they measure the expense ratio against assets managed, so it's 3 percent of assets. But it's also about 40 percent of the full return, 100 percent of the equity risk premium, and 150 percent of the amount by which any good manager can beat the market.

"In 1976 there were about 356 equity mutual funds, 160 of which went out of business (in later years). Of those remaining, 4 beat the market by 2 percent. Those are terrible odds.

"What do you do if you don't agree with indexing? There is no clear answer. I think investors should beware of the 'selection penalty' they might pay," Bogle said.

"Basically, it all comes down to two simple rules.

"Rule One: Don't do something, just stand there!

"Rule Two: Don't peek. Only look once a year.

"I don't want to rebalance. I try to do as little as possible."

I asked if he had any thoughts on providing inheritances for children.

"I use the Buffett Rule--- leave them enough money so they can do whatever they want, but not enough so they can do nothing."