Markets are entering a dicey phase but most investors should not jump ship now, said index fund pioneer Jack Bogle.
The founder of The Vanguard Group, which manages about $2.5 trillion among its various funds, said in an interview on Monday's edition of "Closing Bell" that the underlying value of corporate America will continue to offer investors returns over the long term even if the market suffers a serious plunge.
While famed investor Seth Klarman has recently turned bearish, warning of a potentially catastrophic asset price bubble, Bogle thinks investors will be better off steeling their nerves and diversifying, rather than trying to time the market.
This is "risky territory," and Klarman is "heck of a lot smarter than I am," Bogle said. As the Fed tapers its asset-buying program and raises currently depressed interest rates, stocks could suffer a drop of as much as 20 or 25 percent, he said.
(Watch: Robert Schiller: We have a bubble)
But stock markets move in "fits and starts," and the fundamentals underneath stocks are solid. Corporate operating earnings, for example, are up 25 percent from 2007, he said.
"What does not move in fits and starts is what the stock market enables you to do, which is own corporate America," he said.
And corporate America is likely to grow roughly as fast as nominal GNP—about 5 percent—and dividend yields will hover around 2 percent. Together, that should bring a return of about 7 percent over the long term, which should double an investor's money (before inflation) over the next 10 years, Bogle said.
Rather than getting out of the market, investors should put some money into bonds, as "ballast" against any storms in equities, and prepare themselves psychologically for the trouble that may come.
But timing market entries and exits is a fool's errand, Bogle said.
—By Robert Ferris, Special to CNBC.com.