U.S. stocks are sitting at four-year highs following the European Central Bank’s plan to buy bonds to contain the euro zone debt crisis. But today’s stock surge shouldn’t prompt a major change in investor behavior, John "Jack" Bogle, Vanguard founder, told CNBC’s "Closing Bell" on Thursday.
“I think the market generally takes these things far too seriously,” Bogle said of the ECB(learn more) announcement. “When the ECB chairman says he will do ‘whatever it takes’ it’s like me saying I’ll do whatever it takes to beat Tiger Woods the next time we’re out on the golf course."
Bogle said that the Mario Draghi’s bond-buying program is really just a stop gap solution. (Read More:ECB to Buy Sovereign Bonds in New Program to Save Euro.)
He also characterized today’s market action as a great day for sellers and a bad day for buyers, but said investors shouldn’t overreact to the fluctuations in the stock market. What investors should be asking is whether there is anything new that would cause them to change their long-term plans, Bogle said.
He also noted that while individual investors appear to be pulling money out of mutual funds, they are shifting into index funds. “Investors should be disappointed by the cost and performance of active managers, even hedge fund managers,” Bogle said. (Read More: Got Any Idea Where Stocks Are Headed? Us Neither.)
Bogle still anticipates better returns from stocks than bonds longer term. Stocks are yielding 2 percent and with 5 percent long-term growth in earnings, “that should give an underlying base for a 7 percent return on a nominal basis,” the Vanguard founder said. Treasury bonds will yield a paltry 2 to 3 percent over the next decade, he noted.
These stock returns may be more subdued than they’ve been historically, but there’s no place else to go, Bogle said.