There is a lengthy thread on one of the Vanguard forums asking what may be missing from Jack Bogle's investment approach. For those that are not familiar, the philosophy in a nutshell, is to pick an age appropriate asset allocation, and then to use passive index funds, and rebalance as assets move up and down in value. Age as a percentage in bonds, the rest in U.S. and world stocks is a common asset allocation. For example a 30 year old might choose to have 30% in bonds (split between BND and TIP), maybe 45% in U.S. stocks (VTI), and 25% in world stocks (VEU). Add in a healthy cash reserve for emergencies.
Let me say, that I am a fan of the Vanguard approach of passive indexing. Experience shows that over the long haul, indexers will beat 80% of active investors. Future results are likely to be similar because of human nature. Indexing and disciplined rebalancing forces a person to buy assets when they are cheap, when they go on sale, when no one wants them. Human nature is to chase performance, so tends to buy what is hot.
The Bogleheads aren't "missing" anything. However, they do use certain postulates that may be faulty. The first and foremost is the long term stability of the U.S. government. While many may cry that this is doom and gloom talk, let's look back 100 years. Go back to 1911, and buy the bonds of all sovereign nations issuing government bonds. How many paid interest continually and could be rolled over until today? Maybe 5 countries out of 50 issuers? How many at some point in the cycle went to zero, or near zero? Almost all of them. Certainly Germany, Japan, Russia, China among major powers all had bonds and domestic stocks go near zero during that century when major historic events such as losing a major war, or revolution occurred. The UK, Canada, Australia, Switzerland and the U.S. were among the very small long term stable group. Off hand, I can't name any more than that five.
The open question is will the U.S. be in that small and lucky group in the next century. Most Americans and most all Bogleheads of course assume yes, mostly because they have never seen their government fall, but the odds are far from 100%. That is the biggest thing the Bogleheads may be missing. Events such as major wars, major famine or plague, revolution or coup, do happen. Those kinds of catalysts can mean a repudiation of the U.S. debt, and a currency that goes to zero. When that happens, U.S. equities, and even U.S. traded ETFs that hold world stocks may not have any value because there is no exchange to trade at for U.S. citizens or trade at bizarre discounts. In war time, or times of revolution, assets get frozen, assets get seized.
I don't want to bring this up in their forum, because they won't get it and will mostly just get mad. Arguing is one of the least productive activities, and rule #1 is that no one wins an argument on the Internet.
Overall, I find the majority of Americans to be a myopic bunch and most will assume that because their government has never fallen, that it can't--that is faulty thinking. The odds will depend on how far out the timeline is extended. The U.S. experience of stable governments, peaceful transitions of power, is more the exception than the rule. Governments fall, countries erase their debts, equities and currencies go to zero. Whether they will happen in the U.S. is an open question, not a postulate that can be depended on to be 100% true.
This is one reason I would tend to favor an asset allocation like the Permanent Portfolio (25% each in cash, bonds, stocks, gold), which includes 25% in physical gold. In an all out war, or revolution scenario, sometimes leaving the country is the best option. Physical gold might be one of the few assets that can be gotten out, or get a person or family out to start life over.
I feel no need to debate the point, or convince anyone. Folks can read up on their own world history and figure out their own odds of the U.S. government making it another 100 years or how ever far they want to extend the timeline. Every decade a few governments fall. Every century, the vast majority do, or at least restructure their debt and currency so that bondholders and paper money holders get the shaft.
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