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Investors Are Ignoring the REAL Risks to the Market: John Bogle

Not to make light of the present budget debate going on in Washington or the importance of solidifying the financial future of the country, but I think Vanguard Group founder and Wall Street icon John Bogle seems to have a pretty good perspective on things.

"So I think the fiscal cliff, while important, is highly likely to be managed," Bogle says in the attached video. "It's really all going to get worked out sooner or later anyway, so I am pretty confident that that is not the source of our big risk."

It's a statement that's both comforting and leading, in that it reduces one of the great concerns troubling investors in the short-term. It also begs the question: if that doesn't worry you, what does?

"What I worry about are the known risks that we don't pay much attention to," he says, citing such dangers as war, global pandemic and nuclear proliferation.

As for investors who may be wondering if this is the right time to jump back into stocks, with the Dow and S&P 500 approaching all-time highs, Bogle characteristically urges people to stick with their long-term strategies via his unwavering preference for passively managed index funds. Almost as a consolation, he says markets would be much riskier right now if they weren't ''reasonably valued" but believes, in general, that "it's always a time for a little caution."

To hear this veteran investor tell it, the main risk most individuals face is themselves — especially when it involves trying to time market moves or other short-term trends while driving in and out of the stock market. When asked to characterize his feelings about the oft-cited ''risk-on, risk-off'' tone of the markets, Bogle simply says it's ''kind of silly" to try to make money that way, adding that he's never known anyone who had the capacity to do it successfully for any great period of time.

Instead, he says "by absolute, mathematical definition, speculation is a loser's game and investment is a winner's game," before quoting his friend Warren Buffett. "When the dumb money realizes how dumb it is and buys an index fund, it becomes smarter than the smartest money," and typically outperforms about three-quarters of the Street's brightest and highest paid stars.