John Bogle’s Investment Philosophy Is Still the Best
John S. Bogle, founder of the Vanguard Group and creator of the index mutual fund for individual investors, passed away on Wednesday. He was 89 years old .
It’s hard to imagine anyone else in the financial world who has had a greater impact on normal people than Bogle (commonly referred to as Jack); The index fund and its philosophy of sitting back and not touching your money – principles adopted by Two Cents – have enabled average investors like you and me to accumulate wealth and avoid being scammed by the financial industry. He literally put billions of dollars back in the pocket of the average investor. As Ron Lieber of The New York Times said , “How many of us have more money thanks to him? His memory is a blessing. “
If you’re unfamiliar with his philosophy about index funds, ironically, an article we posted earlier this week featured Bogle’s superfans and their rationale. You only need to invest in a few, potentially as little as two, no more than three low-cost mutual funds in order to accumulate wealth.
The idea is that you don’t have to pay people to pick stocks for you and force the market to try to outperform its profits, because they never will, especially in the long run (years of research support this ). Rather, track the stock market as a whole, leave your investment alone and you will at least follow the trajectory of the market, which is pretty darn good (historically, the stock market rallied in value). In fact, “more often than not, getting an index fund results in above average returns,” notes Morningstar , an investment research firm. Bogle’s first index fund was the Vanguard 500, which tracks the S&P 500 (a collection of 500 large US companies). It still exists today and it is still a pretty good foundation.
In addition to being more valuable to investors, these funds are also cheaper than other funds. When you hear people like me say to invest in “low-cost” index funds, they are referring to operating expenses, such as the expense ratio, which is the percentage of fund assets that you pay to a company like Vanguard or Fidelity. manage your investments (in particular, Vanguard is famous for its low cost).
Since index funds keep track of an existing index and therefore do not require a lot of work on the part of the fund manager, they are cheaper than an investment. And in decades it can bring up to a ton of money in total. Take this statistic (for 2016):
One Bloomberg analyst calculated this week that Vanguard has directly saved investors a total of $ 175 billion in commissions that would otherwise have gone to the Wall Street guys who didn’t provide anything of value; that it saved investors an additional $ 140 billion in trading expenses that would have been of no value; and that it saved outside investors $ 200 billion by forcing competitors to lower their fees to compete with Vanguard.
“Investors paid 40 percent less commission for every dollar they invested in mutual funds during 2017 than they paid at the start of the millennium,” the Associated Press reports , which can be attributed in large part to Bogle.
As I wrote before , billionaire Warren Buffett is a Bogle / Vanguard fan. And he knows a thing or two about investing.
“By investing, you get what you don’t pay for. Value matters, ” Bogle told The New York Times in 2012.“ So smart investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay on track. And they won’t be stupid enough to think they can outsmart the market all the time. “
There are several excellent obituaries published about Bogle , and I recommend reading one or two to better understand his impact. His name may not be a household name, but pour it out for old Jack tonight. Thanks to him, our life has become much richer.