by Ted Wachtel
Jack Bogle, the founder of financial giant Vanguard Group, became an investment manager to make money, but not at the expense of his customers. Instead, he became their advocate, reducing the fees associated with investing. In doing so, he made Vanguard the biggest mutual fund company in the world, with 5.6 trillion dollars in assets under its management.
Bogle reminded investors of “the relentless rules of arithmetic” for mutual funds. “The fees charged by brokerages, fund companies and advisers were sapping the returns of millions of hardworking people who were trying to save for retirement. Reduce the fees and give the money to the people who need it,” he said. That, he said, was what his career was all about.
The New York Times photo caption for his January 16, 2019 obituary said:
“He built the Vanguard Group on the belief that over the long term, most investment managers cannot outperform the broad market averages. So he created mutual funds that eliminated the investment managers.
In 1976, Bogle launched the first index mutual fund—a portfolio of stocks or bonds that imitates the holdings and performance of an existing financial market index; in this case, the S&P 500. Because index funds don’t actively choose stocks, they don’t need investment advisers, and therefore have dramatically lower expenses.
“My ideas are very simple,” Jack Bogle told the Times in 2012. “In investing, you get what you don’t pay for. Costs matter. So intelligent investors will use low-cost index funds…And they won’t be foolish enough to think that they can consistently outsmart the market.”
My wife, Susan, and I were beginning to save for our retirement when Vanguard was a young company. The fund’s core strategy appealed to us because it had such a fundamental integrity—minimize costs for investors. Regardless of how well a fund does each year, lower costs will benefit the investor, no matter what. As unsophisticated investors, Bogle’s straightforward strategy was critical to helping Susan and I find our way.
Bogle further differentiated Vanguard from other companies. The Vanguard funds own their management company, making it accountable to the funds themselves and further reducing costs. Bogle’s innovations at Vanguard created a “reasonable way for great masses of people to get a more equitable share of the world’s financial pie.”
Cost-Cutting Revolution in Investing
The cost-cutting revolution that Bogle started four decades ago still benefits investors. On October 8, 2019, CNN Business reported, “In the span of just a few days last week, nearly every major online brokerage company eliminated commissions. It’s now essentially free to trade.”
“John Bogle has changed a basic industry in the optimal direction,” Paul A. Samuelson, the 1970 Nobel laureate in economics, wrote in 1993, “Of very few this can be said.”
Warren Buffett, among the world’s most successful investors, said, “If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle.” So admired was John C. Bogle, that he inspired a popular investors’ forum, whose participants call themselves “Bogleheads.”
Jack Bogle was a kinder, gentler capitalist in still another way. While the chairman of Fidelity Investments, for example, has a net worth of over $7 billion, Jack Bogle died this year with less than $100 million. Having given away half of his income to charities every year, Bogle truly was in the vanguard of A New Reality in capitalism.