A giant of the investment community died recently. His name was John (Jack) Bogle and he was 89 at the time of his death.
Perhaps not as well know outside the investment community as Warren Buffett, Bogle revolutionized the mutual fund industry. You can thank him for lowering investment cost across the spectrum of mutual fund investing.
His crowning achievement was creating the first index fund for individual investors. At the same time, he lowered the cost of investing to almost zero.
In those times, mutual fund managers almost printed money. Often, they made after-tax profits of at least 25 cents per dollar. Annual expenses ranged from 50 basis points (half a percent) to 2 percent per year.
Most fund companies at that time charged a “sales load” of up to 8 1/2 percent. That’s a lot of expense.
Bogle’s firm, the Vanguard Group, was built on the belief that most investment managers cannot outperform the broad unmanaged stock market. He designed his Vanguard Group to drive fees as low as possible.
He launched his first index fund in 1976 and is now called the Vanguard 500 Index Fund. It was the first market matching fund available to individual investors.
By 1978, the annual expenses on its funds fell below the industry average. Ten years later they were half as expensive. Today, Vanguard has $4.9 trillion under management.
Over time, these reduced expenses forced other companies to follow. His cost reduction compelled other mutual funds to reduce their cost to retain investors.
All investors, not just Vanguard investors, have benefited from Bogle’s expense reduction revolution. He not only impacted the investment industry but thousands of individual investors, but also their children and grandchildren.
Bogle was well known for speaking his mind. Here are some of his investment tips:
Stay the course
Invest for the long term. Realize that smart investors don’t try to outsmart or outperform the market.
That’s contrary to some advertisements I have seen recently that downplay being “just average” in the market. Well, that’s the point: Investing to be “average” via index mutual funds is where you want to be.
Beware of the experts
As Bogle stated: “How could so many highly skilled, highly paid securities analyst and researchers have failed to question the toxic filled, leveraged balance sheets of Citigroup and other leading banks and investment firms.”
Keep costs down
Study after study has shown that lower-cost funds outperform higher-cost ones. I have written often about the importance of costs and keeping them low.
Each and every investor should be made aware of these costs. Not just in percentage terms but also dollar terms.
Don’t get emotional
Invest in a diversified portfolio of stocks and bonds using asset allocation determined by you (the investor), your risk tolerance, your needs and your resources.
One of the biggest advantages of a seasoned investment advisor is that he or she can help you to keep your emotions in check. (That line wasn’t from Bogle; it’s mine!).
Own the entire market
In addition to the S&P 500, there are others that own the entire stocks in the market. Work your portfolio from there.
Bogle did indeed change the investment world. There are now boatloads of low-cost index funds that follow everything from the broad stock and bond markets to commodities and emerging markets. From broad sectors to the narrowest of sectors.
I like many other advisors years ago had the light bulb go off. I run my business on the five points from Bogle I just mentioned. I don’t know if I got there naturally or on purpose. It just makes so much sense to me that this is the way for the every day investor to go.
Thank you for all you did for so many, Saint Jack.