The Most Important Man In Index Funds

The Most Important Man In Index Funds
Underwater by Andy Deitsch. Why?

Vanguard’s founder, the inventor of the Index Fund, has died.  Discover how he made investing ultra-cheap, accessible and simple, whether or not you invest with Vanguard.

Why We All Owe Jack Bogle A Huge Debt Of Gratitude For His Index Vision

Jack Bogle - A Pioneer Of Index Investing

Jack Bogle, the “Father Of The Index Fund” has died at age 89.  His story is nothing short of incredible.

For the first time in history, Jack Bogle allowed investors to achieve returns similar to the market, with lower investment fees.

Bogle started his investment career at Philadelphia-based investment management firm Wellington Management Company.  He worked in several departments before becoming assistant to the president in 1955.

By the early 1950s, Bogle was questioning the value of traditional investment approaches.  To put his theories into practice, in September 1974, he formed Vanguard. 

In 1976, Vanguard introduced the first index mutual fund for individual investors. 

The First Index Investment Trust. 

It was labelled ‘Bogle’s Folly’ by Vanguard’s competitors.

Index Investing – From Little Acorns

The Index Fund collected a mere $11 million during its initial launch.  However, it survived and thrived, and it’s now known as the Vanguard 500 Index Fund. 

It’s one of the industry’s largest, with a staggering $401 billion in assets.

Vanguard has grown to become the world's largest mutual fund organisation. 

According to CNBC, Vanguard has $5.1 trillion in assets under management.  It has 20 million investors in 170 countries.

Investors, big and small owe Bogle an immense amount. 

It’s estimated that Vanguard has saved investors $175 billion in fees since it was founded in 1974.

That’s not counting the fact that in every sector where Vanguard has a fund, rivals are often forced to lower their fees.  It’s a phenomenon known as The Vanguard Effect.

It means you don’t have to own a Vanguard fund to have benefited from Bogle’s work.  He was a thorn in the flesh of asset managers, and left investors everywhere better off.

By 2023, it’s been estimated Bogle’s index fund innovations will have benefited investors by an phenomenal $1 trillion in saved costs.

His Legacy Extends Far Beyond The First Index Fund

The mutual structure of Vanguard ensures investors’ interests are fully aligned with that of the manager, enabling Vanguard to deliver exceptional value for clients. 

Nearly 50 years on, the model remains an exception.

Bogle, author of 13 books on investing, was a big proponent of buying and holding the stock market for the long term.  Here are three of his famous quotes on this aspect.

Time is your friend; impulse is your enemy.
Owning the stock market over the long term is a winner's game, but attempting to beat the market is a loser's game.
Buying funds based purely on their past performance is one of the stupidest things an investor can do.

Arguably, Bogles’s most famous quote on index investing is this:

Don't look for the needle in the haystack.  Just buy the haystack!

At a time when investing has become increasingly complex during rapid technological change, Bogle’s approach to investment remained remarkably simple.  It’s attracted a cult following: the Bogleheads.

In 2017, legendary investor Warren Buffett described Bogle as his ‘hero’, saying:

Jack did more for American investors as a whole than any individual I’ve known.  A lot of Wall Street is devoted to charging a lot for nothing.  He charged nothing to accomplish a huge amount.

The Defining Feature Of Index Funds Is Their Low Charges

Here’s a couple of the many quotes Bogle made on this point:

The miracle of compounding returns has been overwhelmed by the tyranny of compounding costs.
The two greatest enemies of the equity fund investor are expenses and emotions.

Decades after the first low cost index fund was created, charges continue to blight investor returns.  Recently, the European Securities and Markets Authority has warned that fund charges are eroding investors’ returns by an average of a quarter. 

Shockingly, retail clients pay twice as much as institutional ones.  Passive index funds were found to have better overall performance than active ones, in part down to the associated cost differences.

Thank You, Jack, For All You’ve Done For Investors Everywhere

That includes me. 

For all my stockmarket assets are invested in Vanguard Index Funds via my SIPP.

Rest in peace, Jack.

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Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).  However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.

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