John C. Bogle, the founder of Vanguard, now the largest mutual fund company in the world and the creator of index funds, which account for 28% of all stock mutual funds.

We have a special treat for you this week- an extended interview with one of a kind investment legend, John Bogle. Jack, as he is known to many of us, is the founder of Vanguard, the low-cost investment giant famous for the index funds which he created there in 1976. His first index mutual fund, now named the Vanguard 500 Index Fund because it is modeled on the S&P 500 market index, now has over $100 billion in assets, as does its equivalent fund for institutional investors. It’s growing rapidly because of its low cost, largely passive investment model.

Called a mutual company, Vanguard is the only mutual fund company owned by its fund investors, not private or public stockholders. Bogle set it up that way as he puts it to insure it would act as a pure “fiduciary”, putting the interests of its investors first. One measure of that goal is costs. According to Vanguard, the average expense ratio for its stock funds is 0.2% of the assets under management, or 20 basis points -100 basis points equals one percent- that compares to the industry average of .79%, or 79 basis points, nearly three times more. Fees at actively managed funds are usually considerably higher than that.

Investors are taking note. The well-publicized withdrawal from more expensive actively managed funds into index funds has accelerated over the last two decades and exploded in the last couple of years. From $26 billion in 1993, traditional index funds now have over one trillion in assets. Their much younger and incredibly popular offspring, exchange-traded funds, which are index funds traded like stocks, have exploded from $464 million at their launch in 1993 to well over a trillion, surpassing their older mutual fund brethren. In total, index funds now make up 28% of total stock fund assets and counting.

From the very beginning of his career, Jack Bogle has been a tireless advocate for individual investors and an outspoken critic of much of the money management industry. It’s the focus of his tenth, and he says last, book titled The Clash of the Cultures: Investment Vs. Speculation. I’ll begin the interview by asking Jack about the changes that have occurred in the industry during his 60 plus year career and what it was like when he started in the business in 1951, at the actively managed and still thriving Wellington Fund.

This is our full, unedited interview with Jack Bogle- you won’t want to miss his timeless words of wisdom!

WEALTHTRACK # 921 Published on November 15, 2012.

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Legendary John Bogle Shares the Investment Lessons of a Lifetime

John C. Bogle, the renowned investor and founder of The Vanguard Group, passed away in 2019 at the age of 89, leaving behind a legacy that continues to shape the world of investing to this day. Bogle was a pioneer in the field of index funds and an advocate for low-cost investing. His contributions to the industry earned him the title of “The Father of Index Funds” and made him a legendary figure in the financial world.

Throughout his career, Bogle repeatedly emphasized the importance of adopting an investment strategy that aligns with one’s long-term goals, instead of succumbing to the allure of short-term gains. He firmly believed in the power of long-term investing and cautioned against market speculation and excessive trading. Bogle believed that the key to successful investing lies in maintaining a disciplined approach and having the patience and conviction to ride out market fluctuations.

One of Bogle’s most significant contributions to the investment world was the introduction of index funds. These funds are designed to replicate the performance of a specific market index, such as the S&P 500, by holding a diversified portfolio of stocks that mirror the index’s composition. Bogle saw index funds as a means for ordinary investors to gain exposure to the stock market while minimizing costs and risks. He believed that, over the long run, actively managed funds, with their higher fees and potential for underperformance, would struggle to outperform the broader market consistently.

Bogle’s philosophy was grounded in the belief that the cost of investing matters just as much as investment returns. He recognized that high fees erode investors’ returns over time and advocated for low-cost investing as a way to maximize long-term wealth. By launching the first-ever index fund, the Vanguard 500 Index Fund, in 1976, Bogle revolutionized the investment industry. Today, Vanguard is one of the largest asset management firms globally, managing trillions of dollars in assets, thanks in large part to Bogle’s vision of democratizing investing for the everyday investor.

Bogle’s investment principles may seem straightforward, but they go against the prevailing trends in the financial world, where active trading, market timing, and chasing short-term gains dominate the headlines. His philosophy champions simplicity, low costs, and a focus on long-term goals. Bogle also cautioned investors about the dangers of making emotional investment decisions driven by fear or greed, instead emphasizing the importance of sticking to one’s investment plan.

Looking back on his life’s work, Bogle’s enduring message lies in his commitment to integrity and putting the interests of investors at the forefront. He believed that financial firms should serve their clients, not exploit them, and strived to create investment vehicles that aligned with this ethos. His unwavering advocacy for fiduciary duty and transparency in the investment industry continues to influence policy discussions and shape regulations to this day.

Although John C. Bogle may no longer be with us, his ideas and principles continue to guide investors worldwide. His enduring legacy is a testament to the lasting impact he had on the field of investing, and his lessons will undoubtedly resonate for generations to come. In memory of his contributions, we honor Bogle as a true investment legend and a champion of the individual investor.