John Bogle, the founder of the Vanguard Group who revolutionized investing by inventing the index fund, a product that gave Main Street investors a cheap way to gain broad exposure to the stock market, has died. He was 89.
Often dubbed the “father of index investing,” Bogle — a champion of the individual investor — was the driving force behind the shift away from a beat-the-market mentality and high-cost funds run by stock pickers that have reshaped the industry. More than 40 years after its birth, the index fund has led to today’s preference for so-called “passive” investing, a strategy that enables investors to buy a diversified basket of stocks with low expenses with a goal of matching the returns of a broad market index like the Standard & Poor’s 500.
“Don’t look for the needle in the haystack,” Bogle would famously say. “Just buy the haystack.”
Bogle, who formed Vanguard in 1974 and then founded what is now known as the Vanguard 500 Index Fund amid ridicule from the Wall Street establishment who referred to the fund as “Bogle’s Folly,” has been called a “hero” by billionaire investor Warren Buffett.
“Jack Bogle made an impact on not only the entire investment industry, but more importantly, on the lives of countless individuals saving for their futures or their children’s futures,” Vanguard CEO Tim Buckley said in a statement on Wednesday. “He was a tremendously intelligent, driven, and talented visionary whose ideas completely changed the way we invest. We are honored to continue his legacy of giving every investor ‘a fair shake.’”
“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,” Buffett wrote in a letter to Berkshire Hathaway shareholders in February 2017. “In his early years, Jack was frequently mocked by the investment-management industry,” Buffett continued, adding that “he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.”
While many derided Bogle and index funds early on, the amount of investor cash funneled into these types of investments has skyrocketed. Vanguard, for example, now manages about $4.9 trillion in global assets and Americans in recent years have been aggressively yanking cash out of so-called “actively managed” funds run by portfolio managers and moving it into index funds.
Paul Samuelson, the late Nobel Prize-winning economist, famously lauded the creation of the index fund as one of the world’s greatest inventions.
“I rank this Bogle invention along with the invention of the wheel, the alphabet, Gutenberg printing, and wine and cheese,” Samuelson said in a 2005 speech.
Bogle regularly renounced speculation and advised small investors to stay patient and invest for the long term in low-cost funds that best positioned them to take advantage of the profitability and innovation of American companies.
“Time is your friend,” Bogle wrote in an essay. “Impulse is your enemy.”
The performance of index funds has been superior to most funds run by money managers, due in large part to the fact that they don’t carry high costs that cut into returns, such as advisory fees, operating expenses, sales commissions, portfolio trading costs and excess taxes caused by frequent trading. Only 13.4 percent of money mangers who run large company stock funds that invest in growth and value stocks have topped the indexes they are compared to in the 20 years ended in 2017, according to fund tracker Morningstar.
The success of index funds and the reason the indexing revolution is here to stay, Bogle noted in a speech to the CFA Institute in May 2017, is all about the basic math of lower investment costs enabling investors to capture a bigger chunk of the returns the stock market gives them.
“Indexing is not a fad,” he said in the speech. “It is not a fashion. It is a fact of life; indeed of elemental arithmetic.”
For example, the average expense ratio across the entire fund industry (excluding Vanguard) was 0.62 percent in 2017, which equates to $62 for every $10,000 invested, according to Vanguard’s website. Compare that with Vanguard, where the average for all of its mutual funds and ETFs was 0.11 percent , or just $11.
“Fortune” magazine dubbed Bogle as one of the investment industry’s four “Giants of the 20th Century.” And “Time” magazine named him one of the “world’s 100 most powerful and influential people.”
In times of market stress, Bogle was often a calming influence, advising investors not to get overly worried about short-term dips in their retirement account balances.
“I tell people: Don’t peek,” he told CNNMoney in early 2017. “Don’t open those statements until you retire. When you retire and open that statement, you are going to have so much money, you will probably go into dead faint.”
Bogle, who was born in Montclair, New Jersey, on May 8, 1929 — just five months prior to the 1929 stock market crash — studied economics at Princeton University, where in 1951 he “hinted at the idea” of an index fund in his senior year thesis. That paper stressed that funds must operate in “the most efficient, economical, and honest way possible,” Bogle recalled in an essay delivered at a Morningstar conference in April 2017
His first job after leaving the Ivy League school in 1951 was at Wellington Management Company.
In 1996, Bogle handed over the reins of Vanguard to John J. Brennan.
Bogle wrote numerous article and books, including “Bogle on Mutual Funds: New Perspectives for the Intelligent Investor.”
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