Advertisement
Index Funds

The Legacy of John Bogle

The champion of low-cost index investing changed mutual funds forever.

The ancient Greek poet Archilochus wrote, “The fox knows many things, but the hedgehog one great thing.” The fable tells the story of a wily, hedgehog-stalking fox, repeatedly defeated by the hedgehog’s prickly spines, which proved to be an impenetrable defense. Jack Bogle did, in fact, know many things, but he never forgot the one important thing, which he defended until the end, sometimes in a prickly fashion: Costs matter in investing.

Bogle, founder of the Vanguard Group and creator of the first retail index fund, stuck by the conclusion of his senior thesis at Princeton. The mutual fund industry’s growth was best maximized by cutting sales loads and management fees, argued the young Bogle.

Advertisement - Article continues below

To a modern investor, this is just common sense. The less money you give to your fund (or your broker), the more money you keep. But to people in the pre-Vanguard world—especially those in the mutual fund industry—it was heresy. The commissions you paid for stocks and mutual funds were the entrance fee to the magic kingdom of Wall Street. Ads extolled listening to E.F. Hutton’s brokers, and the business press lionized active fund managers.

K4I-BOGLE.indd
K4I-BOGLE.indd

Photo by Daniel Burke

Bogle didn’t buy it, especially since fat commissions and fees kept investors from beating the returns of an index, such as Standard & Poor’s 500-stock index.

Bogle didn’t endear himself to the industry that he worked in his entire life, thanks to frequent—and frequently blunt—criticisms. “I have a lover’s quarrel with the industry,” he said. In his best-selling Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor, first published in 1999, he wrote, “The mutual fund industry has been built, in a sense, on witchcraft.”

Bogle helped break the spell. Actively managed funds were 85% of the industry’s assets in 2007; that share is 65% today. Expense ratios, pressured by low-cost index investing, have fallen from an average of 1.04% for all U.S. stock funds in 1996 to 0.59%, on average. And the low-fee bandwagon he set into motion rolls on. Fidelity Investments now offers mutual funds with an expense ratio of zero. Fidelity and Charles Schwab & Co. have eliminated commissions on hundreds of ETFs.

John Clifton Bogle died on January 16, 2019, but his legacy lives on.

K4I-BOGLE.indd
K4I-BOGLE.indd

Photo by Daniel Burke

Advertisement
Advertisement

Most Popular

Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020
5 Unfortunate Estate Planning Myths You Probably Believe
estate planning

5 Unfortunate Estate Planning Myths You Probably Believe

These all-too-common misconceptions can steer your estate plans in the wrong direction right from the start. Here’s how to overcome them and tips to b…
September 17, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
10 of the Best Target-Date Fund Families
mutual funds

10 of the Best Target-Date Fund Families

The best target-date funds are a 'set it and forget it' approach to your retirement, but which fund family should you trust your money?
September 17, 2020
Best Bond Funds for Every Need
Investing for Income

Best Bond Funds for Every Need

In a changing market, it’s important to remember why we hold bonds in the first place.
September 15, 2020
Does a 40% Bond Allocation Make Sense in Today’s Portfolios?
retirement planning

Does a 40% Bond Allocation Make Sense in Today’s Portfolios?

For many investors, the short answer is no. Here’s why, and what you might consider instead.
September 7, 2020