Appreciating Jack Bogle's Impact

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John (Jack) Bogle, the Vanguard Group founder and father of the index fund, died in January at the age of 89. 

You may not know the name well, but he’s had by far the biggest impact on the investing public than any other individual. Ever.

He transformed money management, making investing cheaper, simpler and more accessible than ever before, lifting the financial well-being of millions of people (including clients of Stewart Partners) in the process.

Bogle devised some principles that he thought were imperative for investors – buy low-cost, broad-based index funds and hold them forever.  This seems obvious now, but it was never inevitable.

When Bogle launched his first index fund for individual investors in 1976, the industry ridiculed it, calling it “Bogle’s folly”.  Bogle was undeterred, and Vanguard today manages over US$5,000 Billion in assets, with around two-thirds invested in index funds.  Just think about that number for a moment.

Today, around one-third of money invested in US funds and exchange-traded funds tracks an index[i].  And that figure continues to grow each year. The biggest money managers in the world, such as BlackRock Inc. and State Street Corp., are best known for their low-cost index funds. And the entire fund industry has been forced to lower fees in response, saving investors billions of dollars.

Warren Buffett said it best in his 2016 annual report:

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. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade… Jack was frequently mocked by the investment management industry. Today, however, he has the satisfaction of knowing 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.

Some of Bogle’s oft quoted lines include:

Keep it Simple: “Avoid complexity and rely on simplicity and parsimony, and your investments should flourish.”

Diversification: “Don’t look for the needle in the haystack. Just buy the haystack”.

Market Timing: “While the interests of the business are served by the aphorism “Don’t just stand there, do something!” the interests of the investors are served by an approach that is its diametrical opposite, “Don’t do something, just stand there!”

Long-term thinking: “is one of the most important rules of investing. If you never peek from the age of 20 to the age of 70, you’ll rip that first 401(k) [equivalent of Australian superannuation] statement open at age 70, and I recommend you have a doctor on hand because you’ll go into a dead faint. Your heart might even stop. You’re going to have an amount of money you can’t even imagine”.

The Alternatives: “While such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite.”

If Bogle were anyone else, he'd be a billionaire. And yet Bogle's net worth is estimated at $US80 million ($111 million), a laughably small sum for the founder of one of the world's biggest financial institutions.  So where did Bogle's money go? It went to Vanguard's investors, who still pay a fraction of the fees charged by the average mutual fund four decades after the firm's founding.

Since launching his index funds in the 1970s, other factors have emerged through academic studies that show how an investor can achieve returns greater than the market – or index – in certain circumstances.  Whilst this research forms the basis of Stewart Partners investment approach, today there continues to be a place for index funds in certain areas of an investors’ portfolio.

[i] “He should be a billionaire, but Jack Bogle chose to make others richer”, Nir Kaissar, 19 January 2019, SMH

Author: Rick Walker

Rick Walker