Jack Bogle may have had more impact on investing by individuals than any other person of our generation.
Bogle, the founder of the Vanguard Group, died Wednesday at the age of 89.
His impact was in the significant reduction of mutual fund expenses and other fees paid by investors, as well as being one of the moving forces in the acceptance of index investing.
For many investors today, primarily younger ones, the concept of fee-only investing and no load mutual funds may seem normal. For example, our firm only recommends investments that do not come with any sales charges, either when you buy or sell the investments.
However, if you go back a decade or two, and prior to that, mutual funds that were sold by major brokerage firms and most other financial institutions were sold with up-front sales charges that may have ranged from 5-7% of your initial investment, and some may even had back end loads, which would charge an additional fee if you didn’t hold the mutual fund for a long enough period of time.
Bogle was an innovator, or today, would be considered a disruptor. As the Wall Street Journal stated, Vanguard was “continually cutting the costs of investing… Vanguard’s asset weighted average fee has fallen in the past 20 years to .10% from .27%, according to Morningstar Inc. Many traditional funds still demand 1% or more.” **
We are strong believers in the general concepts which Bogle advocated. We recommend mutual funds and ETFs which have internal costs which are far below industry averages, yet still have solid investment performance over time. There is no question that the competitive presence of Vanguard is reflective in the management fees of the investments we recommend.
Bogle strongly believed in index investing, where an investor would own an entire market sector, such as the S&P 500, rather than buying a mutual fund which has a money manager that would try to pick and choose selected stocks based on the manager’s forecasts (active investing). He believed that a mutual fund which tracks an index, at a much lower cost than an actively managed fund, would be to most investors advantage, over time. He has been proven correct, as years of mutual fund data has shown that index or passively managed funds outperform active funds over time for nearly all US and International asset classes.***
While we do not generally recommend that all stock investments should strictly track an index, our use of asset class funds is a variation of the concept which Bogle is credited with introducing and making widely available. We feel that the type of investments that we recommend, asset class funds that don’t strictly adhere to an index and some which add tilts toward various investment factors, such as value and smaller companies, are taking his concept to the next level.
John Bogle was an extremely influential financial executive, who was patient and disciplined in his beliefs, which investors throughout the US have benefited from, even if they do not invest with Vanguard.