- Jack Bogle, founder of Vanguard, died this week at the age of 89.
- Bogle invented the index fund, which launched the shift toward passive investing.
- Based on the trillions of dollars now in passively-managed funds, Bogle’s development is saving investors tens of billions of dollars a year.
Legendary investment guru John Bogle, better known as Jack Bogle, passed away on Wednesday, Jan. 16, at the age of 89. The phrase “investment guru” might inspire the image of a multibillionaire with a Midas touch when it comes to picking stocks. When it comes to Jack Bogle, though, nothing could be further from the truth. Bogle wasn’t a billionaire and his greatest accomplishment was actually undermining the very idea of stock picking.
Jack Bogle is the rare investing guru who achieved his status not for what he did for himself, but what he did for you and your money.
Jack Bogle: The People’s Investor
“Jack did more for American investors as a whole than any individual I’ve known. A lot of Wall Street is devoted to charging a lot for nothing. He charged nothing and accomplished a huge amount,” Warren Buffett said in a CNBC interview with Becky Quick in 2019.
If you’ve never heard of Jack Bogle, you’re most likely not alone. However, he’s probably done more for your retirement than anyone else aside from you. That’s because Jack Bogle is the inventor of the index fund. It began as his senior thesis at Princeton: Instead of trying to beat the market, just own a fund that’s balanced to match the market. No stock picking, no combing over research, no trying to beat the market — just taking what the S&P 500 has to offer.
Why was this so revolutionary? Because it was so cheap. Where investment funds available to investors typically required an army of researchers combing over stocks in support of highly paid fund managers prior to Bogle, the index fund — and eventually the ETFs that grew out of the same core concept — just needs to buy and sell stocks to ensure that it has the same balance of stocks as the S&P 500.
The end result was a mutual fund that could match market returns while requiring its investors to pay next to nothing in fees.
Jack Bogle’s Work on Lowering Fees
Jack Bogle did not get incredibly rich from his revolutionary development. He certainly did okay for himself — ultimately founding low-fee investing company Vanguard in 1974 — but his influence is really in how much harder he made it for the rest of his profession to get rich.
Bogle’s impact was in recognizing two things: The first was that those well-paid investment managers weren’t really earning what they were getting paid, and the second was that the money you could save on fees by simply opting not to pay those people could have a very real, very large impact on people’s funds over time.
Of 1,034 large-cap mutual funds existing in 2013, just 204 managed to beat the S&P 500 over the next year, according to research from S&P Dow Jones Indices. And that was probably more luck than anything else, as just 15.69 percent of those 204 funds managed to repeat the feat the next year and none of them managed to extend that into a third year.
People might have been able to observe that prior to Bogle’s development of the index fund, you didn’t have the option to simply buy into the S&P 500. But giving people the option to do this doesn’t just boost their returns by better performance, the big difference is in what it can save you in fees.
Investing $100,000 and earning a 6 percent annual return will leave you with $430,000, according to Vanguard — a nice little nest egg. But that same investment with the same returns but a 2 percent fee — certainly not outrageous by Wall Street standards — and now you’re looking at just $260,000, or about 40 percent less. When you consider that the average ETF carries an expense ratio of just 0.44 percent — and can be as low as 0.04 percent for the Vanguard S&P 500 — that means that the typical investor can save a fortune over the course of their lifetime.
How Much Money Jack Bogle Saves Investors
So just imagine how much money that really means to investors all over the world. Bogle’s index fund has arguably taken billions — even trillions — of dollars in fees that would otherwise have been routed to Wall Street fund management firms and instead directed them to the retirement accounts of millions of people.
Of all assets under management worldwide, 21.6 percent were in passively managed funds — index funds and ETFs, essentially — according to Willis Towers Watson. That would translate to about $17.5 trillion. So, if you compare a 1 percent management fee for a traditional mutual fund with the 0.11 percent average expense ratio that Vanguard boasts, that would mean that Bogle’s revolutionary concept is saving investors $155.75 billion a year. Every year, year after year. That’s money flowing into 401ks and IRAs throughout America and helping people build their nest egg to buy a home, pay for a child’s college education or retire in comfort.
So, if you haven’t heard of Jack Bogle before today, raise a glass in his honor tonight. Few people have ever done as much for the average investor than the man who launched the index fund.
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