Stay the Course: How John Bogle Changed Investing

January 16, 2019, a legend in the investing world passed away. John Bogle was 89 years old, and while I know little about his personal life, his professional life changed the way millions invest.

In 1975 Bogle founded Vanguard, one of the world’s premier, investor-friendly, mutual fund companies. If you are unfamiliar with Vanguard, they are a mutual fund company that focuses on low-cost investing and making investing more accessible to the masses. Not only that, they were the first mutual fund company to be owned by their clients (technically the mutual funds own the company and the clients own the mutual funds) which means there’s no outside pressure to push for more profit, no ticker symbol that controls if the management team gets huge bonuses or a severance, and less fretting over quarterly performance. As of 2018 Vanguard was managing $5.1 Trillion as one of the largest investment companies in the world.

Okay, so that’s great, Bogle founded this really great company, creating a culture that has lasted to put the clients first. That’s a great accomplishment, but still not something that would impact millions of investors. It’s what Bogle did shortly after starting this new company that really changed things.

In 1976 Bogle started the Vanguard 500 Index Fund, the first index fund ever created. The idea was that you didn’t need expensive investment managers picking the holdings, you just read the paper to see which companies were added and which dropped, and otherwise rebalanced to keep the really successful companies from becoming too big a part of the fund. Index investing is now at the heart of a very heated debate between passive and active investors. Unfortunately for the active side of the argument, index investing’s performance speaks for itself. With the extremely low cost that index investing allows there’s a large hurdle for active investors to jump in order to keep up with the same performance.

Bogle didn’t stop there though, he also launched the first bond index fund that was open to individual investors in 1986, and the first international stock index fund in 1990. And so many other companies have followed suit that I won’t name them all. Every major investment company I can think of at least has an S&P 500 Index fund, if not a whole line-up of index funds.

In addition to making low-cost investing available to individual investors, and pushing other companies to lower their fees to compete, Bogle shared openly and often on his take on investing. This has led to a group that call themselves the Bogleheads who help each other invest using John Bogle’s investment principals. While I don’t always agree with the Bogleheads, the basic principals are sound:

  • Select low-cost funds
  • Consider carefully the costs of advice
  • Do not overrate past fund performance
  • Use past performance to determine consistency and risk
  • Beware of stars (“rock star” fund managers)
  • Beware of asset size
  • Don’t own too many funds
  • Buy you fund portfolio - and hold it

So thank you, John Bogle, for your many contributions to the world of investments that make investing more accessible, more consumer-friendly, and more approachable.