January 18, 2019

Breakingviews: Jack Bogle defined value in more ways than one

by Breakingviews.

John Bogle, the founder of Vanguard who died on Wednesday, defined value in more ways than one. He turned the once-heretical idea of tracking the broad stock market into the dominant form of investing. Instead of pursuing personal riches, he spread the ethos of low-cost fund management, saving investors untold billions and building the mutually owned firm into a $5 trillion juggernaut.

Bogle’s rise was anything but predictable. His senior thesis at Princeton on the mutual-fund industry got him a job at Wellington Management, and he once derided the notion that asset managers should try to merely track the market. But after leading a bum merger and getting pushed out of the firm, he founded Vanguard on entirely different principles. The company would be owned by its investors and only charge what it cost to manage their funds, keeping fees ultra low.

It was a powerful idea, but it took time to catch on. The firm attracted just $11 million when it launched the First Index Investment Trust, the first stock index fund, in 1976. Now known as the Vanguard 500 Index Fund, this S&P 500 tracker manages $400 billion. As stock pickers have failed to beat the market, Vanguard has been the prime beneficiary of a headlong rush into index and exchange-traded funds since the financial crisis, pulling in more than $160 billion in new money last year, according to Morningstar. Only BlackRock’s iShares ETF arm came anywhere close.

Behind it all was Bogle’s conviction, loudly and repeatedly expressed, that most managers charged excessive fees and that investors would do better to keep costs down and diversify through index funds. Berkshire Hathaway boss Warren Buffett said Bogle “did more for American investors as a whole than any individual I’ve known.”

At $80 million, Bogle’s own wealth – as estimated by the New York Times – is less than some money managers make in a year. He told the paper his only regret about money “is that I don’t have more to give away.” Yet in reality he gave away a lot. Compared with the average fees charged by U.S. mutual funds, according to Morningstar, Vanguard’s 0.1 percent expense ratio saved its investors some $20 billion last year alone. Talk about wealth creation.

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