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Goodbye and thank you, Jack Bogle

By Sam Instone - January 20, 2019

Legendary Vanguard founder, John (Jack) Bogle, died of cancer on Wednesday, at the age of 89.

The father of index investing.

Bloomberg says investors have a trillion reasons to thank him.

Here’s why.

Investors may not realise how returns have improved since Bogle pioneered index funds.

He paved the way for passive investing

Which Warren Buffett is a huge advocate of.

Jack Bogle created a way for ordinary investors like you and me…

To bypass expensive fund managers and get better results.

Though notably, Bogle’s innovation wasn’t merely the low-cost index funds that Vanguard created…

It was also structural.

He formed Vanguard as a kind of “mutual” investment company…

Meaning it was not owned by external shareholders, but literally the shareholders of the company’s own mutual funds (i.e. the investors who used Vanguard products). 

Jack Bogle’s fundamental ideas

His insight was mathematically simple.

All market investors can only make the market return.

After all, they are the market.

So, with that in mind…

The average investor ends up getting back the return, less their cost of investing.

Unless you’re 100% certain that you can pick a winning active fund manager (which is highly challenging, mathematically)…

You’d be better off aiming to get the average return and keeping costs low.

It’s the logic behind index-tracking funds.

And it’s proven to work.

While active funds have been known to occasionally beat the market

It’s rarely substantial enough to make up for the high fees.

So, on average, index funds beat stock-picking funds…

With relative certainty about the return you’ll get.

While you can’t predict whether the market will go up or down…

You can be sure you won’t have a fund manager to blame for missing a rally…

Or be tempted to constantly buy and sell on a whim.


Buy and hope investment strategy

Of course, active fund managers will disagree and prove why their approach works.

After all, indexing is taking over their business on a massive scale globally.

But is indexing too much of a good thing?

There’ll always be critics.

Some ‘experts’ believe that indexing could be dangerous.

They blame it for creating imbalances that will result in the next big financial collapse…

The erosion of shareholder capitalism…

And the rise of monopolies.

But academic analysis shows these theories to be made up largely by those with vested interests (active fund managers, financial press, fund salespeople and the like).

More reasons to thank Bogle

Not only did he understand the huge importance of costs

He also grasped the many frailties of investor behaviours and biases that could wreck investments.

Behavioural Bias

This spawned an entire re-think on the way investors take advice.

Since his death this week, obituaries and testimonials to his legacy have proliferated.

In addition to the legacy that Bogle leaves behind in the form of the index fund itself, Vanguard and its unique investor-centric structure, are a long list of books that Bogle wrote for the benefit of both investors and the advisers who serve them.

So, for those who want to invest globally…

Save money over the long term…

Cut costs…

And possibly be much richer and better off in retirement

I recommend you read them and give indexing a go.

We’ve spoken about the benefits of this investment approach time and time again.

And it’s all thanks to Jack.

May his legacy live on…

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