When people think of legends in the investment world, Jack Bogle’s name doesn’t come up much, but it should. Bogle single-handedly changed the investing landscape forever.
Jack Bogle came from a family with a real heritage for looking out for the common people, and in particular, designing lower cost financial services that passed on these savings to their clients.
His great-grandfather Philander Armstrong was the father of mutual insurance for the property field, founding the Phoenix Mutual Fire Insurance Company in 1875. Armstrong spent his time fighting the high industry fees in the insurance business, which he felt were excessive, and he conceived of a better way where clients could get the coverage they wanted at a more reasonable cost.
Bogle ended up picking up this torch a century later, in 1975, when he founded his own company, Vanguard Funds, with the same philosophy as his great-grandfather. This time the ire was directed toward the excessive fees and expenses not in the insurance business, but in the investment business.
Today, Vanguard is one of the world’s largest investment companies, with $5.3 trillion under management across 410 funds owned by 20 million investors in 170 countries.
Vanguard’s stated mission is “to take a stand for all investors, to treat them fairly, and to give them the best chance for financial success.”
This goal is exactly what drove Jack Bogle to found the company, and his personal motto was to make sure investors get a “fair shake.” While investors get much more of a fair shake today, compared to back in 1975 when full service brokerages were the only game in town, with their comparatively high fees, the word excessive would certainly fit by today’s standards at least.
We take for granted the fact that we get a much fairer shake then we did back then, but we probably don’t realize that we have Jack Bogle to thank for a lot of this, not only with Vanguard funds, but with the industry as a whole.
How it All Started
Bogle got his first taste of all this while a student in 1949, when he read about a new idea emerging on the investment scene called mutual funds while reading a copy of Fortune magazine. He found the idea of mutual funds interesting, and this was back in the era of the dawn of mutual funds, and few people had even heard of them before at the time, including Bogle.
Bogle decided to write his undergraduate thesis in economics on the investment scene, called “The Economic Role of the Investment Company.” He concluded that investment companies charge too much for their services, and their financial health could be improved by giving their investors more of a break on these fees, which would serve to expand the industry and put it in reach of many more people.
It turned out that these insights were not only spot on, but predicted the direction of the industry decades before it actually happened. When it finally did, 25 years later, it was Bogle himself that ended up leading the charge and remained a champion of this philosophy to the very end.
We lost Jack Bogle last Wednesday at age 89, but his achievements in the investment industry are truly enduring, even though we may not be aware of how it all transpired. Prior to his involvement, investment firms just took whatever the market would bear, and the idea of big discounts on fees were not the sort of thing these companies found appealing in the least.
What they failed to understand is just how popular investing could become if it could be made much more accessible. In the old days, investing was something that the wealthy partook in, people who had plenty of extra money to pay plenty extra for the fees that brokers and other investment firms charged.
Bringing the Benefits of Investing to Everyone
The industry wasn’t particularly aimed at more ordinary folks, and you actually needed a good- sized portfolio to get into this game, and this was the biggest reason why such a small percentage of people invested then.
Now, you can start with as little as a few dollars by investing in mutual funds, and if you are particularly cost conscious, you can put your money into an index fund which replicates the returns of the markets while keeping costs at a minimum.
Bogle’s focus has always been on not only reaching as many people as possible but working hard to give them a better deal, and the index fund is perfect for this. By simply holding components of an index in the right proportions, this put an end to worries about your investments keeping up with market, as most mutual funds these days fail to do, because your investments are the market essentially.
Bogle took this a step further, where his company was structured to not only serve his clients, but to make them partners essentially. When he opened up the doors of Vanguard and offered their first index fund in 1976, it not only was low-cost, it also operated at cost, an idea that was even more far out there.
This led to not only operating expenses being kept to a minimum, it also eliminated profits, meaning that investors would get to keep the maximum amount of the returns that their investments generated.
With such a vision, it is no real surprise that Vanguard became as popular and successful as it has. Bogle also championed the buy and hold approach, and while this idea is so popular now that we almost look at this as the only proper way to invest, Jack Bogle’s championing of this idea certainly did a lot to popularize it.
Jack Bogle wasn’t just ahead of his time, he was way ahead of it. His vision of 70 years ago as a student has come to life, and in ways that he probably could not have imagined at the time. Bogle is a true legend of the business. He is gone but he should never be forgotten.