Jack Bogle started Vanguard Group in the
Simple and Cheap
Vanguard Group is by any measure one of the most successful company stories of any type in history. Vanguard got there by holding to Jack Bogle’s maxim that investing should be simple and cheap for everybody. Bogle and Vanguard created the index mutual fund so that individual investors could have access to a well-diversified portfolio of securities without having to pay the high fees associated with traditional mutual funds. This is because index mutual funds are managed to adhere to the underlying index (such as the S&P 500 Index or the NASDAQ 100 Index) rather than managed to the whims of the portfolio manager. Index mutual funds are therefore said to be “passively managed” and therefore don’t need nearly as much overhead to pay the managers. That doesn’t mean they are any less diverse – on the contrary, one share of the S&P 500 Index Mutual Fund owns fractionally extremely small percentages of the 500 S&P companies. Simple: Buy just the Index Mutual Fund and have a very diversified portfolio; and Cheap: Pay just a few hundredths of a percent of fees to Vanguard Group, vs. multiple percentages to other mutual fund companies. The progress of technology has certainly helped Vanguard rise as it has.
I always enjoy reading what very successful industry veterans write or say about what they have learned over the years. Based on Jason Zweig’s article, Jack Bogle seems to be a combination of Warren Buffet and Yogi Berra, perhaps without all of the malapropisms. Here are some of Bogle’s quips, taken from Zweig’s article:
- “Don’t look for the needle in the haystack. Just buy the haystack.” This is the rationale for buying index mutual funds instead of individual stocks. You may find the needle, but likely you won’t, but you will benefit (if only fractionally) from the needle if you buy the whole haystack.
- “The greatest enemies of the equity investor are expenses and emotions”. In other words, keep it simple and cheap.
- “In the fund business, you get what you don’t pay for.”
- “While rational expectations can tell us what will happen, they can never tell us when.” Meaning: Don’t try to time the market, just invest in the index and hold it for the long term.
- “I built a career out of knowing what I don’t know.” Perhaps with a nod to Donald Rumsfeld, Bogle is saying that it is probably not possible to pick a portfolio that will beat the index over the longer term, so you may as well just own the index.
I am certainly an advocate that the investor’s interest is best served by keeping things Simple and Cheap by investing in diversified index ETF’s or mutual funds unless they have a particular expertise in an individual company or sector, and then only as a small percentage of the portfolio. Jack Bogle’s and Vanguard Group’s innovations in personal finance have had an effect on individuals on a level as important as the iPhone, the automobile, or any other machine or gadget that we now take for granted. To learn more, join bogleheads.com – it’s free.