John Bogle, father of the index fund, dies
Valley Forge, Pa. (AP) — John C. Bogle, who simplified investing for the masses by launching the first index mutual fund and founded Vanguard Group, died Wednesday. He was 89.
Bogle did not invent the index fund, but he expanded access to no-frills, low-cost investing in 1976 when Vanguard introduced the first index fund for individual investors, rather than institutional clients. The emergence of funds that passively tracked market indexes, like the Standard & Poor’s 500, enabled investors to avoid the higher fees charged by professional fund managers who frequently fail to beat the market. More often than not, the higher operating expenses that fund managers pass on to their shareholders cancel out any edge they may achieve through expert stock-picking.
Bogle and Vanguard shook up the industry further in 1977. The company ended its reliance on outside brokers and instead began directly marketing its funds to investors without charging upfront fees known as sales loads.
Bogle served as Vanguard’s chairman and CEO from its 1974 founding until 1996. He stepped down as senior chairman in 2000, but remained a critic of the fund industry and Wall Street, writing books, delivering speeches and running the Bogle Financial Markets Research Center.
In a statement Wednesday, the investor advocate group Better Markets called Bogle “a tireless advocate for the small investor and the conscience of the financial industry.”
The advent of index funds accelerated a long-term decline in fund fees and fostered greater competition in the industry. Investors paid 40 percent less in fees for each dollar invested in stock mutual funds during 2017 than they did at the start of the millennium, for example. But Bogle continued to maintain that many funds were overcharging investors, and once called the industry “the poster-boy for one of the most baneful chapters in the modern history of capitalism.”
‘Bogleheads’
Though his name wasn’t as widely known as Warren Buffett’s, the Vanguard founder won followers who dubbed themselves “Bogleheads” and who invested in index funds for the long haul.
Bogle also believed that the corporate structure of most fund companies poses an inherent conflict of interest, because a public fund company could put the interests of investors in its stock ahead of those owning shares of its mutual funds.
Vanguard has a unique corporate structure in which its mutual funds and fund shareholders are the corporation’s “owners.” Profits are plowed back into the company’s operations, and used to reduce fees.
“In effect, Vanguard rebates to its owners the enormous profits that other investment managers sock away for themselves,” Bogle said in a 2005 speech.
In a 2008 interview with The Associated Press, Bogle said that index investing “is the ultimate buy-and-hold, all-American business strategy. It is the gold standard; there is no way around it. Mathematically, indexing wins. And if the data don’t show indexing wins, well then, the data are wrong.”
More investors have bought in, and Vanguard, based in Valley Forge, Pennsylvania, managed $4.9 trillion globally at the end of 2018.
Initial launch
Vanguard’s first index fund, then known as First Index Investment Trust, was launched on Aug. 31, 1976, with a total of $11.4 million. It was derided for years as “Bogle’s folly.” Critics maintained that it aimed only for mediocrity and missed moneymaking opportunities outside the index’s narrow focus.
Investors, however, were eventually won over. That initial fund is now the Vanguard 500 Index fund with $400 billion in assets. It is no longer Vanguard’s biggest fund, but remains among the company’s lowest-cost offerings. Shareholders are charged annual operating expenses of $4 for every $10,000 invested — a fraction of the $100 and up that actively managed mutual funds may charge.
“Jack Bogle made an impact on not only the entire investment industry, but more importantly, on the lives of countless individuals saving for their futures or their children’s futures,” said Vanguard CEO Tim Buckley in the statement announcing Bogle’s death.
Bogle became president of the Bogle Financial Markets Research Center in 2000, which served as his bully pulpit. He spent his days answering fan mail, preparing speeches, writing books and appearing as a commentator on television.
In 2004, Time magazine named Bogle as one of the world’s 100 most powerful and influential people. Five years later, he personally filed a friend-of-the-court brief in a fund fee case that came before the U.S. Supreme Court.
John Clifton Bogle was born in May 1929 in Montclair, New Jersey, to a well-off family; his grandfather founded a brick company and was co-founder of the American Can Co., in which his father worked. The stock market crash five months after his birth and the ensuing Great Depression, however, shuttered the family business and forced the family to sell its home.
Bogle graduated from Princeton with a degree in economics in 1951. His thesis was on the fund industry, which was then still in its infancy.
Vanguard did not provide a cause of death. Philly.com is reporting he died of cancer, citing Bogle’s family. Bogle is survived by his wife, Eve, six children, 12 grandchildren and six great-grandchildren.