John Bogle dies at 89; fought for lower fees for investors
VALLEY FORGE, PA. >> 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, lowcost 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.”
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.
Index funds gradually chipped away at the once-dominant market position of actively managed funds, a trend fueled by performance data that consistently shows index funds produce better returns than a majority of managed funds, after costs are factored in. Actively managed funds still control more in total dollars than index funds, but the trend is clear. In 2017, investors plugged $691.6 billion into index funds while pulling $7 billion out of actively managed funds, according to Morningstar.
The best approach, Bogle maintained, is to inexpensively invest in lots of stocks through diversified index mutual funds, and hold them for decades, rather than trading in and out as the market shifts.
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.
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 spent the first part of his career at Wellington Management Co., a mutual fund company then based in Philadelphia. He rose through the ranks and, in his mid-30s, was tapped to run Wellington.
He engineered a merger with a boutique firm that was making huge sums, but was ousted after the stock market tanked in the early 1970s, wiping out millions in Wellington’s assets. He said he learned an important lesson in how little money managers really know about predicting the market.
“I got wrapped up in the excitement of the go-go era, and the go-go era ended,” Bogle told Fortune magazine in 2007. “As a result of that stupid decision, I got fired. The great thing about that mistake ... was that I learned a lot. And if I had not been fired then, there would not have been a Vanguard.”
He chose the name in honor of the HMS Vanguard, Lord Nelson’s ship in the British victory over the French in 1798.
During his tenure at Vanguard, Bogle suffered several heart attacks and underwent a heart transplant in 1996, the year he stepped down as CEO. He reached the mandatory retirement age of 70 for Vanguard directors in 1999 and left as senior chairman the next year following a dispute with then-CEO John Brennan and the board over whether he could stay on.
Bogle became president of the Bogle Financial Markets Research Center in 2000, which served as his bully pulpit.