I had the privilege of joining John Bogle, and other industry leaders, in the continued fight against unfair investment practices at the launch of the groundbreaking initiative ‘Campaign for Investors.’ I hope to honor Bogle’s legacy by continuing to advocate for investment industry reform and consumer safety. Watch this video to learn more about the mission.
The passing of John Bogle, the founder of Vanguard Group and the father of index investing, does not mark an end.
I prefer to believe, and I’m sure Bogle would agree, that it’s much more of a beginning.
A true American hero, Bogle died Wednesday at age 89 at his home in Bryn Mawr, Pa. He leaves behind a company that oversees an amazing $5.3 trillion in assets, much of it held by individuals in retirement accounts.
Most obituaries dwell on the peaks (and sometimes valleys) of a public life.
In my view, however, we’re just starting the climb toward the summit of Bogle’s simple yet profound idea: that investors should keep more of their own money, and less should go to fund managers.
Bogle often railed against the “tyranny of fees” charged by Wall Street to ordinary savers. Yet it’s still too easy to underestimate the impact of high investment costs to investors.
For one, paying 1% of your assets in fees to a fund is not paying a penny on a dollar you might earn. Far from it.
Loser’s game
As Charley Ellis, a longtime Bogle confidante and member of the Investment Committee of my firm, Rebalance, put it: “Because a majority of active managers now underperform the market, their incremental fees are over 100% of the long-term incremental, risk-adjusted returns.”
Think about that. Add up all the times you might “beat” the stock market. Subtract the times you fell short, then subtract fees. You end up with less than zero.
That’s why active investing, as Ellis explains, is ultimately a loser’s game.
Bogle turned all that on its head. He introduced the first index funds, based on his own senior thesis at Princeton University, then spent the rest of his career defending, as he often put it, “humble arithmetic.”
Bogle could have gone along with the ridiculous Wall Street fee model, but he didn’t. He could have retired a multi-billionaire, as opposed to merely a multi-millionaire. (This seems like a meaningless distinction, and it is everywhere except on Wall Street.)
Instead, he dug in and fought for regular investors — and inspired a generation of followers, many of us in the financial advising industry.
It did not stop at fees. I had the pleasure of joining him not long ago at the launch of the Campaign of Investors, which sought to focus attention on serious efforts to make investing safer.
In person he was avuncular, professorial and extremely down-to-earth. Not to mention an inspiration to all of us who got into the financial advising business for the same reasons: to democratize investing by lowering the cost.
Minting friends
Look around the industry today and you can see Bogle’s footprints everywhere. Huge brokerages have introduced dozens of new index funds, driving costs ever lower.
Billions upon billions of dollars have moved from actively managed funds into index funds and index ETFs over the past decade. Instead of selling commission-driven products of dubious value at high cost, advisors increasingly must beef up actual financial planning.
In sum, Bogle’s great accomplishment has been to pull back the curtain for everyday investors and doggedly pursue their financial enlightenment — making enemies but minting far, far more friends.
It’s hard to say at what point Wall Street stops being Wall Street. Greed will likely always be good in some corner of that world.
Yet Bogle’s legacy is only just getting started. Those tens of billions of dollars in extra gains from lower fees on index funds inevitably will compound, pass on to heirs, then continue to grow into the future.
Thanks, John. We’ve just begun the climb.
