Recently, a legend from our investing world passed away. Jack Bogle, also known as John Bogle, died this past January at the age of 89. He was the founder of Vanguard, which is the largest provider of index funds with over $5 trillion in assets.
Bogle was not always rich. His family lost their wealth during the stock market crash of 1929. His father left the picture early in his life due to his parent’s divorce. Bogle’s humble beginnings included jobs as a paper boy and later a dishwasher when he attended Princeton University.
At Princeton, Bogle’s thesis proved to become the root for what now is his legacy. Bogle’s 130-page thesis made the argument that an investment company still can grow, while assessing lower fees to its clients. The thesis landed Bogle his first job in investment management with the Wellington Fund.
Keep You Costs Low
Jack Bogle said:
“The two greatest enemies of the equity fund investor are expenses and emotions.”
There are many of choices when it comes to selecting equity funds. And some of these funds charge a lot in fees. For example, Pacific Advisor’s Large Cap Value Fund has an expense ratio of 4.53%. And based on Morningstar it hasn’t performed better to warrant this high expense ratio:
There are so many resources out there and so many of them are free or of little cost. So who says investing has to be expensive or even require a bunch of money to even get started.
In the investing world, a fee amount of 1% is considered a lot. Why? Because overtime, 1% charged against your investments can really add up. For example, a $1,000,000 initial investment earning 10% per year with a 1% fee can cost you $226,379.
Bogle realized the cost of investing is too high for the average investor. And so, he designed Vanguard to operate at a low cost so that it could provide higher returns to investors. This was achieved through index funds, funds structured to mirror the major indexes such as the S&P 500.
Do they work, in a word – yes! Through many studies, index funds have proven to beat managed mutual funds, investments that charge you more. Index funds offer not only low costs, but instant diversification and proven performance. It is why more and more people (and especially ones whom do not have the time or desire to learn about investments) have become advocates of index fund investing.
Don’t Time The Market
Jack Bogle said:
“It is difficult enough to make even one timing decision correctly. But you have to be right twice”
This quote from Jack Bogle’s book, Enough, means that in order to successfully time the market, you should be able to buy low and sell high, consistently. No one can do that over time and with success.
This is why he is in favor of the buy and hold strategy, a long-term strategy. The buy and hold strategy allows your investment to grow because investments in general grow over the long-term.
Know Your Risk
Jack Bogle said:
“When reward is at its pinnacle, risk is near at hand.”
This applies to investing in that if you are investing in let’s say a start-up company that issues an IPO of $20 per share. Sure, it could have the potential to soar right? I mean there are investors who have put their money into this company to allow it to go public. It has growth prospects; it may hire more employees, add more products and acquire more space. But there is a greater risk because it is taking more steps at a faster pace than an established company. The reward is a significantly higher stock price as the company takes the right steps, but the risks are things that can go wrong if the company does not take these steps properly.
Bogle’s quote can easily be applied to life as well. Let’s say you’re going on an adventure, white-water rafting for example. The reward, in this case, internal could be high for you and would be the feeling of exhilaration, adrenaline, and accomplishment. It comes with risk though, you can fall off the raft (it’s actually happened to me) and even though you may be wearing a helmet and lifejacket could still hurt your arm or leg on a sharp rock (didn’t happen to me,
And I’ll leave you with my favorite quote from Jack Bogle, again related to investment fees: “The grim irony of investing, then, is that we investors as a group not only don’t get what we pay for, we get precisely what we don’t pay for. So if we pay for nothing, we get everything.”
Circling back to index funds, for many, you are paying next to nothing and what are you getting: diversification, performance, and free-time. Some may say you are getting everything.
Thank you, Mr. Jack Bogle for all your contributions to the investment world.
Join The Discussion:
- How will you remember Jack Bogle?
- Do you believe in his investment philosophies?
- Has his wisdom influenced your investment choices or overall style?
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