Market Beat: Jack Bogle’s legacy
The investment world lost one of its’ true pioneers recently when Jack Bogle died on Jan. 16 at age 89.
Jack was best known for inventing index funds and founding the Vanguard Group. He started index funds in 1974. When he graduated from Princeton University in 1951, his thesis contained the basis for index fund formation. The underlying principle for index funds is relatively simple, just buy all of the stocks that make up a major index, like the S&P 500 and hold them. They don’t make changes to the fund unless changes are made to the underlying index. Good returns can be made over time by buying and holding low cost funds that are well diversified by holding all the equities that make up the index.
Before the first index funds were formed, all mutual funds charged commissions and the expense ratios were high. The minimum investments were also elevated. The funds that he created were the first no-load mutual funds and the expense ratios of the index funds are quite low. Minimum investments are also very low, making these funds very appealing to the average or novice investor. Currently the expense ratio of the Vanguard 500 Index Admiral is only 0.04 percent. The expense ratio of the SPY, the first exchange traded S&P 500 index fund is also low at 0.09 percent. The SPY fund was created in 1993 and ETFs have soared in popularity since then.
Jack Bogle kept working right up until his death, he never retired. Today, the firm that he founded manages over $5.1 trillion in assets. His philosophy was that investing should be simple, inexpensive and relatively safe for investors.
One of his most popular quotes was, “Don’t look for the needle in the haystack. Just buy the haystack.”
In other words, diversify by buying the entire index and hold for the long term. Don’t try to be a winning stock-picker.
I’ve been in this business for a long time now and have seen many changes over the years that work in favor of the investor. When I started there were no discount brokerages and stock commissions started at about $100 per trade. The early mutual funds had high up-front commissions. Today, stock and fund commissions are very low and there have been many regulatory changes that work in favor of the investor.
Jack Bogle was dedicated to helping investors become successful.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.