INSUBCONTINENT EXCLUSIVE:
Wednesday at age 89, his victory was nearly total
Vanguard Group, firm Bogle founded, is now a $5 trillion giant.
This year, investing industry will hit a symbolic tipping point: The amount
of assets in US index funds is almost certain to surpass amount in actively managed products for first time
Meanwhile, Vanguard collected inflows of $218 billion in 2018, Bloomberg data show
The rest of US fund industry lost $237 billion.
Bogle, who suffered first of six heart attacks at age 31 and ended up with a heart
thought idea of index funds made a lot of sense
Money managers were charging big fees for privilege of racking up mediocre returns
Since it was nearly impossible to consistently beat market, why try Just buy a large basket of stocks (or bonds), skip cost of hiring an
investment pro, and patiently collect market return as savings from those lower fees compounded.
Nice idea, but could anyone make money
offering it Other investment firms experimented with index funds, to underwhelming results
Batterymarch Financial Management, a firm Grantham co-founded before GMO, tried it
fund, accessible to all investors, not just institutional clients, was a flop
With Bogle expecting investment of as much as $150 million, Vanguard launched it with just $11.3 million
Vanguard eliminated its loads in 1977, a virtuous move that nonetheless made it harder, at least at first, to attract assets.
Perhaps more
By early 1980s, half were outperforming index fund, despite lower fees
Index funds have to buy and sell hundreds of securities every day, to deal with investment flows, re-invest dividends and generally keep up
By 1992, computers and trading systems had advanced to point where Vanguard could launch its Total Stock Market Index Fund, which is now a
$672 billion behemoth that buys every single US stock, 3,500 in all, for fees as low as 0.04 percent per year.
Another reason Vanguard was
able to turn tide was fierce competition active-fund managers started facing from each other
Investors were eager to jump into surging markets of 1980s and 1990s
Celebrity fund managers multiplied, and they were also up against new, high-tech hedge funds, which built powerful computers and hired
scientists and math Ph.D.s to run them
finally triumph over quants and indexes
But with each passing year, mutual funds, and even hedge funds, fall further behind plain old index fund.
As Vanguard won more and more
assets, along with respect of many personal-finance experts, it was competing against a financial industry that loved to steer clients into
Vanguard, which Bogle had set up as a cooperative, would periodically cut fees, passing savings from efficiencies and economies of scale to
Other fund companies mostly held line.
Then, investors started asking about fees, particularly after steep market declines of 2000-2002 and
Only most unsophisticated investors would still put up with an adviser who recommended load funds
Pensions, endowments and, crucially, 401(k) retirement plans pushed more and more assets into index funds.
Fee warSuddenly, Vanguard started
facing serious competition of its own
A fee war broke out, with players like Fidelity Investments and Charles Schwab angling to cut costs closer and closer to zero.
The craze for
indexes took on qualities that made Bogle unhappy
In his later years, when he was no longer in charge at Vanguard, he railed against exchange-traded funds, or ETFs, which are index products
that can be bought and sold like stocks
He worried ETFs encouraged sort of wasteful trading that hurt investor returns
His advice became conventional wisdom for big companies setting up 401(k)s
They encouraged workers to buy and hold index funds with low fees, and discouraged them from getting in their own way by trading too much
Today, a generation of workers is plowing its retirement savings into index funds, whether they realize it or not.
The ultimate savings for
And windfall will continue to rise as benefits of lower fees compound year after year after year.
Bogle was a folk hero to investing nerds
and an outspoken enemy of stock-pickers and self-serving financial advisers
