Eight lessons from the man who reinvented investing

How Vanguard's Jack Bogle helped millions to build their wealth.

By ·
29 Jan 2019

Summary: Jack Bogle (1929 - 2019) pioneered exchange-traded funds and spearheaded the global push to lower investment costs.

Key take-out: Forget trying to time the market, and don't invest based on last year's returns. Both are losing strategies.

 

At the time of his death on January 16 at the age of 89, legendary American investor John “Jack” Bogle’s net worth was estimated at $US80 million.

Certainly a very tidy amount, but not a massive fortune in today’s terms considering one needs more than $US4 billion just to qualify for 500th spot on the annual Forbes magazine rich list. Even in Australia, these days one needs more than $300 million to make the bottom of the BRW equivalent.

Yet for Bogle, the man who founded the Vanguard Group, which over 44 years became the world’s largest investment company with more than $US5 trillion in assets under management, building his own personal wealth to enormous levels was never a driving motivation.

Still regarded as one of the investment world’s most powerful and influential people, he gave much of his own wealth to charities and educational institutions.

Instead, Bogle’s focus was on helping other investors to build their wealth, and many who followed his tried and tested investment principles achieved that in spades – some amassing riches well beyond his own.

Reinventing the investment wheel

Bogle completely reinvented a managed funds sector that for decades had existed on its ability to offer packaged, concentrated, share portfolios and charge investors high ongoing fees. Many of these funds were only open to investors able to commit high minimum amounts of capital.

Even worse, a high percentage of these actively managed funds underperformed their benchmarks – and lots still do. Research published by S&P Dow Jones Indices earlier this month showed that over the 10-year period ending December 2017, 90 per cent of mutual fund managers and 59 per cent of institutional accounts underperformed the S&P 500 index on a net-of-fees basis.

Bogle aimed to open investing to the masses in a way never done previously by using investor funds to buy weighted stakes in all the companies contained within an index and packaging those into low-cost fund products that would be listed on the US stock exchange.

Enter the Vanguard First Index Investment Trust, which in 1976 became the world’s first exchange-traded fund. Based around shareholdings in the stocks within the S&P 500 index, it was the precursor to a multi-trillion-dollar funds industry that now numbers thousands of low-cost products globally, where investors can literally “buy” whole markets, regions, and sectors in a single stock exchange trade.

In doing so, Bogle’s investment strategies and philosophies have inspired a whole investor movement over time, who to this day pay homage in their forums by using the name Bogleheads.

“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 this month. “He was a tremendously intelligent, driven, and talented visionary whose ideas completely changed the way we invest. We are honored to continue his legacy of giving every investor ‘a fair shake.’”

This accords with InvestSMART's own mission for investors, which is to keep investments simple and to help you grow and protect your wealth. Recently we became the first fund manager to offer capped fees in Australia, with our low-cost ETF portfolios designed to provide you with better returns by carefully balancing risk and fees by investing in a blend of preferred ETF products. You can read more about our investment approach and products by clicking here.

Eight strategies for building wealth

Bogle had eight guiding rules for investors to help them accumulate and protect their wealth over the long term. He spoke around them often, and below is a collection of Bogle quotations delivered over time derived from various presentations and interviews.

1. Always select low-cost funds

“In investing, you get what you don’t pay for. Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course. And they won’t be foolish enough to think that they can consistently outsmart the market."

2. Consider carefully the added costs of advice

“Unless you need a financial adviser to help you get started in that routine, you probably don't need a financial adviser at all.”

3. Do not overrate past fund performance

“The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently.”

4. Use past performance to determine consistency and risk

“Eliminate emotion from your investment program. Have rational expectations for future returns and avoid changing those expectations in response to the ephemeral noise coming from Wall Street.”

5. Beware of stars (as in, star mutual fund managers)

“Talent is hard to identify and talent is hard to tell from luck. There’s an awful lot of luck in this business. Past performance is not helpful in judging future performance.”

6. Distinguish investing from speculating

“Ask yourself: ‘Am I an investor, or am I a speculator?’ An investor is a person who owns business and holds it forever and enjoys the returns that US businesses, and to some extent global businesses, have earned since the beginning of time. Speculation is betting on price. Speculation has no place in the portfolio or the kit of the typical investor.”

7. Don’t own too many funds

“Complicating the investment process merely clutters the mind, too often bringing emotion into a financial plan that cries out for rationality.”

8. Buy your fund portfolio – and hold it

“Wise investors won’t try to outsmart the market. They’ll buy index funds for the long term, and they’ll diversify.”


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