John Bogle Showed Enriching Lives Goes Beyond Riches

John Bogle’s biggest contribution is yet to come.

The Vanguard Group founder and father of the index fund, better known as Jack, died on Wednesday at the age of 89. A lot will be said about his influence on the financial industry in the coming days, and deservedly so. He transformed money management, making investing cheaper, simpler and more accessible than ever before, lifting the financial well-being of millions of people in the process.

But the most remarkable thing about Bogle is that he created billions — and perhaps trillions — of dollars in value for others and kept relatively little of it for himself. That stands in sharp contrast to the unabashed accumulation of riches among corporations, even as wealth inequality rises to alarming levels. Bogle’s life is a reminder that business leaders have the power, indeed the responsibility, to shrink the wealth divide between their companies and the workers and consumers who sustain them. 

If Bogle were anyone else, he’d be a billionaire. His brand of investing — buy low-cost, broad-based index funds and hold them forever — seems obvious now, but it wasn’t inevitable. When Bogle launched the first index fund available to individual investors in 1976, the industry ridiculed it, calling it “Bogle’s folly.” Bogle was undeterred, and today Vanguard is among the largest money managers in the world, with $5 trillion in assets, roughly two-thirds of which is invested in index funds.

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Fidelity’s No-Fee Funds Unleash the Power of Free

Fidelity Investments fired a shot heard around the investing world on Wednesday: It announced it would roll out two index mutual funds on Friday that charge no fees.

Both funds will track market cap-weighted Fidelity indexes. The Fidelity ZERO Total Market Index Fund will invest in the largest 3,000 U.S. companies based on float-adjusted market cap, and the Fidelity ZERO International Index Fund will hold the top 90 percent of stocks within various developed international and emerging countries.

It’s tempting to dismiss the move as a marketing stunt. Fidelity doesn’t need the money. I counted more than 1,000 Fidelity mutual funds, including the various share classes, with close to $1.9 trillion in assets and an asset-weighted average expense ratio of 0.46 percent a year. That translates into roughly $9 billion of annual revenue.

And that’s just the beginning, because Fidelity does more than manage mutual funds. As Russel Kinnel, director of manager research at Morningstar, told Bloomberg News, “Fidelity has lots of ways to make money from customers once they are in the door.”

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Funds Like Magellan Need Gamblers Like Bill Gross

I know why investors don’t care about Fidelity Magellan’s comeback.

As Bloomberg News reported on Monday, the mutual fund made famous by hall-of-fame stock picker Peter Lynch is enjoying a resurgence after years of mediocre performance. The fund fell into a “15-year funk” after Lynch’s successor, Jeffrey Vinik, left in 1996. But ever since current manager Jeffrey Feingold took over in September 2011, “Magellan has bested the S&P 500 index every full year but 2016.” The fund has also “outdone more than 90 percent of funds with a similar investing style over the past one, three, and five years.”

Despite Feingold’s apparent success, however, investors are yanking money from the fund. The knee-jerk explanation is that investors have lost faith in active management, no matter what the results. A more accurate one is that investors no longer need the vast majority of actively managed funds, including Magellan.

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