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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Vanguard Disrupted Active Investing. Now It Could Save It.

Indexing pioneer Vanguard Group may be stock pickers’ last hope.

Investors are increasingly turning their stock picking over to computers. So-called smart beta exchange-traded funds track indexes that replicate traditional styles of active management such as value, quality and momentum. Investors handed $184 billion to smart beta ETFs from 2015 to 2017 while pulling $308 billion from equity mutual funds, according to data compiled by Bloomberg Intelligence.

It’s not surprising. Smart beta ETFs are cheaper, and investors are skeptical that human stock pickers can beat the bots by more than the difference in fees. According to Morningstar data, the average expense ratio for smart beta ETFs is 0.47 percent a year, and the asset-weighted average expense ratio — which accounts for the size of the ETFs — is just 0.26 percent. That compares with 1.13 percent and 0.7 percent, respectively, for actively managed mutual funds.

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Wall Street Can’t Hold Back Vanguard’s Low-Fee Ocean

The Vanguard Group is bringing down the cost of investing and there’s nothing Wall Street can do about it despite its best efforts.

The Wall Street Journal reported on Sunday that some financial firms are making it more expensive — and in some cases impossible — for their clients to buy Vanguard mutual funds and ETFs.

Fidelity Investments, for example, will charge “some new corporate customers that hire the firm to run their 401(k) plans a fee of 0.05 percent on assets invested in Vanguard funds.” TD Ameritrade dropped 32 Vanguard funds from its commission-free lineup of ETFs, and Morgan Stanley banned “its financial advisers from selling clients new positions in Vanguard mutual funds.” (Disclosure: My asset-management firm uses TD for custody and Vanguard funds in some accounts, including my own.)

It’s a naked ploy to prop up their fees and it won’t work. This isn’t the first time that Wall Street is on the wrong side of history. When Vanguard founder Jack Bogle introduced the first index fund in 1976 — the iconic Vanguard 500 Index Fund — Wall Street famously dubbed it “Bogle’s Folly.”

Four decades later, Bogle has the last laugh. Vanguard took in a record $236 billion in net assets in 2015 and an additional $305 billion in 2016. In November, outgoing CEO Bill McNabb said that the firm was on pace to collect an additional $350 billion in 2017. Vanguard is now the second-largest money manager in the world with roughly $5 trillion in assets — multiples bigger than Wall Street firms such as Goldman Sachs and Morgan Stanley.

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Vanguard Should Get Active

As my Bloomberg News colleagues reported earlier this week, the financial juggernaut known as Vanguard added $185 billion to its low-cost and passively-managed funds so far this year, “which puts it on pace to…” wait for it, wait for it, “…bring in more money in one year than any asset manager in history.”

Vanguard deserves its success. It’s brought low-fee, principled investing to the masses in a singular and admirable way.

According to Bloomberg, the average asset-weighted fee of a Vanguard fund is 0.13 percent, compared with 0.66 percent for an active mutual fund. On $185 billion, this translates into fee savings of nearly $1 billion this year alone – a boon to Vanguard’s legions of investors.

But as the industry leader, there’s much more that Vanguard could and should do.

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