Who Is John Bogle?
John Bogle was the founder of the Vanguard Group and a major proponent of index investing. Commonly referred to as 'Jack', Bogle revolutionized the mutual fund world by creating index investing, which allows investors to buy mutual funds that track the broader market.
He died on January 16, 2019, at the age of 89.
John Bogle on Starting World's First Index Fund
Understanding John Bogle
John Bogle attended Princeton University, where he studied mutual funds. In his early career, he worked for Wellington Management before founding his own mutual fund company, Vanguard Group, in 1975. With Vanguard, Bogle employed a novel ownership structure in which the shareholders of mutual funds became part owners of the funds in which they invested. The funds themselves own the investment firm, making the fund investors indirect owners of the firm itself. This structure allows the firm to incorporate any profits into its operating structure, reducing investment costs for fund investors.
In 1976, Bogle introduced the Vanguard 500 fund, which tracks the returns of the S&P 500 and marked the first index fund marketed to retail investors. Bogle’s unique structure for Vanguard also made it a natural fit for the provision of no-load mutual funds, which do not charge a commission on investment purchases.
Bogle retired as CEO and chairman of Vanguard in 1999.
John Bogle and Passive Investing
John Bogle contributed significantly to the popularity of index investing, in which a fund maintains a mix of investments that track a major market index. Bogle’s philosophy that average investors would find it difficult or impossible to beat the market over time led him to prioritize ways to reduce expenses associated with investing in mutual funds. For example, Bogle focused on no-load funds featuring low turnover and simple investment strategies.
The philosophy behind passive investing generally rests upon the idea that the expenses associated with chasing high market returns cancel out most or all of the gains an investor would otherwise achieve with a passive strategy that relies upon funds with lower turnover, management fees, and expense ratios. Index funds fit this model nicely because they base their holdings on the securities listed on any given index. Investors who purchase shares in index funds gain the benefit of the diversity represented by all the securities on an index. This protects against the risk that a given company will lower the performance of the overall fund. Index funds also more or less run themselves, as managers only need to ensure their holdings match those of the index they follow. This keeps fees lower for index funds than for funds with more active trading.
Finally, because index funds require fewer trades to maintain their portfolios than funds with more active management schemes, index funds tend to produce more tax-efficient returns than other types of funds.