Vanguard Fund founder John Bogle cited two “idiotically simple” ideas, simplicity and thrift, as the drivers of a revolution in the mutual fund industry causing index and ETF funds to become very popular. The idea of no-load index funds has swept the financial markets, said a number of participants at an event paying tribute to Bogle.
Bogle said that the revolution in the securities industry -- a revolution benefitting the individual investor -- has been the result of investor demands for sensible, cost-effective solutions. Today, fully 27 percent of all equity mutual and ETF assets are invested in index-linked vehicles. The revolution, he added, will continue as “the trading mentality” fades.
Why will the push for simpler and more cost effective continue? “No army,” Bogle says, “can withstand the strength of an idea, or in this case two ideas, whose time has come.”
Many luminaries attended the luncheon to honor Bogle. “We are here to honor one of the few people who has been a champion for the small investor, a man who has also been an innovator,” Alan Blinder, a former vice chairman of the Federal Reserve Board.
Blinder added that many people have become famous and made a lot of money for themselves, but Bogle’s investor friendly standards helped millions of individual investors obtain strong returns. He lauded Bogle, noting he could have made much more for himself and his fund family if he had not dealt so fairly with individual investors.
Yet Vanguard Funds began as a pipsqueak of the fund industry in 1975. It was ridiculed as a fund company that was aiming for mediocrity because it used passive management, employing indexes not active management, to run its funds.
“Jack is one of the few people in American history who extended the advantages of financial investments to a wider and wider range of Americans,” said Richard Sylla, a market historian and a professor at New York University’s Stern School who said Bogle is as important as Alexander Hamilton.
Bogle was honored by the Institute for the Fiduciary Standard and its president, Knut A. Rostad, who is the editor of book The Man in the Arena---Vanguard Founder John C. Bogle and His Lifelong Battle to Serve Investors First.
Rostad noted that ultimately the argument for Bogle’s style of investing is the amount of money saved for the average investor. At the end of 2012, the amount of equity fund assets in index and exchange-traded funds was 27 percent.
“The average expense ratio for Vanguard’s index funds, for example, in 2012 was 0.10 percent. If Vanguard had charged the average industry expense ratio of 1.15 percent in 2012 on shareholders’ average assets of $164 trillion, their net returns would have been $19 billion less,” according to Rostad.
Stil, today Vanguard is the No. 1 fund company with some $2 trillion in assets. Bogle downplayed that figure but noted that, at one time, Vanguard was hundreds of billions of dollars behind Fidelity Investments, once the top fund company in the industry.
Rostad also mentioned that former Fed Chairman Paul Volcker and former president Bill Clinton both have praised Bogle. “Throughout your celebrated career,” Clinton writes in a letter to Bogle published in the book, “you’ve made it clear that the origins of financial stability lie not within partisanship, but within the people. I continue to be inspired by your common sense solutions for renewing America’s trust with a long term economic vision.”
Bogle, 84, a heart transplant recipient, said he was humbled by the tributes. “I feel like I’ve gone to my own funeral. It’s very humbling. I’m not as well prepared as these other speakers -- the deceased rarely is,” Bogle joshed.
Bogle described himself as “a very average person, but very determined and with an ability to do simple arithmetic.”