Earlier this week John ‘Jack’ Bogle, one of the greatest champions of private individuals investing online into pensions and savings portfolios unfortunately passed away at the age of 89. The Vanguard founder’s legacy of the passive index tracker will, however, live on to the benefit of individual investors across the world.
After a difficult beginning during which Bogle struggled to sell investors the idea that they would be much better off by securing guaranteed ‘average’ returns instead of trying, and usually failing, to beat the market, he grew Vanguard into a $5 trillion investment giant.
However, unlike many of his peers, while Bogle of course far from lived in poverty, his personal wealth was a fraction of others who sold investment products to the retail market. Even those whose businesses were a fraction of the size. Bogle’s life’s work was to prioritise the fortunes of the millions of every day investors who listened to him and invested in passive index trackers rather than make as much money as possible for himself. At the core of his philosophy was the interests of his investors and he structured Vanguard in way which meant it is owned by its investors – the families who bought into its index funds.
Bogle told the Financial Times in November:
“What do I need a private jet for? I need my wife to drive me around. It doesn’t do my psyche any good to know that I have more than someone else. I’m very comfortable with what I’ve done for the world.”
Vanguard’s current chief executive Tim Buckley summed up Bogle’s legacy:
“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. He was a tremendously intelligent, driven, and talented visionary whose ideas completely changed the way we invest. We are honoured to continue his legacy of giving every investor ‘a fair shake’.”
Bogle was born in New Jersey in 1929 into a family that had once had considerable inherited wealth wiped out during the Great Depression. His newly destitute father fell to drink and the Bogle boys spent much of their childhood being raised by their grandparents in rural New Jersey. Despite his rocky start in life, Jack’s academic outperformance led to him being awarded a scholarship at a prestigious private school from where he went to study economics at Princeton, one of the USA’s renowned ‘Ivy League’ universities.
He had a steller early career in the then booming mutual fund industry and was in control of an asset manager called Wellington by shortly after his 35th birthday. However, a merger he pushed through with an aggressive mutual fund company turned bad when markets collapsed in 1973-74 and Bogle was pushed out by new partners. That was a pivotal moment in how he looked at markets and the dangers of chasing returns that significantly outperformed the market. He arrived at the conclusion that ‘on average, stockpickers make average returns’. And since those average returns were, over the long term, enough to represent a good return on investment, it made no sense to chase bigger returns at the considerable risk of losing your shirt.
That insight, concluded Bogle, was especially true of retail investors. The families investing for their pension or putting their kids through college. And not only was chasing market beating returns illogical when considering the risk to reward ratio but they were paying the professional stockpickers working for managed funds princely sums to more often than not earn less than the market’s average returns.
The answer was the passive index tracker that would simply reflect the wider market. Not only were reasonable long term returns practically guaranteed by history but the index trackers could be offered at a fraction of the cost in fees as they didn’t require teams of analysts and ‘star’ managers to support the research that went into stockpicking. Which usually didn’t deliver the promised market beating returns anyway.
His legacy is the $10 trillion passive index trackers sector whose existence, most agree, has done more than any other class of retail investment product for the everyday man and woman investing online in the pursuit of personal financial security.