Some Guy You’ve Never Heard of Has Saved Us All Billions of Dollars

Let us now salute John Bogle, inventor of index funds

Ester Bloom
Sep 6, 2016 · 3 min read
Wall Street: Money Never Sleeps

On the occasion of the index fund’s 40th birthday, Hamilton Nolan, recently of Gawker, wrote a much-deserved paean to Vanguard founder John Bogle. About whom my first response was, “Who?”

What was Bogle’s accomplishment? He “has kept hundreds of billions of dollars out of the pockets of Wall Street greedheads” by starting the very first index fund, the Vanguard S&P 500 Index.

As you know, we’re big fans of index funds here at the Billfold. Warren Buffett is too.

Buffett’s advice is pretty simple:

[A]ccumulate shares over a long period and never to sell when the news is bad and stocks are well off their highs. Following those rules, the “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long- term results than the knowledgeable professional who is blind to even a single weakness.

Buffett claims that his told his trustees in his will to put 90% of his wealth in a “very low-cost S&P 500 index fund.” He even suggests Vanguard by name. Bogle was the guy who founded Vanguard — and though I’m sure he’d be pleased to have Buffett’s imprimatur, he did it for the sake of regular investors like you and me.

Here’s Nolan again:

John Bogle has done more than any crusading socialist (in America) to take money out of the pockets of Wall Street con artists and keep money in the pockets of regular people. John Bogle founded a multi-trillion dollar investment firm and did not use it to make himself into a multi-billionaire, but instead used it to produce a good product at a fair price that saves money for everyone who uses it. One analyst at Bloomberg calculated this week that Vanguard has directly saved investors a total of $175 billion in fees that would have otherwise gone to Wall Street guys providing nothing of value; that it has saved investors an additional $140 billion in trading costs that would have provided nothing of value; and that it has saved outside investors $200 billion by forcing competitors to lower their fees to compete with Vanguard.

Half a trillion dollars that would have gone to Wall Street motherfuckers for no good reason has instead gone to Joe and Jane Average investors and retirees, thanks to John Bogle. … Not all revolutionaries carry machine guns. Some carry knowledge of compound interest, which is just as “cool.”

Vanguard reports that when Bogle first debuted the idea of a fund indexed to the market 40 years ago, finance types laughed at him.

When Mr. Bogle introduced that first index fund, it was met with yawns from investors and derision from competitors. The fund was ridiculed as “Bogle’s Folly,” and indexing itself was even assailed as “un-American.”

Today, indexing is a cornerstone of the mutual fund industry and has even led to another investment innovation, the exchange-traded fund (ETF). And Mr. Bogle, who served more than two decades as Vanguard’s CEO and chairman, is an industry icon who recently celebrated his 65th year in the investment business.

“Indexing is the purest expression of low-cost investing,” said Joe Brennan, a Vanguard principal and global head of equity indexing. “Indexing is diversified. It’s potentially tax-efficient. The biggest headwind that investors face is cost, and indexing reduces costs in many ways.”

Investing hasn’t exactly been democratized yet, but these kinds of funds have done a lot to lower the barriers to entry for people who want to make their money work for them without doing an awful lot of work themselves. SO WHO’S LAUGHING NOW, GENTLEMEN. Aside from Bogle, that is, who is, I hope, laughing all the way to the bank.

The Billfold

Everything you wanted to know about money but were too polite to ask.

Ester Bloom

Written by

Senior Editor, CNBC; former editor @thebillfold; contributing writer @theAtlantic

The Billfold

Everything you wanted to know about money but were too polite to ask.