In this article, we will learn about John Bogle, the founder of Vanguard and the head of Bogle Financial Markets Research Center. Bogle founded Vanguard in 1975, and he built the mutual fund company around his idea that low-cost index funds can provide superior long-term returns for investors.
Bogle’s Basic Investment Rules
Bogle’s investment philosophy revolves around simplicity. He introduced eight basic rules for investing:
- Choose low-cost funds
- Carefully consider the additional costs of advice
- Do not overestimate a fund’s past performance
- Use past performance to assess stability and risk
- Beware of stars (like star fund managers)
- Be cautious of asset size
- Do not own too many funds
- Buy your portfolio of funds and hold it
Bogle’s Investment Philosophy: The Power and Simplicity of Index Investing
John Bogle’s investment philosophy led to the creation of the first publicly available index fund, the Vanguard 500 Index Fund, in 1976. To this day, the fund is considered one of the best S&P 500 index funds, and Vanguard investments are among the most preferred mutual funds for self-directed investors. It is now available as Admiral Shares, trading under the symbol VFIAX. It is also available as an ETF trading under the symbol VOO, with a low expense ratio of 0.03%.
Bogle understood that higher relative management costs and a tendency for human error lead to the erosion of returns for actively managed funds over time. Therefore, a rational approach with low costs and the elimination of emotional barriers makes index funds the best option for investors, especially those with long time horizons (more than 10 years).
This philosophy can be summarized in the idea: “If you can’t beat them, join them.” Since his days at Princeton University, Bogle recognized that most fund managers could not outperform their targeted indices, and that the underlying index was often a broad-based index like the S&P 500.
If fund managers are struggling to beat the index, why not own the same stocks in the index, keep management costs low, and win by simply matching the index’s performance?
As they say, the rest is history. Vanguard is one of the largest mutual fund companies in the world, and index investing continues to prove his theories of simple, low-cost investing.
Lessons from John Bogle
Bogle effectively and consistently demonstrated to the investing community that it is foolish to attempt to approach investing in an active manner when a simple, low-cost index fund strategy can provide superior returns.
Vanguard also offers ETFs, which Bogle did not fully embrace, once describing them as a trend that might be risky for the average investor.
Vanguard and Bogle enjoy a significant following among self-directed investors who lovingly refer to themselves as “Bogleheads,” and who love applying John Bogle’s practical guidelines for investing and personal finance.
Disclaimer: The Balance does not provide tax, investment, or financial advice. Information is presented without regard to the investment objectives or risk tolerance or financial circumstances of any specific investor and may not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the risk of loss of principal.
Source: https://www.thebalancemoney.com/how-and-why-john-bogle-started-vanguard-2466413
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