John (Jack) Bogle passed away on January 16th at the age 89, and left an incredible legacy behind him. History will remember John Bogle as the pioneer of the index fund, who democratized investing and saved billions of dollars for common investors.
He fought against mutual funds as much as he fought for the everyday investor. His humble lifestyle allowed investors to save a ton in fees, and forced the entire industry to follow his lead.
Mutual Fund Expenses are Larcenous
Jack Bogle felt that mutual fund expenses were “larcenous” compared to index funds. Their fees are a rip-off to investors, and severely degrade investing returns over time.
Mutual funds had fought for decades to justify their costs, but in a backhanded tribute to Jack Bogle, they have capitulated over the last couple of years by offering low-cost index funds themselves. Some are even offering zero-cost expense funds.
By offering these low cost and zero expense funds, even mutual-funds are agreeing that their cost structure was ridiculous.
The Birth of Index Funds
John Bogle released the first index fund in 1976, which is still around today as the Vanguard 500 Index Fund.
As Vanguard grew their assets, they axed their expenses. A decade after releasing their first index fund, Vanguard’s expenses were half the cost of the industry average.
Index fund costs have nosedived since then, causing legacy investment firms to cut their costs as well. This has saved investors billions, and is known as the Vanguard Effect, illustrated below.
Saving Investors More with ETFs
John Bogle’s index fund evolved to save investors even more money – the exchange-traded fund, or ETF.
ETFs follow arrays of markets and industries, and cost a fraction of mutual funds. There are now over $1 trillion in ETFs, and Vanguard’s average expense ratio is .08%, while the average mutual fund is 1.25%.
These percentages matter seem small, but they cost a fortune over time. If you invest $10,000 over 30 years, the fees from mutual funds will cost you over $50,000 thanks to compound interest.
Even investor legend Warren Buffett believes that ETFs are the best investment people can make.
“If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle”
Warren Buffett
John Bogle & Index Funds – The Bottom Line
The world lost an incredible human in Jack Bogle and his index fund legacy. Many mutual fund managers have made a fortune, and Mr. Bogle instead saved the everyday investor a fortune. He lived a humble lifestyle, and that lifestyle allowed investors to save even more in fees.
Despite his achievements, trillions of dollars are still sitting in mutual funds.
There would be no better way to honor Jack Bogle and build on his legacy than by moving your money out of mutual funds and into index funds or ETFs.
Look over your investments and retirement account. Not only will moving this money save you a killing, you’ll also build on Jack Bogle’s amazing legacy.