Words of Wisdom from An Investing Pioneer

John Bogle, founder of the Vanguard Company, one of the most respected and successful companies in the investment world, died this week.

He left behind a legacy that has impacted the lives of millions.

Tim Buckley, Vanguard’s chief executive, put it this way, “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.”

Warren Buffett said that Bogle “did more for American investors . . . than any individual I’ve known.”

High praise indeed.

So what exactly did Bogle do?

Bogle created the first index mutual fund available to the general public in 1976, and for the next 40 years, he advocated for the simplicity, low costs, and long-term horizon of such funds. Skeptics had initially called index funds ‘Bogle’s folly’;  today they are almost 50% of all mutual-fund assets.

There is even a Bogle fan club of sorts, known as the Bogleheads, which has 75,000 members. According to its website, Bogleheads are every-day citizens with an interest in investing and personal finance. The members not only discuss their own financial issues, but enthusiastically provide help to others. The Bogleheads have written that while “some mutual-fund founders chose to make billions,” Bogle created Vanguard “to make a difference.”

While many people have summarized Bogle’s investment philosophy over the years, I think Amie Tsang did a great job in yesterday’s New York Times, with her story, “5 Pieces of Advice From John Bogle“. Here are the five tips, in Bogle’s own words:

1. Stay the course: Wise investors won’t try to outsmart the market,” he says. “They’ll buy index funds for the long term, and they’ll diversify.” Bogle’s idea of diversification was pretty simple too, 50-60% stocks, the rest in bonds.
2. Beware the experts: “Unless you need a financial adviser to help you get started in that routine, you probably don’t need a financial adviser at all,” he told CNBC
3. Keep costs down: Vanguard is famous for the low costs it charges on its mutual funds. “In investing, you get what you don’t pay for. Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course. And they won’t be foolish enough to think that they can consistently outsmart the market.” (this statement from Bogle actually captures much of his investment philosophy).
4. Don’t get emotional: “Eliminate emotion from your investment program. Have rational expectations for future returns and avoid changing those expectations in response to the ephemeral noise coming from Wall Street.”
5. Own the entire stock market: Mr. Bogle was the leading proponent of structuring an investment portfolio to mirror the performance of a market yardstick, like the S&P 500 stock index.

Again, pretty simple advice that anyone can follow.

In fact, it’s the advice Warren Buffett gave to his heirs in 2014, with a shoutout to Vanguard:

My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.

I am confident that Bogle’s approach will continue to live on, and help to improve the lives of all those who follow it.