RIP Jack Bogle

Hi friends,

Yesterday, Jack Bogle, founder of the Vanguard group and creator of the index mutual fund for average investors, died. It's difficult to think of someone else in the financial world who's had a bigger impact on normal people than Bogle; the index fund and his philosophy to sit tight and leave your money alone—two of the principles of this newsletter—have allowed average investors like you and me to accumulate wealth and avoid being swindled by the financial industry. As the New York Times' Ron Lieber said, "How much more money do so many of us have because of him? His memory is a blessing."

Ironically, this week's regularly-scheduled newsletter featured Bogle's superfans and explained some of his investing philosophy. You only need to invest in a few (potentially just 2, no more than 3) low-cost mutual funds to build wealth. The thinking is this: You don't need to pay people to pick stocks for you and time the market to try to beat its earnings, because they never will, especially over the longterm (years of research backs this up).

Rather, track the stock market broadly, leave your investments alone, and you'll at least match the market's trajectory, which is pretty damn good. Historically, the stock market has increased in value. In fact, "more often than not settling for an index fund has led to above-average returns," notes Morningstar, an investment research firm. The first index fund Bogle created was the Vanguard 500, which tracks the S&P 500 (a collection of 500 public U.S. companies). It's still around today, and it's still a pretty good fund. 

[You might be thinking, hey, Alicia, you dummy, the financial industry wouldn't exist if all the people we pay to pick stocks were full of it. To which I say: Grifters gonna grift. And if there's money to be made somewhere, people are going to do it.] 

Beyond providing more value for investors, these funds also cost less to invest in than other funds. When you hear people, like me, say to invest in "low cost" index funds, they are referring to things like expense rations, which is a percentage of a fund's assets you're paying to a company like Vanguard or Fidelity to manage your investments (Vanguard in particular, is revered for its low cost). Because index funds track an already existing index and so don't require a lot of legwork on the fund manager's part, they cost less to invest in. And over decades, that can add up to a ton of money. Take these stats (from 2016):

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.

 There have been a number of lovely obituaries published about Bogle, and I recommend reading one or two to get a better sense of his impact. He might not be a household name, but pour one out for ol' Jack tonight. Our lives are much richer because of him. 

Have a good week,
A