The Father of Passive Index Investing — Jack Bogle, founder of Vanguard
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The Father of Passive Index Investing — Jack Bogle, founder of Vanguard

5 Jan
23 Mar
5 min read

Markets have gotten more volatile in recent years. Amidst the frenzied financial markets rich with cash pouring in from stimulus packages, it is sometimes difficult to make sense of everything. Cryptocurrencies’ volatility always seem to be a roller coaster ride and a lot of concerns on inflation and the future outlook abound. As an investor looking for a way to invest and grow my paycheck, timing the market and picking the right fund, stock, or bond to invest in is daunting. Which is exactly why I spent my weekend cozying up in a corner, reading The Little Book of Common Sense Investing by John C. Bogle.

Starting the first index fund and Vanguard

John C. Bogle, also known as Jack, was the creator of both Vanguard (in 1974) and the world’s first index mutual fund/ unit trust (in 1975) — Vanguard S&P 500 Index Fund. With index funds, he revolutionized the mutual fund scene by creating a passive investment product that was not only low cost, but yielded considerable long-term returns that were higher than that of actively managed funds.

Unfortunately, many investors failed to see the merits of a passive investment strategy early on.Upon its launch, the head of Fidelity (then amongst the fund industry’s largest asset managers ) commented, “I can’t believe that the great mass of investors are going to be satisfied with just receiving average returns through the market index. The name of the game is to be the best.” The fund’s IPO was arguably the worst underwriting in Wall Street History, falling short of its $250 million target by 95%. 

Now, Vanguard’s exchange traded funds (ETFs) are amongst the largest globally and are synonymous to low-cost ETF and mutual fund investing. This begs the question: what is the eventual appeal for Jack Bogle’s passive investment strategy of buying the market portfolio?

Which leads to our two biggest takeaways from Jack Bogle on investing:

  • Don’t look for the needle, buy the haystack
  • The more the managers take, the less the investors make

Lessons from Jack Bogle on investing

Be passive: Don’t look for the needle, buy the haystack.

Individual stock picking, betting on certain sectors or themes to beat the market, or buying into actively managed funds are highly unlikely to reap sustainable long-term returns. The Random Walk Hypothesis laid out by Professor Burton Malkiel from Princeton University, posits that the price of securities move randomly, and therefore, attempts to predict future price movements are futile. To buy and hold as a passive investor works better.

While there will undoubtedly be periods of outperformance, how much is attributed to luck as opposed to skill? How can we be sure that our bets will continue to win?

As quoted in Bogle's book, “Only 3 out of the 355 actively managed equity funds that started the race in 1970 have survived and mounted a record of sustained excellence.” That is just 0.8%. While this was over the period from 1970 to 2004, little has changed since then. According to S&P, over a period of 10 years, 85 percent of large cap funds underperformed the S&P 500, and after 15 years, nearly 92% trail the index.

As such, the lesson learnt is that the past is not a prediction of the future, and that sustained outperformance for active managers is nigh impossible. The most sensible thing to do would therefore be to invest in an index fund that tracks the broad market, and hold it forever. Why? Because as John Bogle posits, in the aggregate, businesses grow with the long term growth of the economy, and as such, the market portfolio will most definitely increase in value over time. That’s the power of markets.

Fees matter: Vanguard’s approach to minimising fund management fees

Performance comes and goes, but fees are here to stay. Unsurprisingly, these fees eat into your returns. While 1-2% may seem minute each year, compounded over an extended period, fees can do extensive damage to the value of your investment.

Imagine you have $100,000 invested. If the account earned 6% a year for the next 25 years and had no costs or fees, you'd end up with about $430,000. If, on the other hand, you paid 2% a year in fees, after 25 years you'd only have about $260,000. 2%, doesn't seem so small anymore does it?

the effect of your investment fees on your investments in 25 years

It is only common sense.

Taking into view that active management is unlikely to yield consistent outperformance, and the not-so-minute fees you have to pay for not-so-fantastic returns, it is only common sense that one should 1) adopt a passive investment strategy, and 2) buy into low cost index funds that track the overall market. This keeps you well diversified and minimises the damage dealt by fees.

The Father of Passive Investing & Vanguard, Jack Bogle

We have so much to thank Jack Bogle for. As such, we’d like to celebrate Jack Bogle, the Father of Passive Investing. In a world where the norm was exorbitant fees charged by active managers who often failed to earn their keep, Jack Bogle fought for fairer fees for individual investors. He advocated for an easy-to-adopt, low-cost, passive investment strategy with which we could all be winners in the long run.

Vanguard, Jack Bogle’s creation and legacy, continues to hold the torch for investors today and is committed to driving down fees. Vanguard’s index ETFs and mutual funds’ asset weighted average expense ratio was lowered from 0.18% in 2010, to 0.12% in 2015, and finally to 0.09% in 2020. It’s fees are considerably lower compared to the corresponding industry average of 0.54%

Here at Endowus, we are Bogleheads and fans of Vanguard and their mission. Our team works closely with Vanguard in providing best-in-class, low-cost, passive funds to our clients. With Endowus, you can now buy the haystack and enjoy the lowest fees. Investing does not have to be complex or expensive, so long as you invest with common sense.

If you are interested to learn more, click here to get started with Endowus.


Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. 


Whilst Endowus HK Limited (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances.

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