Remembering Vanguard Group Founder Jack Bogle

Summary

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WSJ Your Money Briefing

Episode: Remembering Vanguard Group Founder Jack Bogle

Date: January 18, 2019
Host: J.R. Whalen (The Wall Street Journal)
Guest: Jason Zweig (WSJ “The Intelligent Investor” columnist)
Theme: Reflecting on the legacy and impact of Jack Bogle, founder of Vanguard Group and pioneer of the index fund, following his passing at age 89.

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Overview

This episode is a remembrance and analysis of Jack Bogle’s extraordinary contributions to the investment world. Through personal insights from financial columnist Jason Zweig, the episode explores how Bogle revolutionized investing for ordinary Americans by creating the first mutual fund tied to an index and making diversification and low-cost investing accessible to millions. The discussion traces Bogle’s vision, philosophical convictions, and the complex consequences of the low-fee investment revolution he set in motion.

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Key Discussion Points & Insights

The Vanguard Revolution: Index Funds for All

• Bogle’s Vision: Brought Wall Street to the individual investor by creating the first index mutual fund.
  • “Jack Bogle, who founded Vanguard Group and died this week at age 89, was a larger than life Wall street titan who, through index funds, transformed the world of investing and brought it into the hands of the everyday investor.” (J.R. Whalen, 00:31)
• Core Principle: Diversification
  • “The math has been proven over and over again. Diversification is not only the first important thing investors should think about, but the second and the third and probably the fourth and fifth, too.” (Jack Bogle, 02:41)
• The Game Changer: Before index funds, the total return of the market was inaccessible to most individuals.
  • “Until the mid-1970s, the return of the stock market was theoretical rather than actual... It was only after the invention of the index mutual fund that the total return of the stock market became within the reach of pretty much any individual investor.” (Jason Zweig, 02:55)

Historical Investment Costs & Bogle’s Disruption

• High Fees Era: Investing pre-Vanguard was costly and cumbersome.

  • “A realistic estimate of the annual cost of investing for an individual, for a household, was probably 2 to 3 percentage points a year at a minimum... you would have been surrendering roughly a third of the total return to expenses alone.” (Jason Zweig, 04:03)

• Impact on Everyday Investors: Bogle’s innovations substantially lowered costs, democratizing market access.

The Double-Edged Sword of Low Costs

• Concern Over Excessive Trading
  • "[Bogle] was well aware of Newton's Law that for everything created, something is destroyed. And late in his life, he had a lot of concerns that in a market environment where trading is essentially free, people would trade too much for their own good.” (Jason Zweig, 05:02)
  • Index mutual funds work best when held for the long term, not as vehicles for frequent, speculative trades.

Longevity and Unwavering Investment Philosophy

• A Witness to a Century of Change
  • “Jack Bogle was born roughly four months before the crash of 1929... So he literally saw it all.” (Jason Zweig, 06:12)
  • Despite vast transformations in finance, Bogle’s central message—from 1975 until his death—remained unchanged and effective.

Bogle the Visionary—and His Limits

• He Never Managed Money Professionally

  • “You've pointed out that Bogle never managed money professionally, which is ironic... But you say he had great vision.” (Interviewer, 07:01)
  • “He was the ultimate executive and entrepreneur.” (Jason Zweig, 07:13)

• Mutual Ownership Innovation

  • “When Paul Samuelson proposed... a mutually owned investment company, Jack Bogle had the vision... And Vanguard has captured that part of the market all to itself. And it's now the second largest asset manager in the world with almost $5 trillion under management.” (Jason Zweig, 07:13)

• Bogle’s Skepticism Toward ETFs

  • “A lot of people feel that the biggest mistake Jack Bogle made in his career was to turn down the idea of sponsoring ETFs in the early 1990s... When Mr. Most said to Jack Bogle, you can trade these anytime... Jack famously said to him, why in the world would anybody want to do that?” (Jason Zweig, 08:04)
  • Bogle felt ETFs encouraged over-trading, a practice he believed harmed investors.

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Notable Quotes & Memorable Moments

• On Diversification:

  • "Diversification is not only the first important thing investors should think about, but the second and the third and probably the fourth and fifth, too."
    — Jack Bogle (02:41)

• On Market Returns Pre-Index Funds:

  • "Until the mid-1970s, the return of the stock market was theoretical rather than actual."
    — Jason Zweig (02:55)

• On Cost Reductions:

  • "You would have been surrendering roughly a third of the total return to expenses alone."
    — Jason Zweig (04:03)

• On Unintended Consequences:

  • "He had a lot of concerns that in a market environment where trading is essentially free, people would trade too much for their own good."
    — Jason Zweig (05:02)

• On ETF Skepticism:

  • "Why in the world would anybody want to do that?" (on all-day ETF trading)
    — Jack Bogle, recounted by Jason Zweig (08:04)

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Important Timestamps

• 02:04 — Introduction of Jack Bogle’s legacy and Vanguard’s impact
• 02:41 — Jack Bogle on the paramount value of diversification
• 02:55 — Jason Zweig explains the accessibility gap pre-index funds
• 04:03 — High costs of investing before Vanguard’s disruption
• 05:02 — Bogle’s concerns over potential for excessive trading
• 06:12 — Historical perspective from Bogle’s life span
• 07:13 — The mutually owned investment company innovation
• 08:04 — Bogle’s skepticism toward ETFs and all-day trading

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Tone and Language

The tone is thoughtful, respectful, and analytical throughout, blending admiration for Bogle’s vision with a clear-eyed look at both the benefits and complications of his innovations. Zweig’s remarks are accessible and informative, echoing Bogle’s straightforward style.

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Conclusion

In remembering Jack Bogle, the episode highlights a financial industry titan who empowered ordinary investors by making diversification, low-cost funds, and market access available for the many, not just the few. Bogle’s groundbreaking ideas—driven by a staunch commitment to investors’ best interests—continue to shape the financial world, even as he remained watchful of the very risks his innovations might unleash. The legacy, as the discussion makes clear, is nothing less than transformative.

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Transcript

[Charles Schwab Host]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. [e-mail] WashingtonWise Foreign.

[J.R. Whalen]

With your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. Jack Bogle, who founded Vanguard Group and died this week at age 89, was a larger than life Wall street titan who, through index funds, transformed the world of investing and brought it into the hands of the everyday investor. We'll remember Jack Bogle in a moment. First, these money and market stories. You should know the latest casualty of the government shutdown small business loans. The Small Business Administration has stopped approving routine small business loans that the agency backs to ensure entrepreneurs have access to funds. In many cases, the stoppage halts small business owners plans for expansion and repairs and forcing some owners to consider costlier sources of cash. And actor Bruce Willis is listing his 22 acre estate in New York's Westchester county for $12.95 million. Willis and his family are relocating to the West Coast. They bought the property in 2014 for $12 million. The roughly 9,000 square foot main home has five bedrooms, a playroom, a media room with a video center and a wine cellar. There are three other cottages on the property as well. Accessed via a separate driveway, they're used to host guests and house staff or serve as office space. The family is going to keep an apartment they own on Manhattan's Upper West Side. They four bedroom, 3,000 square foot apartment last year for nearly $8 million.

[Interviewer (Wall Street Journal Host)]

Anyone who's bought and sold index funds can thank Jack Bogle, who many view as a titan of Wall street and who died Wednesday at the age of 89. Through the Vanguard Group, which he created, he launched the first mutual fund tied to an index. Jason Zweig writes the Intelligent Investor column for the Wall Street Journal. He interviewed Bogle numerous times and he's here to tell us about how Bogle changed Wall Street. So, Jason, let's start with how he brought Wall street to the individual investor. He described to you in 2011 the importance of diversification in investing, which is a product of investing in index funds. Here's Jack Bogle.

[Jack Bogle (voice clip)]

The math has been proven over and over again. Diversification is not only the first important thing investors should think about, but the second and the third and probably the fourth and fifth, too.

[Interviewer (Wall Street Journal Host)]

You know Jason, the index fund was a game changer.

[Jason Zweig]

Yeah, it was. You know, until the mid-1970s, the return of the stock market was theoretical rather than actual. It was only after the invention of the index mutual fund that the total return of the stock market became within the reach of pretty much any individual investor. And let me clarify what I mean, until then, it wasn't practical to reinvest the dividends that a stock portfolio generated and earn the total return, the capital appreciation plus the dividend income over time. If you owned a portfolio of individual stocks, it was very cumbersome and expensive. Most mutual funds weren't diversified across the entire stock market. And many of those that were actually charged sales commissions to reinvest those dividends.

[Interviewer (Wall Street Journal Host)]

You know, we see commercials on television for companies offering trading for less than $10, $8.95, $7.95. I don't think our listeners understand how expensive it was to make moves in your portfolio. Just big moves, little moves. You would seriously rack up fees.

[Jason Zweig]

Yeah. In the mid-1970s, when Jack Bogle's career really took off running Vanguard, which he founded in 1974, a realistic estimate of the annual cost of investing for an individual, for a household, was probably 2 to 3 percentage points a year at a minimum. So if the average return on the stock market, let's say over the long run, was roughly 8, 9, 10% at the time, you would have been surrendering roughly a third of the total return to expenses alone.

[Interviewer (Wall Street Journal Host)]

And he brought those costs down dramatically. And he lamented later on that the index funds could have triggered excessive trading, or the cost of trading in index funds having come down so much could have triggered excessive trading and volatility because anybody could now own a wide range of stocks at such a low cost.

[Jason Zweig]

Yeah, I mean, Jack Bogle was well aware of Newton's Law that for everything created, something is destroyed. And late in his life, he had a lot of concerns that in a market environment where trading is essentially free, people would trade too much for their own good. And there's no doubt that many investors, both institutions and individuals alike, do exactly that. And Jack Bogle's great invention, the index mutual fund, is perfect for someone who buys and then holds a widely diversified index indefinitely for decades without ever buying or selling, except when the person needs the cash or has extra cash.

[Interviewer (Wall Street Journal Host)]

He retired from the Vanguard group in the 90s, but he transformed the industry and had a front row seat for more than six decades. And he was on television for, well, up until just months before he passed away. When you're in front of the market for six decades, you see pretty much every degree of economic ups and downs.

[Jason Zweig]

Yeah, it's important for people to remember that Jack Bogle was born roughly four months before the crash of 1929. And obviously he just passed away this Wednesday. So he literally saw it all. And one of the most interesting lessons we can all take away from so long a life is not only how much changed between 1929 and 2019, but also how little changed. And Jack Bogle's central message, which he formulated probably around 1975, he never changed in the succeeding four and a half decades. And it served him and Vanguard's millions of investors very well.

[Interviewer (Wall Street Journal Host)]

You've pointed out that Bogle never managed money professionally, which is ironic given the reach he had across all areas of Wall Street. But you say he had great vision.

[Jason Zweig]

He was the ultimate executive and entrepreneur. And when Paul Samuelson proposed not just the invention of index funds, which were already underway at the time elsewhere, but the idea of a mutually owned investment company, Jack Bogle had the vision and also the need to jump on that idea. And no one else picked up on it. And in all the intervening years, no one else ever has. And Vanguard has captured that part of the market all, all to itself. And it's now the second largest asset manager in the world with almost $5 trillion under management.

[Interviewer (Wall Street Journal Host)]

And people who invest in ETFs, exchange traded funds these days can really trace the genealogy back to Jack Bogle.

[Jason Zweig]

Absolutely. And you know, a lot of people feel that the biggest mistake Jack Bogle made in his career was to turn down the idea of sponsoring ETFs in the early 1990s, when the inventor of the ETF, a man named Nathan Most, brought the idea to him at Vanguard. But when Mr. Most said to Jack Bogle, you can trade these anytime you want, all day long, anytime during the market, Jack famously said to him, why in the world would anybody want to do that? And he hated the idea. And he never warmed to ETFs. And to his dying day, he was very ambivalent about them and felt that they created too much potential for investors to hurt themselves by over trading.

[Interviewer (Wall Street Journal Host)]

Well, he was a man who had tremendous impact on economics and on Wall street. And Wall street will miss him very much. That's Wall Street Journal Intelligent Investor columnist Jason Zweig with us, remembering Jack Bogle. Jason, thanks for being with us.

[Jason Zweig]

Thanks for having me.

[Interviewer (Wall Street Journal Host)]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[Charles Schwab Host]

This episode is brought to you by Charles Schwab Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. [e-mail] WashingtonW.