While most investors have heard of the largest mutual fund companies such as Vanguard, T. Rowe Price, Franklin Templeton, etc, few know the story behind each institution. Many of the men who started these now famous and well-known companies were typically introducing an idea which at that time changed the way the mutual fund industry operated and essentially created the vast investment services industry we enjoy today. Below is Part II of our series on Mutual Fund Mavens.
John (Jack) Bogle – The Vanguard Group
John Bogle, commonly known as Jack, created one of the world’s largest mutual fund companies by pioneering his then-radical ideas on the way the mutual fund industry should be run. Bogle graduated from Princeton with a degree in economics in 1951, and was already laying the groundwork for Vanguard as he prepared his senior thesis on the performance of mutual funds and discovered that 75% of mutual funds underperformed the S&P 500 index. After graduating, Bogle spent more than two decades working for the investment company Wellington Management, eventually becoming the firm’s chairman. He was later fired, but used his experience to launch his own firm, The Vanguard Group, in 1975. One of the biggest departures from current mutual fund industry practice was that the company was owned by the mutual funds, rather than being owned by the founder or publicly traded. This structure is meant to align the interests of investors and company management since management does not have to worry about making a profit off of its mutual funds investors to benefit outside company shareholders. As founder, chairman, and CEO of Vanguard, Bogle launched the Vanguard 500 Index Fund in 1976, which was the first index mutual fund available for individual investors and focused on trying to track the index performance while keeping annual fees extraordinarily low. Bogle’s focus on low fees is legendary, and in 1977 Vanguard made all of its funds no-load, meaning that investors no longer had to pay the expensive sales commissions. While Bogle retired from active management of the firm in 1999, the firm still holds true to its roots, maintaining an average expense ratio of 0.21%, which is about four or five times lower than the typical mutual fund.
Quote: “If you have trouble imaging a 20% loss in the stock market, you shouldn’t be in stocks.”
All three of the men in our series changed the way investing was done at the time and have influenced the mutual fund industry for the better. Thanks to mutual fund pioneers such as Price, Templeton, and Bogle, the average investor now enjoys a wide variety of efficient investment options and access to low-cost professional management.