Vanguard Founder “Bogle’s” The Mind With Omissions

By / Local Businesses / Tuesday, 03 April 2018 02:14

Provided by Capitol Securities of Wilmington

Marc McKoy is a Pleasure Island resident and Wilmington-based financial advisor with over 25 years’ experience helping clients navigate the choppy waters of investing. To reach Marc, email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 910-239-9220.

Everybody knows who Jack Bogle is.  He is the 87 year-old founder of the Vanguard Group of mutual funds which he started in 1976 and that currently manages about $3.5 trillion of investor money.  He continues pound sand that the only thing that matters is fees.  It’s fees and nothing but fees, or so he says.  Everything else is a “zero-sum game” wherein there is no possibility of anyone to even potentially outperform the indexes.  So why waste your money on active-management of your mutual funds?  Here’s why:
1) Bogle fails to mention, even anecdotally, that while it’s true that around 80% of stock funds fail to outperform the indexes, that means that about 20% actually do.  Seek out better funds…they’re there.  Perhaps he doesn’t mention that because Vanguard has none of the top 20%?
2) Bogle doesn’t even acknowledge that investor behavior is a far bigger factor than fees in actual investor returns.  In fact, a newsletter issued by issued Morningstar(1) last year suggested that actual investor returns are closer to 70% of a given fund’s total return for the same period.  So, most self-advised investors effectively suffered a 30% fee – per year – because they bought high and sold low.  Investors in funds recommended by advisors did markedly better.
3) Bogle fails to mention the obvious.  When you own an index fund, you own everything in the index in proportion to that particular holding’s representative portion of the index itself.  So when his flagship fund, the Vanguard 500 Index Fund, suffered a drawdown of over 50% in the Great Recession, it bottomed out in March of 2009.  It would be over four years, until around 2011, that an investor recouped the original balance he or she had in the Summer of 2007.  How many people would have thrown in the towel long before then?  Go back to the “Dot-com” bust of 1999 to 2002.  His fund dropped about 40% in that period and didn’t recover until sometime in 2006.  Again, who would have thrown in the towel during that period, never having given themselves the chance to rebuild their investment?
I remember the fad about index investing first gained momentum in the late 90’s.  The next time I remember it gaining steam was in the mid-2000’s.  Remind you of anything?
Thanks for reading.
(1) Morningstar report entitled “Total Return vs. Investor Return”, issued 5/6/2015
This material was prepared by the author, and does not necessarily represent the views of Capitol Securities or its affiliates.
This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.
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