John ‘Jack’ Bogle grew up in a family deeply affected by the Great Depression; as an economics student at Princeton University, Bogle focused on mutual funds, producing a senior thesis entitled ‘The Economic Role of the Investment Company’ which contributed to his lifelong investment philosophy and eventual development of the index mutual fund.
In 1974, Bogle founded the Vanguard Group mutual fund company which in 1976 launched Vanguard 500, a low-cost, high-return option for less wealthy investors.
Bogle served as CEO and chairman of Vanguard until 1999 when he stepped down following a transplant after a lifelong battle with a congenital heart condition; in the same year, Fortune named him as one of the four ‘investment giants’ of the 20th century.
Work hard as hell. It doesn’t hurt
Vanguard now has $4 trillion in assets under management and as president of Vanguard’s Bogle Financial Markets Research Center, Jack maintained an active post-investment career as an author and speaker on a variety of financial matters.
His biographer Robert Slater describes Bogle’s life as ‘evolutionary, iconoclastic and uncompromisingly committed to his founding principles of putting the interests of the investor first and constructively criticizing the fund industry for practices that run counter to low-cost, client-oriented mutual fund investing’.
As the creator of the broad-based index mutual fund, Bogle focused much of his attention on low-cost and low-turnover passively managed funds; in helping individual investors grow their assets, he recommends:
- A simple investment strategy (avoid rebalancing asset allocation too frequently)
- Keeping costs and expenses associated with investments to a minimum
- Taking a long term view
- Rational analysis and eliminating emotions from in the decision-making process
- Index investing as an appropriate strategy for individual investors
As part of this work Bogle, now aged 88 recently delivered some nuggets of wisdom for young people, acknowledging the challenges they face with the economy and the job market; according to a study by the Pew Research Centre, millennials are the only one of the four current generations that doesn’t identify work ethic as a key part of their identity. Many want to shun corporate life and be in control of their own destiny by starting their own business and seeking financial independence.
To them Bogle offers the following advice to those considering DIY investing :
Have a stomach for risk – ‘Being an entrepreneur is not for the faint of heart. It is a high-risk, high-reward proposition. While we would typically encourage young people to start saving for the future as early as possible, it’s unlikely that a budding entrepreneur will be able to do so. The entrepreneur will need every bit of capital available for the business, which will likely crowd out personal savings. This may not be prudent in the traditional sense, but it is necessary. The entrepreneur’s business can be thought of as a highly risky, concentrated stock position. If it doesn’t work out, you can be wiped out. But if it does work, the rewards can be ‘beyond the dreams of avarice.’
create a fund that is 75% invested in stocks (‘get the stock market’s return
Be sure to work longer, harder and smarter – ‘Work hard as hell. It doesn’t hurt. That was the secret for (US statesman and Founding Father) Alexander Hamilton, that was the secret for me.’ By his own admission Bogle never mastered the idea of a work/life balance.
Find a company that is the right company, even if it is the wrong job for you – ‘Once you get in the door, it will be a much wider opportunity. The world of technology has totally altered career paths by making it easier for people to start companies and for companies to replace workers.’
When investing, get yourself on a routine – Bogle suggests young people should stick to low-fee index funds; create a fund that is 75% invested in stocks (‘get the stock market’s return’) and make regular contributions. Then – ‘Never do anything. Don’t open your damn statements. Don’t peek. These are the relentless rules of humble arithmetic. Someone contributing $500 a month for 45 years, earning 5% a year would have nearly $1 million at the end.
Don’t hire a financial advisor – ‘Unless you need a financial advisor to help you get started in that routine, you probably don’t need a financial advisor at all.’ However, Bogle said that if required a low-cost robo advisor may be preferable to traditional advice to help you automate your investing: ‘It’s a personal choice. If you think you need a helping hand, then you do.’
Stay in the game – given his brushes with death, Bogle shares George Bernard Shaw’s life-force philosophy, telling young people that he always had a determination to ‘get back into life to be part of life.’ One of his surgeons was struck by his will to live: ‘I recall a man … whose spirit was consistent with his approach to his career and life, he was fully invested.’