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What Would Bogle Say About Today’s Markets?

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How would Jack Bogle, one of the great disruptors in the financial industry and founder of the Vanguard Group, respond to investors’ fears about the volatility in the current market?

He would say, ‘ ‘Don’t do something, just stand there,’ “ said Jane Bryant Quinn, a financial writer who participated in a recent remembrance of the Bogle organized by Impact Communications. “The market always comes back.”

“Jack was pretty clear,” continued Quinn. “He would say, ‘You have to accept that markets are going to go down 25% or more from time to time and if you can’t do that then you’re probably not a candidate for being in the market at all.’ I would modify that, at least put less money into the market.” 

Bogle would have turned 91 on Friday, May 8. He died in January 2019 after a renowned career that began when he joined Wellington Investment Trust at age 22, straight out of Princeton University, eventually becoming its president in 1967 after merging the firm with the Boston-based investment company Thorndike, Doran, Paine & Lewis. Seven years later Bogle was fired and founded The Vanguard Group. Two years after that, Vanguard created the first stock index fund for individual investors.

Bogle never stopped believing in several core principles for individual investors: Invest for the long term, at low cost, in diverse assets and buy the whole market; don’t try to beat it.

“Jack revolutionized investing,” said Rick Ferri, founder of Ferri Investment Solutions. “It took almost 12 years for Vanguard to get its first $1 billion into its S&P 500 500 index fund, but then things really took off.”

Bogle created more index funds, including an international stock index fund, U.S. total stock market index and total bond market index, and “by 1996 he had covered the world,” said Ferri. “You could go and create a full index portfolio that had an extremely high probability of outperforming anything else.”

Vanguard’s first index mutual fund now has about $500 billion in assets as well as an ETF double, and the Vanguard Group has $6.2 trillion in total assets, making it the second largest asset manager in the world.

“The phenomenon he created is almost immeasurable. He has saved hundreds of billions, if not trillions, of dollars for investors,” Ferri said.

“Bogle made investing understandable,” said Knut Rostad, president of the Institute for the Fiduciary Standard. He recounted the results of a recent survey the institute released of 1,000 investors — half representing the general public and half Vanguard investors — which showed that Vanguard investors not surprisingly were more knowledgeable about the principles of investing for the long term, in diversified assets at low cost. The respondents representing the in the general public were slightly more familiar with Vanguard than Merrill Lynch or Charles Schwab.

Bogle didn’t just benefit individual investors but also financial advisors who are fiduciaries, according to Chip Simon, a certified financial planner at Taconic Advisors. “He was totally behind the idea of advisors as fiduciaries … He also gave the planning industry a way to  manage investments for clients … We gain time in our lives. If a client truly really buys into aide investing to get market returns, why do you care how you do compared to the market? You accept the fact that you get the market returns.”

That gives financial planners time for themselves and for all the other services they provide to investors such as estate planning, insurance and managing transition between saving and spending from retirement accounts, Simon said.

As for the future of financial advice and the fiduciary standard, there’s more work to be done.

Financial advisor fees are too high, said Ferri, noting that while trading costs, ETF costs and index fund costs have come down advisors are still charging 1% to 1.5%, often using actively managed funds that underperform indexes. 

“There is a big swell for advisors to charge differently than AUM,” said Ferri, who charges by the hour. “Advisors need to be aligned with the amount of work the advisor is actually doing.”

The fiduciary standard has languished while the Securities and Exchange Commission has promulgated its own best-interest standard instead which, said Quinn, “creates fake fiduciaries.” When investors read the disclosure about conflicts they will assume that’s in their best interest, according to Quinn.

Rostad said the fiduciary standard will only happen if the industry decides to make it happen. Still he said the next generation of investors, changes in the marketplace and state fiduciary efforts could eventually make it so.

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