Do Not Be Afraid of the Bogleman

Jack Bogle -Now retired at a youthful 89 – photo from The Inquirer

In fact, John “Jack” Bogle earns the embrace of the investing community. He is a “rolled gold” Slack Investor hero. Way back in 1974, Jack Bogle started Vanguard Investments. Bogle’s philosophy was that: instead of trying to beat the index and charging high costs, he would offer a low-cost alternative. High costs were typical of all other investment funds at the time – the Vanguard index fund would try to closely follow the index performance over the long run – thus achieving higher returns with lower costs than the costs associated with actively managed funds.

Average expenses for an actively managed mutual fund run to about 2 percent annually. Investors can avoid that by using low-cost index funds – Jack Bogle

Almost single-handedly, Jack Bogle changed the landscape for individual investors. Before Vanguard, there as no real choice for someone that wanted to invest in shares but didn’t have the will (or knowledge) to invest in individual stocks through a broker. The small investor would have to hand their cash to a managed fund – who would gratefully accept an up-front fee, at least 2% yearly management fee, plus a trailing commission. The typical Vanguard retail fund charges less than 0.90% for domestic or international shares – This is a great way to start investing  and avoiding the fees of retail managed funds – Empower yourself!

However, Slack Investor recommends you really get serious about owning your own future and “bite the bullet” and start your own broker account. Slack Investor uses Commsec … but if he was starting from scratch he would use a low-cost broker such as the 2018 Money Magazine  winner SelfWealth – at $9.50 per trade. Using a broker, you can buy the same Index funds offered by Vanguard (as a retail managed fund) on the stock market as an Exchange Traded Fund (ETF) – at a substantially reduced rate! e.g., Vanguard ASX 300 Index ETF  VAS (Management Expense Ratio 0.14%); Vanguard World Index – ExAustralia ETF VGS (Management Expense Ratio 0.18%)

Bogle argues for an approach to investing defined by simplicity and common sense. Slack Investor likes this. Bogle has eight basic rules for investors:

  1. Select low-cost funds
  2. Consider carefully the added costs of advice
  3. Do not overrate past fund performance
  4. Use past performance to determine consistency and risk
  5. Beware of stars (as in, star mutual fund managers)
  6. Beware of asset size
  7. Don’t own too many funds
  8. Buy your fund portfolio – and hold it
Percentage of “Active” Funds that under-perform the benchmark over 10 years- Data as at 31 December 2017- Source Vanguard

The Vanguard data above shows that over a 10-yr period, less than 25% of active funds outperform index funds. JL Collins points to research that over a 30-yr period, less than 1% of active funds outperform.

Bogle has more fans than just Slack Investor. An entire community of “Bogleheads” has been inspired by his approach to investing. They run a forum that dispenses (mostly US-based) investment, money issues, and retirement planning advice that gets a remarkable 4 million hits a day. Jack Bogle likes to …

to give ordinary investors a fair shake.” – Jack Bogle

Slack Investor likes Jack Bogle’s approach and is not afraid of the Bogleman. He owns an ASX ETF Vanguard fund VAE that has management costs of 0.40% (1-yr performance 12.51%)

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