Whiteboard Series: Episode 13 – Jack Bogle and Index Fund Investing

The investment management community lost a titan last week when Jack Bogle, founder of Vanguard and creator of the index fund, died at the age of 89 years old.  While most investors have probably never heard of Jack Bogle, they have all undoubtedly benefitted from his contributions to the investment industry.  By simplifying the approach to investing – and lowering costs in the process – Bogle provided a timeless blueprint for successful long-term investing.  Bogle educated investors that they didn’t have to be a stock market expert in order to be a successful investor!



The Whiteboard Series is a continuous exploration and discussion across a wide range of personal finance topics. Through a series of drawings, interviews and explanations, we hope to educate and simplify important financial planning principles. 

Video Transcript

On today’s Whiteboard Series, I want to talk about Jack Bogle and Index Fund Investing.  The investment management community lost a titan last week, when Jack Bogle, founder of Vanguard and creator of the first index fund, died at the age of 89 years old.  While most investors out there have probably never heard of Jack Bogle, they’ve undoubtedly benefitted from his impact on the investment industry over the past 40+ years. 

In 1975, Bogle created the first ever index fund, which was a new and controversial idea at the time.  The idea was simple, rather than spend all this time, effort and money trying to identify which individual stocks were going to perform well, in order to build a portfolio that could outperform the stock market, investors are MUCH BETTER OFF simply buying all of the stocks out there and benefitting from their collective long-term growth over time. 

In doing this, Bogle brought a lot of simplicity and common sense to the investment process, with a basic message that, YOU DON’T HAVE TO BE A STOCK MARKET EXPERT IN ORDER TO BE A SUCCESSFUL INVESTOR!  It took awhile for this idea to catch on, but over the past 4 decades it’s become much more mainstream and has provided a timeless blueprint for successful long-term investing.

Index fund investing relies on some basic principles:

1)      Active management is a loser’s game – the data is overwhelmingly clear.  Beating the stock market is hard.  Almost impossible.  Over long enough time horizons, 9 out of 10 active managers will underperform the performance of the stock market.  And that includes investment professionals, who wake up every day and try to do this for a living.  So instead of spending all this time and energy for the slim chance of beating the market, simply invest to grow with the market.

2)      Broad diversification – Avoid individual stock picking and just own all of the stocks.  There was some research that came out last year that said that over the past 100 years, the entire return in the stock market is attributed to just 4% of all the stocks that have been listed on the stock exchange.  Over time, most companies either flame out completely, or underperform the broader index.  In hindsight, companies that do well like Apple and Amazon always seem obvious, but they’re really hard to identify and you’re likely not going to do it. 

3)      Low costs and taxes – this is really the hallmark of Jack Bogle and the index fund.  Indexing is very inexpensive to do, which means that you get to keep more of your money.  It also doesn’t require frequent trading, which can trigger things like taxes.  By reducing the drag of costs and taxes on your portfolio, your money can grow more productively over time, allowing you to keep more of your wealth.  Over the years, the indexing philosophy has driven down investment costs throughout the entire industry, which is a great thing for the individual investor. 

4)      Long time horizon – Indexing isn’t particularly exciting.  You’re not going to double your money in a year or impress your friends on the golf course about your genius investment idea.  Indexing works if you’re patient, stick with it and invest for the long-term.  Most people out there are investing money for important life objectives – retirement, education for their kids, for legacy and charitable planning.  This is a proven strategy for successfully growing your money, but you need to be committed to it. 

It’s hard to overstate the impact Jack Bogle and indexing has had on individual investors over the years.  By simplifying the process and lowering the costs, there’s a roadmap to successful investing that’s applicable to anyone, no matter their age or wealth.

The foundation of our investment philosophy here at The Johnston Group is rooted in a lot of this, focusing on broad diversification, low costs and tax-efficiency.  In the short-term, the strategy isn’t particularly exciting, but the long-term productivity more than makes up for it.

Jack Bogle’s Little Book of Common Sense Investing was one of the first investment books I read upon entering the industry, and I keep a copy of at my desk and reference it frequently.  It completely changed the way I think about investing, and encourage anyone out there to read this book, learn from it and benefit from the mind of one of the great investing educators of the last century.  I promise, it’s worth your while!