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Remembering John Bogle, the Master of Index Investment

The world lost one of the doyens of effective investment last week. Yes I am talking about Vanguard founder, John Bogle. If you are remotely interested in mutual fund investments, it is unlikely that you have not heard about Bogle. He is one of those iconic financial gurus who single handedly changed the course of investments and return-reward ratio for most amateurs. His constant initiatives towards lowering costs and maximizing investor’s interest won him many accolades. It is John Bogle who made Index Investment a sought after investment opportunity.

Many refer to him as the patron saint for amateur and low budget investors. In the 1970s, he introduced the concept of Index Investment. The idea was quite simple. He created a mutual fund that would mimic the S&P 500. It is not only one of the leading American stock indices but also offers the investors the advantage of a diversified portfolio. The basic premise is that in this case, the Index Fund has stocks in the appropriate proportion in sync with their market cap and importance. That means it is not too exposed to any specific sector or stock. In short it is representation of ultimate balance in the portfolio. Running an Index Fund is also relatively cheaper as you do not need expensive traders/stock pickers to create the portfolio. So the overall expense of owning such a fund is much lesser for the investor. Turnover costs too are rather minimal.

Though this original idea was that of Nobel Laureate, Samuelson, the credit goes to Bogle for recognizing the genius of the concept and creating a market product in lines with the theory for the investors at large. Bogle’s fund was not a success from the word go. It barely raised $17 million in the first five years but over the next two decades these Index Funds became some of the fastest growing investment instruments. Vanguard today has over $5 trillion in assets under management globally.

Avoiding high management fees was Bogle’s cardinal mantra. This was nothing short of revolutionizing the overall investment environment across the US and the world eventually. It suddenly became possible for common investors to get the average market returns and beat professionals despite paying a small fee. Needless to mention he became the guiding light for these investors.

Warren Buffett once said in an interview to CNBC that, “A lot of Wall Street is devoted to charging a lot for nothing. Bogle charged nothing to accomplish a huge amount.” Perhaps no other statement could paraphrase Vanguard’s achievement so succinctly. In a way it is fitting that only an investment guru of Buffett’s mettle could truly describe the achievement of another iconic financial market great. A talented and driven visionary, Bogle altered the course of meaningful investment in a way that one cannot even dream of. The concept of greater good helped millions realize better returns. He is a legacy that will stay on for generations to come.

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