Remembering Vanguard Group Founder Jack Bogle
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What news headlines open the episode and set the context for Jack Bogle's legacy?
With your money briefing, I'm J.R. Whelan at The Wall Street Journal in New York. Jack Bogle, who founded Vanguard Group and died this week at age 89, was a larger-than-life Wall Street titan who, through index funds, transformed the world of investing and brought it into the hands of the everyday investor. We'll remember Jack Bogle in a moment. First, these money and market stories you should know. The latest casualty of the government shutdown? Small business loans. The Small Business Administration has stopped approving routine small business loans that the agency backs to ensure entrepreneurs have access to funds. In many cases, the stoppage halts small business owners' plans for expansion and repairs and forcing some owners to consider costlier sources of cash.
And actor Bruce Willis is listing his 22-acre estate in New York's Westchester County for $12.95 million. Willis and his family are relocating to the West Coast. They bought the property in 2014 for $12 million. The roughly 9,000-square-foot main home has five bedrooms, a playroom, a media room with a video center, and a wine cellar. There are three other cottages on the property as well, accessed via a separate driveway. They're used to host guests and house staff or serve as office space. The family is going to keep an apartment they own on Manhattan's Upper West Side. They purchased the four-bedroom, 3,000-square-foot apartment last year for nearly $8 million.
Anyone who's bought and sold index funds can thank Jack Bogle, who many view as a titan of Wall Street who died Wednesday at the age of 89. Through the Vanguard Group, which he created, he launched the first mutual fund tied to an index. Jason Zweig writes the Intelligent Investor column for The Wall Street Journal. He interviewed Bogle numerous times, and he's here to tell us about how Bogle changed Wall Street. So Jason, let's start with how he brought Wall Street to the individual investor. He described to you in 2011 the importance of diversification in investing, which is a product of investing in index funds. Here's Jack Bogle.
The math has been proven over and over again. Diversification is not only the first important thing investors should think about, but the second and the third and probably the fourth and fifth too.
How did the government shutdown affect small business lending and why does it matter?
You know, Jason, the index fund was a game changer.
Yeah, it was. You know, until the mid 1970s, the return of the stock market was theoretical rather than actual. It was only after the invention of the index mutual fund that the total return of the stock market became within the reach of pretty much any individual investor. And let me clarify what I mean. Until then, it wasn't practical to reinvest the dividends that a stock portfolio generated. and earn the total return, the capital appreciation, plus the dividend income over time. If you owned a portfolio of individual stocks, it was very cumbersome and expensive. Most mutual funds weren't diversified across the entire stock market, and many of those that were actually charged sales commissions to reinvest those dividends.
You know, we see commercials on television for companies offering trading for less than $10, $8.95, $7.95. I don't think our listeners understand how expensive it was to make moves in your portfolio, just big moves, little moves. You would seriously rack up fees.
Yeah. In the mid-1970s, when Jack Bogle's career really took off running Vanguard, which he founded in 1974, A realistic estimate of the annual cost of investing for an individual, for a household, was probably two to three percentage points a year at a minimum. So if the average return on the stock market, let's say, over the long run was roughly 8%, 9%, 10% at the time, you would have been surrendering roughly a third of the total return to expenses alone.
And he brought those costs down dramatically. And he lamented later on that the index funds could have triggered excessive trading or the cost of trading index funds having come down so much could have triggered excessive trading and volatility because anybody could now own a wide range of stocks at such a low cost.
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