If you can't beat the market, be the market: That's the logic behind index funds. More than 30 years ago, John Bogle set up shop to help investors capture market returns at minimal cost. He had realized a quarter-century earlier that complex mutual fund investing strategies don't consistently outperform market returns.
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Even Bogle's detractors have had to
admit that the wisdom of his investing model has been
borne out by time. Somewhat uncomfortable in his status
as a present-day folk hero, Bogle remains an ardent
defender of the common investor, and his zeal shines
through in his 2007 book, "The Little Book of Common
Sense Investing," published by John Wiley & Sons.
At age 80, the founder and former CEO
of The Vanguard Group is still going strong. When
he's not traveling to teach at a college seminar or
to deliver a speech, he works 60 hours a week running
Bogle Financial Markets Research Center, a unit of
Vanguard that's funded by the company. His latest
book, published in 2008, is "Enough: True Measures
of Money, Business and Life." He took time out
of his hectic schedule to talk about investing with
Bankrate.
History of the index fund
 You
wrote your senior thesis 55 years ago on index funds.
Did you understand their potential back then, or have
you been surprised with the developments since you
founded Vanguard in 1974?
 It was just a thought that I had in my thesis, not about index funds, but about outperforming the market by managed funds. I'm quite happy I wrote it down, this little kid, one year out of his teens. In that thesis, I wrote: "Mutual funds may make no claim to superiority over the market averages."
We didn't have as much data as we do today, but I looked at performance of a great number of funds and found that they couldn't beat the market. That was the seed that was planted that by 1974 had burst into flower when I created the first index mutual fund.
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Updated: June 10, 2009 |
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