Although John Bogle is a relatively unknown name outside of the finance industry, the legacy he has created since the foundation of the Vanguard Group in 1975 and the impact on ordinary investors has been remarkable. His idea behind Vanguard was simple, create an investment firm whose primary focus was to ensure the fees charged to investors were as low as possible.
Vanguard was able to lower fees so aggressively due to two key decisions that Bogle made when he first founded the company. Firstly, Vanguard was setup as a non-profit organisation owned by its customers which meant that Vanguard funds, unlike almost all of their competitors, had no ulterior motives such as maximising profits to please shareholders. Secondly, Bogle fundamentally changed how the ordinary investor could invest their money by inventing the ‘passive index fund’.
The objective of passive index funds is to mimic the performance of an index such as the FTSE 100 or the Dow Jones as closely as possible. This is achieved by proportionally buying all shares in the given index, thus not trying to outperform the index but perfectly match it.
This new, innovative way of thinking focused around lowering the fees for the average investor has been slowly gaining momentum since passive funds were first introduced in 1975. This is highlighted by the fact that passive funds now make up 48% of the total fund market, up from 25% in 2009. Vanguard is the leading player in this field and has benefited from this explosive growth to become the second-biggest fund manager on earth, holding more than $4 trillion between over 20 million private investors.
The success of Vanguard and especially passive index funds is particularly evident when looking at how the average fund fees have changed over time. In 1975, when Vanguard was first founded, their average fee was 0.68% as opposed to the industry average of 0.73%. Today, almost 44 years later, the average fee for Vanguard funds is just 0.10%. This has been a key driving force in also bringing down the industry average fees, which whilst still are high, now sit at 0.58%.
This is why we invest in Vanguard funds as, unlike most of their competitors, when you buy one of their funds you become a part owner in the company. This means you can be sure that you are always receiving the fairest and most competitive price possible at any given time. UK residents can invest directly through Vanguards’ own platform, either through ISAs or in a taxable General Account. If you are not a UK resident, Vanguard funds can be purchased worldwide through all major brokers.
Do you invest in Vanguard funds? If so why did you choose to invest in them? Let us know in the comments.