john "jack" bogle is one of the few decent souls in the sordid world of money, who is all the more remarkable when juxtaposed with the many scumbags on wall street that pretend to be human beings. saint jack made it his life's mission to offer the average person a "fair shake" when he could've just as easily exploited his clients like the typical predators in the financial sector would. bogle gave robert slater full access in the preparation of this biography and the final result does not disappoint. the reader is told the extraordinary story of the birth of the vanguard group without glossing over bogle's own shortcomings and errors of judgment.
the vanguard group was founded in 1974 as the first (and still the only) truly *mutual* mutual fund company. typically, mutual funds are owned by a management company and so there's an extra layer of pockets to fill at the end of the day. the way the vanguard group is set up, the shareholders own the funds, and the funds in turn own vanguard. as such, it is written into vanguard's very structure to put the shareholders' interests first. this was the revolutionary difference that allows vanguard to do what other companies fail to do: give back to investors as much of the rewards of investment as possible.
bogle was ridiculed when he first touted the idea for the vanguard group, even being called "unamerican" by some of his critics. it should be made explicit that bogle does not have anything against the profit motive. one can believe in the power of capitalism and free markets to transform society for the better while still condemning the excesses of the mutual fund industry.
mathematics readily reveals the injustice in the industry. for example, the average expense ratio for a mutual fund is around 1.4% industry-wide, while the average expense ratio at vanguard is around 0.2%. it might not seem significant at first glance, but that 1.2% difference lost to the average mutual fund compounds over the years to roughly a third of your retirement money! for concreteness, imagine you have $10,000 to invest and assume the stock market performs at 8% annualized returns. then after 30 years, you'll get a $68,032 expected return from the average mutual fund. not bad, right? well, if you invested that $10,000 with vanguard, then you'd get $95,184 instead. that's the difference 1.2% makes. you actually *lost* $27,152, or 28.5% of your retirement money, due to that 1.2% difference in expense ratios. actually, the whole story is even worse than this. we haven't factored in sales commissions (loads), annual 12b-1 fees, and taxes from higher portfolio turnover in the average mutual fund, all of which are not reflected in the expense ratio. in short, the vast majority of mutual funds charge more money and yet *underperform* the low cost no-load index fund over 30 years. conservatively, you'd lose well over a third of your retirement money after factoring in these extra costs, not just the 28.5%. this is outright theft of investors' dollars in bogle's eyes for financial "services" that don't add value. i hope this example suffices to show why the creation of the vanguard group was so important. (check out bogle's books for more details, e.g. "common sense on mutual funds" or "the little book of common sense investing.")
with all that money for the taking, what motivated bogle to build vanguard in the first place? it seems to be a combination of things. bogle grew up in a well-to-do family that was struck with poverty when he was still a boy, forcing him to learn the value of a dollar from a young age. bogle was also infused with a military discipline, austerity and the belief in hard work from his time at the blair academy. blair was an all-boys private high school that was ran like a military school when bogle attended. blair's influence on bogle was so great that blair receives much of bogle's charity money; in fact, bogle is blair's top contributor. the military spirit is also evident in vanguard's naval imagery and meshes nicely with the simplicity of the concept of an index fund itself. bogle suffered a heart attack in 1960 at the age of 31, while playing tennis with his brother-in-law. this episode and the subsequent heart attacks over the years undoubtedly gave bogle a greater sense of urgency and purpose. as bogle grew older, spirituality became an increasing influence in his life, contributing to his sense of purpose. finally, ego played a significant role.
ego has always been a double-edged sword. bogle is admittedly an egotistical and competitive person. bogle did not like to lose and some of the circumstances surrounding vanguard's creation can be construed as a power play on bogle's part to retain control of the wellington funds after he was forced out of the wellington management company. those wellington funds eventually morphed into vanguard's first funds. even after vanguard's creation, bogle always wanted to be number one and this desire for greatness has been a driving force behind vanguard. the vanguard story was not all pretty roses and saint jack is human after all. nevertheless, whatever character flaws bogle may or may not have, they pale in comparison to what bogle has contributed to all of us.
thank you, mr. bogle, for your service to humanity.