Friday, April 10, 2009

4 for 50 - Mr. Bogles relentless rules of humble arithmetic

Business Week has a very nice profile on John C. Bogle, the founder of Vanguard Group. He founded Vanguard in 1974 and was a leader in offering low-fee mutual funds.

Mr. Bogle today, is outraged that while family wealth in this country fell 18% last year and the stock market gains of the last few years have vanished, financial services industry raked in $500 billion in fees. What are we paying them for? he asks. This is his latest and probably last mission - to persuade regulators to clarify and simplify the retirement savings process.

His 1951 senior thesis at Princeton argued that the typical mutual fund "can make no claim of superiority over the market averages." With this in mind, he established Vanguard to offer the world's first index fund that mimicked, not tried to beat the S&P 500. The fee was .46% compared to the typical fee of 1.31.

Bogle's "relentless rules of humble arithmetic" - A dollar invested over 50 years at an 8% annual return compounds to $47, less 2% for expense ratios and transaction costs, and you're down to $18. Factor inflation, and your gain is less than $4.

Mr. Bogle is running a race with a transplanted heart that his body is starting to reject, but he's speaking out where ever and when ever he can because he's dedicated to his cause.

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