Jack Bogle – And Why I Came To Vanguard

Many of us saw the recent news of the passing of Jack Bogle at the age of 89. I was saddened. Although I’ve never had the honor of meeting Jack (no matter how much I’ve stalked the Bogleheads forum to try and get tickets to the yearly conference), he’s the person who’s made the biggest difference in my financial life.

In honor of his life, I wanted to share the story of how I came to Vanguard almost twenty years ago, left once, and immediately came back – never to leave again.

But first, a quick recap of how Jack changed the investing world.

The World Before Vanguard

Those of us who are too young to remember the investing world before Vanguard take certain things for granted. One percent annual fees for investments seems high to us.

Back in the 1970’s, investing was an expensive endeavor. Average expenses were something over 2%. There were no index funds. All funds were actively managed, with people trying to beat the market.

It was Bogle who thought of “being” the market, rather than beating it. In 1975, five years before I was born, the first index fund was created. Other companies laughed at the idea. But by the time I started investing, in the late 90’s and early 2000’s, active managers still had a lot of criticism of index funds. But I’m sure it was much worse in the 70’s.

Vanguard changed the entire investing industry. Expenses, in general, have been going down for the past forty years. Other companies, like Fidelity, are trying to compete with them head-on by offering zero-fee ETF’s and the like.

Today, it’s common to be offered non-Vanguard low-fee index options in your 401k and the like. That’s thanks to the work that Jack did, long ago, despite the laughter of the industry.

No one’s laughing now.

My Start With Vanguard

My very first investment, as a teenager, was with Janus. Specifically, it was a Janus 20 fund that did very well in the tech boom, but terribly in the dot-bomb to follow.

I was a teenager, and then a college student, with an interest in personal finance and investing. Heck, in my public speaking class my final talk was about investing and compound interest (a speech, by the way, that my professor told me to never give for free again). During this time of reading and research, I found Vanguard, and the idea of index funds.

But my first investment with them wasn’t into an index fund. There weren’t any ETF’s, and I couldn’t afford the $3k minimum for one of their regular index funds.

It was in their STAR fund. It had a minimum investment of $1k, which I was able to scrape together. And although it had higher fees than an index fund, it seemed a well-diversified fund for a small investment minimum. Interestingly, I still have this fund today. It’s where I keep money I’ve invested over the years for a big family trip.

I also transferred that Janus 20 fund (which was inside a traditional IRA) to Vanguard, this time to a real index fund, because I gave up on that fund ever recovering.

My records from the early 2000’s are mostly gone now, but luckily you can get your account history from Vanguard online going back to 1993. So I can clearly see that my STAR fund was opened in July of 2003, when I was 23 years old.

But later when I was 23, I left them for a while.

You see, despite all my research, I was still unsure of myself. I had read a lot, sure, but I was only twenty-three years old. What did a 23-year-old woman know about investing? I was sure others knew much, much better than I did.

I Move My Money To Cotton Swab

So my father introduced me to his financial advisor, at a firm I shall call Cotton Swab.

Frankly, I didn’t like her. She asked me questions about the difference between a “growth” and “value” fund, and appeared to be smirking when I didn’t answer correctly. She also showed me that chart of the investment returns of different asset classes, to show me the benefit of a diversified investment approach. Investing only in index funds would be risky, because some years they performed poorly.

I also distinctly remember that she wanted me to not only transfer my Vanguard funds over, but also sell my savings bonds and invest my savings accounts. Why? To hit some kind of minimum.

I didn’t like that idea. I was a new mother, after all, with my son being only about six or nine months old. I felt I needed some safe money, in case an emergency came up. But I also felt like I was stupid at this whole investing thing, and I should probably leave it to a professional like her.

And so in May 2004 I transferred my Vanguard funds to Cotton Swab. BUT I transferred them in kind, meaning I never sold them for a different fund. They just sat in Cotton’s account as Vanguard funds.

I didn’t sell my savings bonds either. Nor did I cash out my savings accounts/money market funds. Instead, I did more research. More reading. The more I researched, and the more I thought about it, the more convinced I became that I had just fallen for a sales tactic.

And so, in November of 2004, I transferred all my money back to Vanguard.

There I’ve stayed ever since. I’ve added to my funds substantially over the years, but I’ve been a DIY investor that whole time. I used to be afraid of investing and thought that I would need a financial advisor to help me at some point. But now I’m confident in my skills, and my approach.

No matter what amount I end up with, I’m sure I won’t need to pay someone else for advice.

Also, P.S. to any financial advisors out there, if someone in their early 20’s shows up wanting to invest, you might want to take them seriously instead of making them feel stupid. Anyone at that age thinking of investing is likely a good long-term bet.

Why Vanguard?

Today, lots of companies offer low-fee index funds. Some are even less expensive than Vanguard. And yet, there I stay. Why?

A few reasons.

• When I started with them, they treated me the same as they do now. Honestly, they didn’t seem to care that I only had a thousand dollars to invest. They don’t care now that I have more than a thousand dollars.
• They never treat me like I’m stupid. Enough said.
• They’re owned by the investors. They are not a public company, working hard to line executive pockets and enrich their shareholders. They operate at-cost and don’t pull stunts like “loss leader” funds to try and pull in business to their more expensive funds. Check out more about their ownership structure here.
• They’re obsessed with low costs. Yes, that sometimes means they don’t have the fancy technology and cool dashboards of some other companies. But frankly, that’s fine with me. I’d rather save on my expense ratios than have them blow millions on a design firm for their website.

So I’d like to take this opportunity to say thank you to Jack, a man who I never met but who did so much to change the investing industry. He could have made himself a billionaire, but instead passed that wealth potential down to us ordinary folks.

If not for him, the industry would still be an expensive, complex place for us all. I expect his legacy to continue to reverberate through the coming decades.

Rest in peace, good sir.