The Man Who Put the Fun in Mutual Fund

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Dart in the bullseyeOn August 31, the First Index Trust mutual fund began operations.  It was tiny and disrespected.  Now it’s the largest one in the world.

Here’s how that fund changed the investing world, why that’s important to you, and why you should celebrate Jack Bogle Day.

  1. First Index Trust is now the Vanguard 500, once known as “Bogle’s Folly” and described as “unamerican”, is now the largest mutual fund in the world.
  2. Vanguard 500 pioneered indexing, which gets the investor out of the loser’s game of stock guessing.  Are you really going to outmaneuver the professional firm whose inside-the-stock-exchange computer can react in microseconds?
  3. Vanguard 500 typically outperforms actively managed funds, but at lower costs.  “Active” mutual fund managers guess right 49% of the time, charge about 1.2% for that guessing “skill”, and lose about 1% of your money per year in transaction costs.
  4. Vanguard 500 pioneered and improved ultra low costs.  This has forced even forced managed funds to lower their fees.  I.E.  Vanguard started low, then went to .05%, vs. managed funds grudgingly moving from 1.08% to .82%.  Since one of the best indicators of mutual fund performance is low fees, you get exactly what you don’t pay for.
  5. The Vanguard 500 has siblings:  8 of the 10 Largest mutual funds are Vanguard’s.  Bonds, international stocks, etc. are available at low yearly fees.
  6.  Vanguard is owned by its investors and works for them, not for third parties eager to extract your money.
  7. Just about anyone can get in on this (a $3,000 minimum, 1 share via the ETF version, or less via a 401k).

All of this came about because Jack Bogle was creative and determined.  Read Jack Bogle’s biography and admire his business jiu-jitsu that enabled him to produce the revolutionary index fund.  Better yet, take advantage of what he built.

 

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Should the Fiduciary Rule Get the Axe?

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axe in chopping block

The Fiduciary Rule for financial advisors appears to be on its way out before ever coming into effect.  How should we feel about that?  Advocates say investors are often abused with unsuitable and expensive investment advice; the investment industry critics say it is a radical change that imposes substantial burdens, reduces their profits and limits investor choices.  Who’s right?

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Frank Armstrong Day

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Life Preserver floating in the water

What gift could make a difference if someone’s retirement plans were going nowhere?  What if their best efforts to win in the stock market kept losing?  Seems as if nothing short of a large pile of cash would make any difference, doesn’t it?  Let’s look at a better solution.

In January 1994 Frank Armstrong began serializing an investing book.  He had an interesting premise, that the conventional wisdom on investing was wrong.  Admittedly his only proof of that was that the conventional wisdom hadn’t worked.  In principle, the things he said should have been known.  Every brokerage and mutual fund had access to the same data he used.  The difference is that he let the data teach him, instead of trying to find some once in a blue moon event in the data to justify his preferences.  He was way ahead of his time, pursuing big data.  He crunched the numbers to find the mutual fund managers who delivered top returns year after year.  His great discovery:

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What Will The Stock Market Do With Donald Trump as President?

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Confused little girl with eyes crossed

There aren’t many alternatives to the stock market if we want to retire someday, help our kids with college, etc.  So, now that the election is over, what will the stock market do?
​There’s never any shortage of opinion, so let’s do a quick survey of expert predictions:

Hmmmm… Let’s look at actual history for a guide:

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Ted Benna Day (Ted Who?)

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Many, many thank yous Years ago, with the amazing John Elway injured midgame, it didn’t seem likely the Broncos could win.  The next day the headline about the backup quarterback who saved the day read, “Gary Who?”  His promised ride even forgot to give the hero of the day a ride home after the game.  These days Gary Kubiak has managed to get people to remember his name.  Let’s try to do the same for Ted Benna.

In 1980 Ted Benna pondered the Byzantine details of the tax code and decided that, while the IRS goal was to limit perks of company executives, he could interpret the obscure 401(k) provision to create a retirement plan for the average worker.  Even better, he had the idea of companies making matching contributions.  36 years later, 94% of companies offer 401(k)s.  Amid endless talk and inaction about saving Social Security, it would be unfortunate to forget that Ted Benna saved the American retirement.  These days, instead of a “defined benefit” pension, which gets redefined down by the lucrative practice of companies going bankrupt, most of us have a 401k.  Your 401k is your money in your investments under your control.  It’s not an asset of your employer’s, subject to their continuing existence.  It’s not something the management company can take.  It’s yours.  (True, any matching contributions not yet vested aren’t yours yet, but don’t quibble.)

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