index fund

The Great Financial Eclipse: How Eclipsing What and Why

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What Made Jack Bogle Special?

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Little light bulb man plugging himself inA simple idea made Jack Bogle special.

Some ideas are complex — quantum theory, for instance.

Some ideas are silly– drinking this kind of sugared burp water will make me irresistible to the opposite sex.

Some ideas are appealing but wrong — sadly we haven’t invented warp drive.

Jack Bogle had a very simple idea and he was right.

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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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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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