Unique ideas, but early struggles

Jack Bogle, Vanguard’s founder, wanted to build a different financial firm—one that was owned by its funds*, not outside shareholders. And he wanted to offer a new way to invest: index funds.

Bogle’s rationale for index funds was simple. He believed most active fund managers couldn’t consistently beat the market, so he created an investment that sought to track the market and opened it to all investors.

At first, the popular opinion in the financial industry was that index funds would fail. People assumed no one would settle for “average returns.”

Some opinions were even stronger. Bogle kept a poster in his office that featured Uncle Sam encouraging people to “stamp out un-American” index funds.

Like the 76ers, who endured several losing seasons to increase their odds of getting higher draft picks, Bogle had his own early struggles. The initial offering for the first index mutual fund for individual investors, today the Vanguard S&P 500 Index Fund, didn’t draw the cash flow he had hoped for.

But Bogle believed his investing process could yield better results for investors, so he pressed on.

Built-in benefits

Soon, investors began to see the benefits of index funds:

  • Low costs. The less you pay for an investment, the more you keep.
  • Lower risk. Mutual funds help you from putting all your eggs in one basket. You can invest in literally thousands of securities in a single fund. This is called “diversification.”
  • Tax efficiency. Index funds tend to generate less taxable income, so you can keep more of your money working for you.

Putting investors first

It’s hard to imagine what the investing landscape would look like today if Bogle had listened to his critics over 40 years ago. But he had a hunch that Vanguard could offer a different way to invest.

He trusted the process.

*Vanguard is client-owned. As a client-owner, you own the funds that own Vanguard.

Notes:

All investing is subject to risk, including the possible loss of the money you invest.

Diversification does not ensure a profit or protect against a loss.

We recommend that you consult a tax or financial advisor about your individual situation.