Jack Bogle Was Called a Fool for Launching the Index Fund. It Just Turned 50.

On September 3, 1976, a small mutual fund company in Pennsylvania launched something Wall Street didn't want: a fund that made no attempt to beat the market, only to match it. Its goal was to raise $150 million. It raised $11.3 million, and, as Jason Zweig recounted in a 40th-anniversary look back, the underwriting banks wanted to return investors' money. This September, the First Index Investment Trust, now the Vanguard 500 Index Fund, turned 50.

The man behind it, John C. "Jack" Bogle, spent the next four decades making one argument over and over: investors keep what they don't pay. That argument has aged better than almost anything else in investing.

A firing, and a second act

Bogle became chairman of Wellington Management's mutual funds in 1970 and was later fired over a merger he had approved. By the account summarized in his biography, he called it his biggest career mistake, describing it as "shameful and inexcusable," and the merger's restrictive terms kept him from managing client money directly. He founded The Vanguard Group in 1974 instead.

It's a useful detail for anyone who treats a setback as the end of the story. The most influential idea of his career came out of the job he lost.

A company owned by its customers

Vanguard adopted a mutual ownership structure, meaning its clients own the firm. That matters more than it sounds. A fund company owned by outside shareholders has to produce profit for them, on top of what it charges investors. One owned by the funds' own investors doesn't have that second master. The structure is part of why Vanguard became associated with low costs.

"Bogle's Folly"

The 1976 launch was met with scorn. According to the Zweig account, critics called the index fund "un-American" and a path to mediocrity, and one Vanguard director voted to approve it but refused to join its board, convinced it would fail. It became known as "Bogle's Folly."

It didn't stay a folly. By the time of Zweig's 2016 piece, the fund had grown from $11.3 million to more than $252 billion, and index funds and ETFs together held nearly $5 trillion.

The idea in his own words

That line from The Little Book of Common Sense Investing (2007) is the whole strategy in a sentence: rather than trying to pick the few winners, own the whole market at the lowest possible cost. His case for costs was just as plain. As quoted in a review of the book: "Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy."

The strategy asks for something unglamorous: that you accept the market's return, with its good and bad years, instead of paying for a chance to beat it.

The warning from the man who built the industry

Bogle didn't present index funds as a perfect solution, and in his later years he raised a concern about their success. In 2018, according to his biography, he warned that concentration of ownership among three firms, Vanguard, BlackRock, and State Street, threatened good corporate governance, saying: "I do not believe that such a concentration would serve the national interest."

His modesty about the strategy itself is just as telling. As the Carlson review quotes him: "While such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite." He claimed less than his critics assumed. That is a large part of why people trusted him.

The person behind the argument

Bogle received a heart transplant in 1996 at age 66, an age at which he was considered past the usual range for the procedure. He kept working and writing for more than two decades afterward. He died on January 16, 2019, at 89.

What to take from it, and what not to

• Costs are the part you control. Returns are uncertain. The fee on your fund isn't. Our fund fact sheet guide shows where to find yours.
• Own broadly rather than pick narrowly. The haystack argument rests on how hard it is to identify winners in advance. The SPIVA data we cover in Index vs. Active is the evidence behind it.
• Index funds remove stock-picking risk, not market risk. Owning the whole market means owning its bad years too. Bogle's claim was about your fair share of market returns, not protection from market declines.
• Hold your own view loosely. The man who popularized the strategy was the first to say it might not be the best one.

Common questions

Who was Jack Bogle?

John C. "Jack" Bogle (1929 to 2019) founded The Vanguard Group in 1974 and launched the First Index Investment Trust in 1976, now the Vanguard 500 Index Fund. He spent decades arguing that low costs and broad diversification are an investor's best advantages.

What was "Bogle's Folly"?

It was the nickname critics gave Bogle's first index fund, launched September 3, 1976. The fund raised $11.3 million against a $150 million goal and was widely doubted. It later grew to hundreds of billions of dollars.

Is Vanguard owned by its customers?

According to Bogle's biography, Vanguard adopted a mutual ownership structure in which its clients own the firm, distinguishing it from companies owned by outside shareholders.