Best Quote: “The biggest risk to our financial system is the failure of our retirement system. Right now half the savings assets of the American economy—nearly $10 trillion—are in retirement plans, which are failing badly. The problem is that over an investment lifetime only about 25 percent of the rewards go to the investors and 75 percent go to the intermediaries”
Bogle is a pioneer in the mutual fund industry. He introduced the first S&P 500 Index fund - the Vanguard 500 Index - which debuted in 1976. He professed that investors should not attempt to beat the markets but should follow the markets instead. His index funds were characterized as low cost and low maintenance and allowed millions of investors to participate in the greatest bull market ever
Bogle had a very interesting concept for the managers “the more that fund managers of America take, the less investors will make. If investment returns are 7 percent annually and the system takes 2.5 percent then you are left with only 4.5%”
But it is hard to find an ideal fund manager. Amazing for an industry, which owns 28 percent of corporate America . A few decades back the mutual funds churning (frequent buying and selling of stocks) ratio was just 15%. It has now gone up to about 100%. Bogle laments that high churning rate leads to increased transaction costs, which in turn erodes investor's wealth. half the savings assets of the American economy—nearly $10 trillion—are in retirement plans, which are failing badly. The problem is that over an investment lifetime only about 25 percent of the rewards go to the investors and 75 percent go to the intermediaries. The overhead operating cost for an index fund is 0.2% annually and the annual trading costs around 0.1%. The diversified fund spends 1.5% on operating overhead and 2% as trading costs. Therefore Index funds start with an up front advantage of 3.3% annually.
Peter Lynch was a great believer of the index investing. He advised most investors to go with an index fund . Jack Meyer labels the investment industry as a giant scam. And David Swensen of Yale calls the mutual fund industry a colossal failure for individual investors. In 1976 the Investing guru Benjamin Graham indicated that indexing is the best strategy.Warren Buffet has advocated low cost index funds for years now.
While Bogle's concepts were great for the US markets it remains to be seen how that concept would work for a country like India. The BSE Sensex is skewed in favour of a few stocks.The computation methodology for the BSE Senss also very different when compared to the Dow Jones.
