A ‘visionary in global finance’ had 2 simple ideas, and changed investing forever

Vanguard founder John BogleVanguard founder John Bogle.Vanguard

In 1974, John C. Bogle founded Vanguard Group, which transformed investing forever with the index fund.

The index fund, which passively tracks a market index, allows ordinary people to invest in the stock market at much lower fees than in traditional, actively managed funds.

Arthur Levitt, former chairman of the US Securities and Exchange Commission, has called Bogle “a visionary in global finance.” Paul Samuelson, the Nobel prize winning economist, said he ranked the invention of the index fund up there with the “invention of the wheel, the alphabet, Gutenberg printing, and wine and cheese.”

The amount of money put into index funds has exploded over the years. Vanguard is also now the leader by far – something Bogle didn’t expect. The firm manages $3.9 trillion.

“It was never my design to build a colossus,” Bogle, 87, told Business Insider in an extensive interview.

Screen Shot 2017 01 23 at 11.34.38 AMVanguard explains how its business model works in a chart from its website.Vanguard

“I’m a small-company guy, but I happen to have two great ideas,” he added.

The first is Vanguard’s ownership structure, which differs from most in that Vanguard doesn’t have outside shareholders. The company is owned by its funds, which are in turned by their shareholders.

That means Vanguard is able to return profits to fund shareholders through lower costs.It’s part of the reason why some of predicting that exchange-traded fund fees may drop to zero in 2017.

The other revolutionary idea is the index fund.

“It took 20 years before it started to catch on in the mid-1990s, and now it’s dominating everything we say in this financial field,” Bogle said. “It’s changing it forever.

Vanguard has shaken up the industry, and accounted for the majority of inflows into mutual funds since 2014, according to Morningstar data.

Vanguard now dwarfs rivals in raking in assets from investors.

Screen Shot 2017 01 23 at 11.45.32 AMVanguard accounted for the majority of inflows into mutual funds since 2014, according to Morningstar data. Morningstar

Last year through the end of November, the firm brought in $227 billion in new money, compared to $407 billion for the industry – more than half of assets. That data comes from Vanguard.

Despite his stature within the money management industry, Vanguard’s structure means Bogle has made a pittance compared to active managers and other CEOs.

In a 2012 interview with the New York Times, Bogle estimated his wealth in the “low double-digit millions.” By contrast, Abigail Johnson, who heads Fidelity Investments, is worth $14.1 billion, according to Forbes.

Read Business Insider’s full interview with Bogle here.

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