Best Invention Of All Time In The Stock Market

KISS — Keep It Simple Stupid

This story is of Late Jack Bogle. For those who don’t know who Jack bogle is, he is someone who turned the complexity of finance and investing into something that anyone could understand, and his invention has stood the test of time.

In 1973, The Bank Of America and Wells Fargo opened the first exchange-traded mutual fund. After conducting a lot of academic research on the cost and benefits to serve institutional clients.

Birth of the Vanguard Index Fund

In 1975, the mutual fund legend Jack Bogle launched the first public exchange-traded fund, calling it the First Index Investment Trust. It started with just $11 million assets under management. It is now known as the Vanguard 500 Index fund with over $805 Billion assets under management.

Few years after the successful launch of the Vanguard 500 index fund, the race to build index funds took off. From one fund in 1993 to 102 by 2002, then over 66,400 by 2009 to over 125,500 in 2020. Now we have more indexes in the world than the actual number of publicly traded companies.

Jack Bogle said,” My ideas are very simple. In investing, you get what you don’t pay for. Too many of the investors are soo blinded by the high returns that they pay little to no attention to the high fees they’re paying.”

The reason why Vanguard stood out of the crowd is its unique corporate structure. Vanguard acts more like an insurer owned by investors in the fund, which employ their own staff and officers. In contrast, a regular management company controls the fund and provides all the investment, administrative, and marketing services required for optimal operations. Mr Bogle argued that Vanguard funds were thus completely independent of their advisers and acted solely in the interest of the shareholders.

Asset Allocation and Inbuilt Diversification

When you’re buying into an index fund, you get the inbuilt benefit of diversification in your portfolio. The following are the top few holdings of Vanguard 500 as of September 1st 2021.

Vanguard 500 Sector Weighting

And Below is the Vangu500’s00’s top 10 holdings that makeup to 30 per cent of the index.

Top 10 vanguard 500 holdings

Bogle’s eight fundamental principles for investing

  1. Select low-cost index funds for long term investments.
  2. Consider the added cost of advice very carefully.
  3. Do not overestimate past performance.
  4. Only use the past performance to determine the risk and consistency of the investment.
  5. Don’t own too many funds in your portfolio.
  6. Follow buy and hold strategy for better and consistent gains.
  7. Keep an eye on the asset size of the mutual fund. Some of the funds can be too big that they start to effect the whole market.
  8. Be very careful about the high flying fund managers. After a few years of beating the market, those fund managers can undermine the risks in their portfolios.

In his annual letter to the shareholder in 2016, Warren Buffet wrote, “when trillions of dollars are managed by Wall Street, charging high fees. It’ll usually be the managers that reap the outsized rewards, not the client or the shareholder. Large and small investors should stick to the ultra-low-cost index funds and let compounding do its thing.”

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