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OBITUARY: JOHN BOGLE

Founder of financial giant Vanguard, 89, dies

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John C Bogle built Vanguard on a cornerstone belief that was anathema to most mutual fund companies - that over the long term, most investment managers cannot outperform the broad market averages.

Bryn Mawr, Pennsylvania

JOHN C Bogle, who founded the Vanguard Group of Investment Cos in 1974 and built it into a giant mutual fund company, with US$4.9 trillion in assets under management today, died Wednesday at his home in Bryn Mawr, Pennsylvania. He was 89.

His personal assistant Michael Nolan said the cause was esophageal cancer. Mr Bogle, who had struggled with a congenital heart defect and had several heart attacks, received a heart transplant in 1996.

He built Vanguard, which is based in Malvern, Pennsylvania, on a cornerstone belief that was anathema to most mutual fund companies: that over the long term, most investment managers cannot outperform the broad market averages. He popularised and became the leading proponent of indexing, the practice of structuring an investment portfolio to mirror the performance of a market yardstick, like the S&P 500 stock index.

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Daniel P. Wiener, editor of The Independent Adviser for Vanguard Investors, a newsletter and website that has tracked the company for decades, said: "Indexing was the purview of institutional investors, but Jack Bogle came up with the consumer version. He made people aware of expenses, and told them that costs come right out of the bottom line."

But Mr Bogle became a harsh critic of the mutual fund industry in later years. He said that in the second half of the 1990s, stock market investors were spoiled by average annual returns of more than 20 per cent per year and, as a result, cared too little about the high expenses they were paying to mutual fund managers for those managers' presumed expertise at picking stocks. Mutual fund companies, he said, were all but immoral for accepting such fees.

Costs matter

"My ideas are very simple," he told financial columnist Jeff Sommer of The New York Times in 2012. "In investing, you get what you - don't - pay for. Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course. And they won't be foolish enough to think that they can consistently outsmart the market."

In recent years, it has been hard to argue with that. Since 1984, fewer than half of the actively managed mutual funds that invest in a broad array of American stocks have outperformed Vanguard's Index 500 fund, one of the world's largest, with more than US$441 billion in assets under management, according to Vanguard.

Vanguard's advantage came from the unusual corporate structure that Mr Bogle adopted. It managed its indexed mutual funds at cost, charging investors fees that were far lower than those of virtually all of its rivals.

Mr Bogle also went a step further in differentiating Vanguard from other companies that sponsor mutual funds. In contrast to a management company, which in most cases controls the fund complex and provides all the investment, administrative and marketing services required in its operations, Vanguard is more like a mutual insurer, owned by investors in the funds, which employ their own officers and staff. Those employees are responsible to the funds' directors.

Mr Bogle argued that Vanguard funds were thus completely independent of their advisers and operated solely in the interests of shareholders. They were able to monitor investment results objectively, negotiate advisory fees at "arm's length" and change advisers if necessary.

Paul A. Samuelson, the 1970 Nobel laureate in economics, wrote in a foreword to Bogle on Mutual Funds (1993): "John Bogle has changed a basic industry in the optimal direction. Of very few, this can be said."

The superior performance of the Vanguard funds attracted investors and assets in droves. In the last three years of the 1990s, Vanguard received more new money from investors than the next three largest fund companies combined.

Vanguard's consistent growth produced riches for Mr Bogle, but not to the extent that another ownership structure might have done. For example, Edward C. Johnson III, the chairman of Fidelity Investments, has a net worth of US$7.4 billion, according to Forbes. Mr Bogle's net worth was generally estimated at US$80 million last year.

After graduating magna cum laude from Princeton in 1951 with an economics degree, Mr Bogle was hired by Walter L. Morgan, founder of the Wellington Fund, a Philadelphia-based fund management company. Mr Morgan had read his new hire's senior thesis on mutual funds.

While working his way up at Wellington, Mr Bogle persuaded Morgan to introduce a new all-equity fund called the Windsor Fund to complement Wellington, which invested in both stocks and bonds.

Mr Bogle was named president of Wellington in 1967, and soon thereafter, it merged with the Boston investment company Thorndike, Doran, Paine & Lewis. Several years later, a management dispute with the principals of the new company led Mr Bogle to leave; he founded Vanguard in 1974 to handle the administrative functions of the mutual funds overseen by Wellington Management.

Two years later, he founded the Vanguard Index Trust, now known as the Index 500 fund, the first index fund for individual investors. The following year, he again broke from industry practice, selling mutual funds directly to investors rather than through brokers, thus eliminating the sales fees of up to 9 per cent that funds typically charged.

"Our challenge at the time was to build, out of the ashes of a major corporate conflict, a new and better way of running a mutual fund complex," he said in 1985.

He officially stepped down as chief executive of Vanguard in January 1996 and remained as chairman until the end of 1999.

Tim Buckley is the current chief executive.

Half his salary to charity

John Clifton Bogle was born in Montclair, New Jersey, on May 8, 1929. A twin brother, David, died in 1994.

Mr Bogle graduated from Blair Academy in Blairstown, New Jersey, and, in 1951, from Princeton; he was a scholarship student at both.

He was treated for right ventricular dysplasia, a congenital heart defect, for more than 30 years, and had at least six heart attacks, the first in 1960. After his heart transplant in 1996, he returned to good-enough health that he was able to play squash daily.

He served on the board of the Investment Company Institute, a mutual fund trade group, from 1969 to 1974, and as its chairman from 1969 to 1970. In 1991, he was named by the chairman of the Securities & Exchange Commission, Richard C. Breeden, to the Market Oversight and Financial Services Advisory Committee.

In addition to Bogle on Mutual Funds, his books include Common Sense on Mutual Funds (1999) and The Clash of the Cultures: Investment vs. Speculation"(2012).

Mr Bogle married Eve Sherrerd in 1956. She survives him, as do a brother, William Yates Bogle III; four daughters, Barbara Bogle Renninger, Jean Bogle, Nancy Bogle St John and Sandra Bogle Marucci; two sons, John Jr. and Andrew; 12 grandchildren; and six great-grandchildren.

Mr Bogle regularly gave half his salary to charities. He said in 2012: "My only regret about money is that I don't have more to give away." NYTIMES