Finance

Before His Death, Jack Bogle Brought Investing To The Masses; Now Someone Must Bring The Masses To Investing

The next true innovator in democratizing the financial system needs to find a way to get more Americans into the investment game.

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As we know from the Ghost of Christmas Future, it can be hard to mourn the death of a truly rich man. John C. “Jack” Bogle is a notable exception.

Last week, the financial world lost a giant. Maybe it lost someone more like a giant-killer. Jack Bogle got rich himself, but he did it while promulgating a way for ordinary Americans to make money through investing, without having to risk getting ripped off by slick Wall Street types.

Jack Bogle’s death on January 16, at the age of 89, came after more than four decades of work under a singular maxim: ordinary people should be able to own a mix of stocks and bonds without having to pay exorbitant fees to investment managers to pick them.

Bogle created the first broad-based index funds. After being fired from a traditional fund management company, he founded Vanguard, and started operating mutual funds independently and at cost. He demonstrated that instead of paying mutual fund managers to try to pick stocks they thought would outperform the market, 80 to 90 percent of the time an investor is going to make more money by simply buying the entire stock market. Index funds allowed this principle to be put into action, and though there was much initial skepticism, such funds became wildly popular. Bogle’s innovation allowed investors to get similar returns compared to traditional higher-fee mutual funds at 10 to 20 times less cost. The cumulative effect of years and years of compounding returns on money that, but for Bogle, would have gone to line the pockets of fund managers, is incalculable. Jack Bogle is probably indirectly responsible, through providing the powerful tool of index fund investing, for tens of millions, if not hundreds of millions, of comfortable retirements throughout the world.

On top of all that, he wasn’t a bad guy in his personal life either. He regularly gave away half of his salary to charity, and seven years before his death, he told the New York Times, “My only regret about money is that I don’t have more to give away.”

Jack Bogle was extremely successful at better protecting what he called “the little guy” — the middle class investor. Yet, roughly half of all Americans still have zero exposure to the stock market, through 401(k)s or otherwise. Even among the stock-holding 50 percent, the bulk of the ownership pools at the top: The New York Times reported last year that 84 percent of all stocks owned by Americans belong to the wealthiest ten percent of households. If you want to talk about economic inequality, a big part of the problem is underpayment for labor, sure, but it also wouldn’t hurt if more people further down the income ladder were taking what money they could save and using the market to passively turn that into more money.

There are a few new companies doing things, or at least pledging to do things, to make the markets more accessible to regular people. The new investing app Robinhood claims democratizing access to the financial system as its mission, and does allow for commission-free stock, ETF, and options trades, a consumer-friendly deviation from the industry norm. However, individual stocks and options are far riskier and more complicated investments for individual investors compared to the numerous Boglesque index funds that are now very widely available. Robinhood also offers commission-free trading in cryptocurrencies, but I’m not sure that giving individual investors easier access to a speculative asset class backed by nothing but hope is actually to their benefit. YieldStreet Inc. is another online investment company seeking to democratize high finance. But again, while YieldStreet’s investment offerings, including litigation finance, may have attractive returns and may not be otherwise available to individual investors, they are a bit exotic and a bit risky compared to what else is already out there. For now, YieldStreet is focused on the mass-affluent, which puts it out of reach for the average joe (but it’s still a big step beyond the hedge funds and billionaire class who had previously enjoyed exclusive access to the types of investments YieldStreet is peddling).

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Although what some of the new companies in this space are doing is admirable, and shows movement in the right direction, Bogle’s genius wasn’t just in making it cheaper to invest in some asset class that was already there. He created a whole new type of investing that protected individual people who didn’t have the time to become industry experts or the risk tolerance to see a life savings come or go with a single trade. Bogle’s creation helped many of those who used it stay in or reach the middle class. It is still helping millions build financial security. But with such a low utilization rate for even the good, low-cost index fund investment vehicles already available, the next true innovator in democratizing the financial system needs to find a way to get more Americans into the investment game. With Jack Bogle gone, whoever that person is will have some big shoes to fill.

Jonathan Wolf is a litigation associate at a midsize, full-service Minnesota firm. He also teaches as an adjunct writing professor at Mitchell Hamline School of Law, has written for a wide variety of publications, and makes it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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