Fund Lessons From John Bogle

Bogle set the foundations for today's mutual fund and ETF world with an eye to the individual investor.
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Editor's note: This is another in a series of profiles of stellar stock investors.



) -- John C. Bogle, founder of the

Vanguard Group

and proclaimed "father of index mutual funds," is widely recognized as one of the giants of the financial world.

Bogle set the stage for today's mutual fund and ETF world, all while keeping his main focus on what is best for the individual investor.

Nobody can accuse Bogle of thinking like everyone else on Wall Street. Born in 1929 in New York City, Bogle is one of twin boys from a financially comfortable family. However, all that changed with the crash of 1929. His family lost its money, and he and his two brothers were forced to get jobs to support the household. The early respect for money he gained from this experience is one quality that has never left him.

After attending a private school in New Jersey, Bogle went on to Princeton University where he graduated magna cum laude in 1951 with a degree in economics. His senior thesis would gain the attention of fellow Princeton alumni, Walter L. Morgan, the founder of the Wellington Fund. Bogle was hired by Morgan after graduation.

Bogle would eventually rise to the title of executive vice president of Wellington Management. While in this position Bogle initiated the company's 1966 merger with Thorndike, Doran, Paine & Lewis, Inc. from Boston. In 1967, the same year that Bogle became the CEO of the merged firm, he suffered a heart attack that required a pacemaker be implanted.

With the new merger, Wellington Management drifted away from its traditionally conservative style, much to the dislike of original members of the firm. In 1969, amid internal turmoil and a stock market tumble, the company's assets slumped from $2.7 billion to $2.2 billion. In 1970, Walter Morgan retired and Bogle was on the brink of resignation. In 1974, a board of directors fired Bogle and planted the early seeds for his future success.

In a phoenixlike rebirth, Bogle managed to bounce back with The Vanguard Group. With this new endeavor, Bogle got back to basics. Besides regaining focus on what is best for the individual investor, he returned to his Princeton thesis, which was on the topic of mutual funds.

At that time, the idea of a mutual fund was beyond the realm of the private investor. Bogle, however, felt differently. While he has never claimed index funds as being his own concept, there is little question that Vanguard put the instruments that were once solely in the domain of business pension funds into the hands of the private investors.

A year and a half of research on the subject of mutual funds brought him to the conviction that these funds should be mutual in reality as well as spirit. Vanguard would stake its banner as a champion of shareholders and their interests.

Today, Vanguard is the No. 2 fund family in the nation. Aside from being a leader in the mutual fund universe, the company boasts nearly 40 ETF instruments including the

Vanguard MSCI Emerging Markets Index USD

(VWO) - Get Report


Vanguard Total Stock Market ETF

(VTI) - Get Report


Vanguard Financials ETF

(VFH) - Get Report


Again and again, the appeal of Vanguard has been to the sense and sensitivity of its shareholders. What they preach is keep it simple, keep it straight and keep the costs down. As the financial universe has expanded to include flashy, fast growing funds, Bogle and Vanguard have stuck to their guns by providing simple, low-cost instruments that ensure investors with strong, stable returns for the long term.

By keeping the interests of the individual investors at the forefront of every action, The Vanguard Group and Bogle have become the conscience of the mutual fund and ETF industries.

Financial institutions and individual ETF investors alike can take something from the Bogle and Vanguard story. Today, the government is constantly breathing down the necks of ETF companies that offer high leveraged, complex ETFs such as

Direxion Financial Bear 3X

(FAZ) - Get Report


Direxion Financial Bull 3X

(FAS) - Get Report

; and

United States Natural Gas

(UNG) - Get Report

due to their underperformance and excessive risk.

Meanwhile, the low-cost, simple ETFs and mutual funds such as the ones offered by Vanguard have provided investors with comfortable returns over the same period.

At the time of publication, Dion did not have any holdings in the funds mentioned in the article.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.