Key Lessons from “The Father of Index Mutual Funds”

NEW YORK (TheStreet) -- 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, Bogle is one of two 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 phoenix-like 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) , Vanguard Total Stock Market ETF ( VTI) (Stock Quote: VTI) and Vanguard Financials ETF ( VFH) (Stock Quote: VWO).

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.

( VWO) ( VTI) ( VFH) 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.

( VWO) ( VTI) ( VFH) 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) ; Direxion Financial Bull 3X ( FAS) ; and United States Natural Gas ( UNG) due to their underperformance and excessive risk.

( VWO) ( VTI) ( VFH) ( FAZ) ( FAS) ( UNG) 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.

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