CHAPTER THREE
John Bogle Introduces Three Total Market Index Funds

Now that you know the story of how Jack Bogle and I first met and became such good friends, let’s press on to how the rubber meets the road for individual investors like you and me. We will go point by point, benefit by benefit, and make it as easy as one, two, three.

In 1976, Mr. Bogle introduced the world’s first retail index mutual fund (the Vanguard 500 Index Fund) containing 500 large U.S. Stocks.

He later determined that a single stock fund containing nearly all U.S. stocks, including large-caps, mid-caps and small-caps, would be an improvement over what was then available. He also recognized the need for a single, diversified, high-quality bond fund and the demand for international diversification. The result was his introduction of three low-cost, total market index funds:

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) and Admiral Shares (VTSAX), introduced in 1992, allow investors to own more than 3,500 U.S. company stocks at extremely low cost. Investor Shares ($3,000 minimum) have an expense ratio of 0.15%. Admiral Shares ($10,000 minimum) have an expense ratio of 0.04%. Putting this in dollars means that an investor can invest $10,000 at a cost of only $4 per year. Truly remarkable!

Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) and Admiral Shares (VBTLX), introduced in 1986, allow investors to own more than 8,000 very diversified, high-quality U.S. bonds. The expense ratio (the percentage of a fund’s net assets used to pay a portion of its annual expenses) is currently 0.15% for Vanguard’s Investor Shares. Admiral Shares have an expense ratio of 0.05%.

Vanguard Total International Stock Index Fund Investor Shares (VGTSX) and Admiral Shares (VTIAX), introduced in 1996, allow investors to hold more than 6,000 international stocks, including emerging market stocks. Investor Shares have an expense ratio of 0.18%. Admiral Shares have an expense ratio of 0.12%.

Thanks to Jack Bogle, for the first time in history ordinary investors can own more than 17,000 diversified, nonoverlapping, world-wide securities at an amazingly low cost.

Investors are catching on. All three of Jack’s total market index funds are now the world’s largest funds in their category.

I favor the all-market index fund as the best choice for most investors. Don’t look for the needle. Buy the haystack.

—Remarks by John Bogle to the Investment Analysts Society

Bogleheads Speak Out

“Taylor’s ‘Three-Fund Portfolio’ postings win hands down for the best thing I’ve ever read on any finance site, anywhere, ever.”

—CL

“As I approach retirement I am more and more aware of the debt I owe to all Bogleheads and specifically to Taylor. His books led me to the 3-Fund Portfolio (+TIPS), which has made all the difference as I approach retirement with a surprising 7-figure portfolio.”

—DP

“The simplicity of it, the low expenses, low taxes and diversification is impressive.”

—SG

“With all the complicated and confusing messages about investing, the three-fund portfolio is a breath of fresh air and the essence of what John Bogle has taught all these years.”

—ST

The Rick Ferri/Alex Benke Study1

In June 2013, Rick Ferri, CFA, and his fellow researcher, Alex Benke, CFP, did a 28-page study comparing the returns of the three Vanguard total market index funds in the Three-Fund Portfolio with those of 5,000 portfolios of randomly selected, comparable, actively-managed funds, over 10-year and 16-year periods (2003–2012 and 1997–2012, respectively). Their conclusions, over 16 years, based on learning that the outperformance of the index portfolio was 82.9% were:

  • “The longer an index portfolio is held, the better its performance relative to an all actively-managed portfolio.”
  • “A diversified portfolio holding only index funds in all asset classes is difficult to beat in the short-term and becomes more difficult to beat over time.”
  • “Investors increase their probability of meeting their investment goals with a diversified all-index fund portfolio held for the long term.”

Note

..................Content has been hidden....................

You can't read the all page of ebook, please click here login for view all page.
Reset
44.221.43.88