John C. Bogle, who founded the Vanguard Group of Investment Companies in 1974 and built it into a giant mutual fund company, with $4.9 trillion in assets under management today, died on Wednesday in Bryn Mawr, Pa. He was 89.
Vanguard, based in Malvern, Pa., announced his death but gave no cause. Mr. Bogle, who had struggled with a congenital heart defect and had several heart attacks, received a heart transplant in 1996.
Mr. 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. He popularized and became the leading proponent of indexing, the practice of structuring an investment portfolio to mirror the performance of a market yardstick, like the Standard & Poor’s 500 stock index.
“Indexing was the purview of institutional investors, but Jack Bogle came up with the consumer version,” said Daniel P. Wiener, the editor of The Independent Adviser for Vanguard Investors, a newsletter and website that has tracked the company for decades. “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. In the second half of the 1990s, he said, stock market investors were spoiled by average annual returns of more than 20 percent 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.
“My ideas are very simple,” he told the 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, less 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 $441 billion in assets under management, according to Vanguard.
Vanguard’s advantage came from the unusual corporate structure that Mr. Bogle adopted. Vanguard 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 — able to monitor investment results objectively, negotiate advisory fees at “arm’s length” and change advisers if need be.
“John Bogle has changed a basic industry in the optimal direction,” Paul A. Samuelson, the 1970 Nobel laureate in economics, wrote in a foreword to “Bogle on Mutual Funds” (1993). “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 $7.4 billion, according to Forbes. Mr. Bogle’s net worth was generally estimated at $80 million last year.
Most fund companies spend huge sums to attract new customers. But Mr. Bogle eschewed the product- and marketing-driven thinking of much of the industry that has spread with the boom in mutual fund sales this decade.
“We’re never allowed to use the word ‘product,’ ” he told an interviewer in 1995. “It sounds like toothpaste and beer.”
His reputation as a tightwad was well earned. At breakfast with a reporter in 1993, at a suburban Philadelphia restaurant near Vanguard’s headquarters, Mr. Bogle figured out that he would beat the $5.95 cost of the buffet by ordering from the menu. If he had an early-morning meeting in New York, he would take the early Amtrak Metroliner shuttle rather than pay for a hotel room in Manhattan.
Mr. Bogle readily took swipes at the press for lauding fund managers who temporarily got a hot hand, and for focusing heavily on a fund’s quarterly performance. Even a fund manager’s long-term record is not an accurate predictor of future performance, he said.
It was that combative nature that had led him to start Vanguard in the first place.
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 Mr. Bogle’s senior thesis on mutual funds.
While working his way up at Wellington, Mr. Bogle persuaded Mr. 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 depart; he founded Vanguard in 1974 to handle the administrative functions of the mutual funds overseen by Wellington Management.
Two years later, Mr. Bogle founded the Vanguard Index Trust, now known as the Index 500 fund, the first index fund for individual investors. The next year he again broke from industry practice, selling mutual funds directly to investors rather than through brokers, and thus eliminating the sales fees of up to 9 percent 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,” Mr. Bogle 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.
Mr. Bogle’s retirement did not come easily. After giving up the chief executive title to his handpicked successor, John J. Brennan, Mr. Bogle openly disagreed with several of Mr. Brennan’s decisions. A rift developed between them, which contributed to Mr. Bogle’s failure to persuade Vanguard’s board of directors to allow him to stay on past the traditional retirement age of 70.
“I thought there would be an exception for the company’s founder,” he said in 2012. Vanguard veterans say that Mr. Bogle and Mr. Brennan barely spoke, if at all, in the years afterward.
Mr. Bogle left the Vanguard board and set up the Bogle Financial Markets Research Center, a financial research institute, in order, he said, to “let the controversy die away in a gracious way.”
Mr. Brennan was succeeded by F. William McNabb III, who told Mr. Sommer in 2012 that people at Vanguard “revere Jack Bogle.”
John Clifton Bogle was born in Montclair, N.J., on May 8, 1929. A twin brother, David, died in 1994.
Mr. Bogle graduated from Blair Academy in Blairstown, N.J., and, in 1951, from Princeton; he was a scholarship student at both.
Mr. Bogle 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.
Mr. Bogle 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 and Exchange Commission, Richard C. Breeden, to the Market Oversight and Financial Services Advisory Committee.
In addition to “Bogle on Mutual Funds,” his other 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. They had 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.
“My only regret about money,’’ he said in 2012, “ is that I don’t have more to give away.”