John Bogle’s presentation from Grant’s Spring Conference titled, “Resolved: The cost of investing is the determining factor in the success of investing.”

The Low-Cost Proposition

1. Gross Market Return: Shared by Investors as a Group—“Zero-Sum Game”

2. Costs of Investing: A) Shared by Active Investors—High (2%) B) Shared by Index Investors—Low (0.05%)

3. Therefore: Low-Cost Investors Must Earn Higher Net Returns.

Q.E.D.

The Cost Matters Hypothesis

U.S. Equities Managed by Mutual Funds and Institutional Investors

John Bogle On The Cost Of Investing

Indexing Market Share

Index Strategies as a Percentage of Total U.S. Institutional Equity Assets

John Bogle On The Cost Of Investing

U.S. Equity Fund Cumulative Net Cash Flow, 2006-2014 Passive Index Funds versus Actively Managed Funds

Cumulative Net Cash Flow into Index and Active Mutual Funds and ETFs

John Bogle

Adoption of a Great Idea

Market Penetration Rates

John Bogle On The Cost Of Investing

Popularity of S&P 500 Index Overrated

John Bogle

Adjusted for holdings of institutional and individual traders, only $1.1 T of index funds are held in broad-based portfolios by long-term investors.

John Bogle: The Original Index Fund vs. ETFs

First Index Fund (1974)

  • Own the U.S. stock market
  • Diversify to the Nth degree
  • Minimize transaction costs
  • Tiny expense ratio—500 Index: 0.05% (Admiral)
  • Bought to be held—“forever”

Exchange-Traded Index Funds

  • Pick your own index (1,100 now available)
  • Diversify within sector you chose
  • Lower expenses … but not too low (0.50%)
  • Bought to be traded (average annual turnover of large ETFs: 1244%)

See full PDF below.