Grant’s Conference: John Bogle On Why You Must Index [SLIDES]

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Grant’s Conference: John Bogle On Why You Must Index [SLIDES]

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%)

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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

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.

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