The idea of
passive investing in a fund that mirrors the entire stock market developed in the 1960s, mainly among
University of Chicago researchers who found it was difficult or impossible to consistently pick winning stocks that will perform better than average. These researchers also argued that transaction and management costs were a significant drain on long-term investing returns. The first
index fund available to the general public was established in 1973 by
Rex Sinquefield, who later went on to work at
Dimensional Fund Advisors. This fund had billions of dollars under management after a few years, indicating the public was open to the new investing concept. Bogle's early investing career was devoted to active management, though he was always aware of the importance of low fees and his funds had substantially lower costs than competitors. As academic research accumulated in favor of indexing, Bogle helped popularize these ideas and created an
S&P 500 fund in 1975. He argued the index fund would mimic the index performance over the long run—thus achieving higher returns with lower costs than the costs associated with actively managed funds. Bogle says his idea of index investing offers a clear yet prominent distinction between investment and speculation. The main difference between investment and speculation lies in the time horizon and the risk of capital. Investment is concerned with capturing returns on the long run with lower risk of destruction of capital, while speculation is concerned with achieving returns over a short period of time, with potentially destructive risk to capital. The speculator is often only concerned with the price of a security and not the underlying business as a whole, while the investor is concerned with the underlying business and not the price of the security. Even if a business is steady in cash flow, the market quotations of a security are anything but, as a result of speculators driving up prices and bringing down prices based on hope, fear and greed. Bogle believed this is an important analysis to be taken into account as short-term, risky investments have been flooding the financial markets. Bogle was known for his insistence, in numerous media appearances and in writing, on the superiority of
index funds over traditional actively managed
mutual funds. He contended that it is folly to attempt to pick actively managed mutual funds and expect their performance to beat a low-cost index fund over a long period of time, after accounting for the fees that actively managed funds charge. He argued most investors should have a minimum 20% bond allocation to reduce
volatility, and should tend to increase their bond allocation when stocks became overvalued and as they age but should maintain at least a 20% stock allocation. In the late 1990s
dot-com bubble, Bogle sold most of his stocks and correctly anticipated poor returns on stocks and superior results from bonds over the next ten years. His investment philosophy is the founding principle of the eponymous "Bogleheads" forum. This group is now supported by the John C. Bogle Center for Financial Literacy and hosts national conferences in addition to its online forum. Members of the group have collaborated to write three books expanding upon Bogle's investment philosophy. Later in his life, Bogle expressed concerns that the growing popularity of passive indexing would lead to a concentration of corporate
voting power for leaders of the three largest investment firms (Vanguard,
BlackRock, and
State Street), adding, "I do not believe that such a concentration would serve the national interest." == Philanthropy ==