15 Mar 2016

The astounding rise of low-cost investing

In the latest Financial Analysts Journal, John Bogle the Founder and Former CEO of Vanguard, describes the staggering triumph of indexing in the US:

  • Index assets grew from $11m in 1975 to $4trn today.
  • Indexed market share in equity mutual funds (unit trusts) have grown from 4% in 1994 to 34% in 2015.
  • ETF equity assets have grown to $1.7trn. Mr Bogle, is critical of investors in ETFs who aggressively trade or speculate on where the market is going. We agree. We use ETFs as the long-term investment building blocks of your portfolios.

The rise of the low-cost index tracking funds in the US is astounding.

“Since 2008 index funds have accounted for 160% of net cash flows into equity mutual funds. During those seven years, investors have made net purchases of almost $1trn in passively managed index funds even as they have liquidated, on balance, $600bn of their holdings in actively managed equity funds – a remarkable $1.6trn swing in investor preferences.”
Source: John Bogle, Financial Analyst Journal

Last month, the Oracle of Omaha, the great Warren Buffet, offered some investment advice to basketball superstar LeBron James. This is the same consistent message he has made for years and it’s so simple:

  • make monthly contributions over your full investment time period – 30 or 40 years;
  • into a low cost equity index fund.