You get what you don’t pay for

Date Published:16/11/2016

Recently, I heard a very interesting interview on Radio 4’s Money Box Live.

In 1975 John Bogle founded Vanguard, a fund management company. He gave his first UK broadcast interview to Louise Cooper.

John Bogle is credited with revolutionising the investment sector, driving down costs and boosting returns to savers.

He created the first passive fund which invests in all shares in a stock market index, thereby not needing to pay fund managers to actively decide which shares to buy and sell.

Also on the programme:

– Saker Nusseibeh from Hermes Investment Management

– Andrew Clare, Deputy Dean and Chair of Asset Management of Cass Business School

– Ben Johnson. Director of Global Exchange-Traded Funds research for the independent investment research provider Morningstar.

Presenter: Louise Cooper

Producer: Paul Waters

In our opinion, there are a number of important points raised such as;

  • Lowest cost equals highest return
  • Most people who market themselves as having skills, don’t have skills
  • Skill is incredibly rare
  • The most efficient way of getting market movement is to buy an index fund
  • Index funds have low expense ratios and low transaction costs – close to zero
  • Active funds cost close to 2% annually
  • Compounded over an investment lifetime, this means that the active investor will receive only 30% of the returns received by an index fund investor
  • The correct time to hold a share you believe in is for-ever – even if you’re an active manager. Instead, many buy and sell shares as the market goes up and down – trying to make money through turnover and market timing
  • In 1949, John Bogle found that very few active fund managers actually do better than the market. This is still the case. Over substantially long periods of time, less than 5% of active managers add value through their skill and the ability of investors to identify these managers ahead of their beneficial performance is even slimmer

Please click on the link below to listen to the rare interview with John Bogle

BBC Money Box – John Bogle Interview  © copyright 2016 BBC

balanced stones