≡ Menu

Weekend reading: The house that Jack built

Weekend reading logo

What caught my eye this week.

Hard to believe now, but when Monevator was born in the summer of 2007, passive investing with tracker funds was still a minority pursuit in Britain.

Few investors did it. Newspapers and magazines rarely wrote about it, except in a “oh if you can’t be bothered you could buy an index fund and just accept the market return (you loser)” sort of way.1

People had to be won over. The financial crisis didn’t help – it’s hard to make the case for index tracking when the index has just fallen 50%! All the talk was of clever fund managers who would pick through the rubble, absolute return funds and structured products touting upside without downside, and hedge funds that hadn’t yet posted a decade of lagging a cheap 60/40 ETF portfolio.

The US was way ahead of us, though. That’s because North America was where Vanguard founder John ‘Jack’ Bogle had conceived of and launched the first index fund back in the mid-1970s.

Long time horizons

The Accumulator joined Monevator after a year or two. He told me Monevator was the only site he’d found that regularly translated US passive investing ideas for an everyday UK audience.

My co-blogger turbo-charged our efforts to bring Bogle’s key insights to wider attention here.

In the meantime global stock markets began rising. Passive investing took off in Britain, too, as more people started to get it. Eventually, index funds went mainstream.

We were in the wilderness for maybe two or three years. John Bogle was in the wilderness for two or three decades.

The $1 trillion man

Bogle was questioning the value of traditional investment approaches in the early 1950s. He finally launched the first index fund in the 1976 – labelled by competitors as ‘Bogle’s Folly’.

In other words it has taken more than 40 years for Bogle’s principles to give us the highly-efficient investing that most Monevator readers take for granted today.

Talk about long-term investing!

John Bogle died this week. He was 89. You’ll find coverage of his achievements in the links below. The impression he made is as clear as his legacy.

It wasn’t a given that the inventor and populariser of the low-cost index fund would be a humble, inspiring, and tenacious individual. Tracker funds are essentially run by computers. Their progress would probably have been assured eventually, simply on account of the remorseless reality of their mathematical cost advantage.

But happily, on top of that, index funds were championed by perhaps the greatest investor of all time – at least in terms of money he’s saved the world’s savers.

It’s been estimated Bogle’s innovations will have left investors with an extra $1 trillion in their accounts by 2023.

Good luck getting that sort of edge out of the latest Top Funds To Buy in 2019 list.

Think different

If our website has patron saints, I’d say they are Jack Bogle and Warren Buffett.

These two men are more similar than you might suppose.

Warren Buffett – probably the greatest active investing individual the world will ever see – urges us to use index funds. On his death his wife’s money will be put into a tracker fund run by Vanguard. Buffett recently won a 10-year bet pitching cheap index funds against handpicked hedge funds. Convinced of the index fund’s primacy, this week he said Bogle had done more for the individual investor than anyone else he’s known.

Quite the contradiction then, but what of Bogle? He’s also not as easily dumbed down as some of his adherents seem to think. Bogle took the career path that led Vanguard to $5 trillion under management almost on a whim. He was not against active investing per se – more high costs and poor results. He had money invested in his son’s active fund. Bogle was a market timer, and he was happy to say when he thought stocks looked expensive. He also invested all his money invested in the US market – an anathema to orthodox thinking today.

As we inevitably march towards a far future where the vast majority of people run their money with the market in cheap index funds – following prices set by a diminishing handful of thrill-seeking stock picking winners and losers – it seems fitting to me that the man who started it all also contained contradictions.

Thank you Jack

In as much as they’d heard of him, for most people Bogle was a man who synthesized the latest academic thinking and his own insights to dream up the low-cost funds that will leave them richer in retirement. Cheers Jack!

But really he was a philosopher king for the ages.

As the Bogleheads say: “While some mutual fund founders chose to make billions, he chose to make a difference.”

Further reading:

  • “You cannot measure the quality of a man by the size of his bank account, but in John Bogle’s case, you can measure it by the size of your bank account.” – Rick Ferri, Forbes
  • John Bogle, who founded Vanguard and revolutionized retirement savings, dies at 89 – The Inquirer
  • “My ideas are very simple,” Bogle once said. “In investing, you get what you don’t pay for.”New York Times
  • Praise for John Bogle compounds, like his returns – Bloomberg
  • Jeremy Grantham: “What he meant to most people in the investment business was that he was a royal pain in the bottom… He was more concerned about the long-term benefits for society.”Bloomberg
  • CFA has made all Bogle’s papers free to read – CFA
  • “The only people who come across his message and then subsequently disagree with it are those whose careers depend upon their not believing.”Josh Brown
  • “Without a doubt, John C. Bogle is the greatest man I’ve had the privilege of knowing.” – Jonthan Clements, The Humble Dollar

From Monevator

The Pension Protection Fund (PPF) explained – Monevator

From the archive-ator: The simplest, most effective investing decision you will ever make [From 2008!]Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2

Record year for ETFs, as active funds take a beating – Money Marketing

Lenders see sharp slowdown in demand for credit cards and mortgages – Morningstar

Pessimism about UK house prices worst in two decades: RICS – Bloomberg

Has the Brexit vote saved London tenants £1,800 pa in rent? – Guardian

Lords take aim at Statistics Authority’s failure to fix UK prices index [Search result]FT

Nearly 400,000 new dollar millionaires created [globally] in 2018 – WealthX

(Click to enlarge)

Is UK property headed for a post-Brexit meltdown? [Search result]FT

Products and services

Boost for savers as top one-year cash interest rates now match inflation – ThisIsMoney

HSBC cuts mortgage rates across its entire range, as price war rumbles on – ThisIsMoney

Ratesetter will give you a free £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter

Freelance Fintech: Can apps replace accountants? [Search result]FT

Italian town puts dozens of homes on market for as little as €1 – Guardian

Comment and opinion

Invest like a JOMO sapien – Anthony Isola

Subtraction mode – Humble Dollar

Brexit and the risks of home bias – MSCI

When it’s time to do something – Morgan Housel

Careers and the hedonic treadmill – Fervent Finance

Are market moves happening faster? [Spoiler: No]A Wealth of Common Sense

Why it’s the right time to consider a tracker mortgage – 3652 Days

Does the ‘bucket approach’ destroy wealth…? – Advisor Perspectives

…perhaps in theory, but the optimal portfolio is not the same as the best one – CFA

First post sent from the other side of early retirement – Retirement Investing Today

Unitizing a portfolio can bring home disappointing truths – Simple Living in Somerset

10 years ago, Warren Buffett bought a railroad – Buffett, Berkshire and Beyond

Why one value investor sold GlaxoSmithKline – UK Value Investor

Fund managers do well when they buy, not when they sell – Morningstar & Bloomberg

Equity investing is riskier than you think [Nerdy, research]Alpha Architect


It was never about Europe. Brexit is Britain’s reckoning with itself – Guardian

UK fails to close trade deals ahead of Brexit deadline [Search result]FT

Richard Stone: Why I believe Brexit will not happen now – CityWire

“I don’t trust the Government”: Meet the Brexit stockpilers – Guardian

Stop worrying about Brexit — it’s time to invest in UK assets [Search result]FT

A neat summary of how we got to this impasse – via Twitter

A reminder very few Britons fretted about the EU before they were asked to – Economist

Kindle book bargains

Creativity, Inc. by Ed Catmull – £1.99 on Kindle

Start Now, Get Perfect Later by Rob Moore – £0.99 on Kindle

Turning the Tide on Plastic by Lucy Siegle – £0.99 on Kindle

Off our beat

The most powerful person in Silicon Valley – Fast Company

Why one man lives homeless in the Alaskan wilderness – Guardian

Scientists unveil a ‘planetary’ diet that’s good for the world and our health – BBC

Tim Harford: Behavioural economics helped me kick phone addiction [Search result]FT

The indie book blog is dead, the golden era of blogging is long past – Vulture (although…)

Strong and weak technologies – cdixon blog

Cool thread on the human body parts evolution left behind – via Twitter

And finally…

“The grim irony of investing, then, is that we investors as a group not only don’t get what we pay for, we get precisely what we don’t pay for. So if we pay for nothing, we get everything.”
– John C. Bogle, The Little Book of Common Sense Investing

Like these links? Subscribe to get them every Friday!

  1. The Motley Fool website was a notable exception and an early champion of tracker funds, but it went in a different direction a few years into the new millennium. []
  2. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

Receive my articles for free in your inbox. Type your email and press submit:

{ 63 comments… add one }
  • 51 Nearly There January 22, 2019, 9:20 am

    @ZXS @MrOptimistic can you confirm that IGL is index linked gilt, and IL is index linked?

  • 52 Mark Meldon January 22, 2019, 10:09 am

    I know, I know, about my dreadful smoking! ‘Nuff said, methinks. Mind you, I’m a teetotaller – I see too many people in my line of work who have, ahem, ‘issues’ with drinking too much. Indeed, the life offices are warily watching a cohort of people now in the 40s and 50s who grew up in the era when supermarkets started selling cheap booze and, alas, are starting to die young.

  • 53 Mark Meldon January 22, 2019, 10:52 am

    @MrOptimistic & PC

    Hmmm…’transferring a deferred annuity’. Whilst this can be a good choice, depending very much on the terms offered on what are known as ‘GAR’ (Guaranteed Annuity Rate) policies, in my experience that isn’t often the case. Let me give you a real-life example.

    Retirement Annuity Policies (‘RAPs’) were available between 1956 and 1988 – they were replaced by Personal Pension Plans (‘PPPs’) in July of that year. Unlike most, but not all PPPs, most RAPs actually offered a certain level of pension at your selected retirement age, based on a table in the policy. Remember, these policies were available to the self-employed and those employees without access to an occupational pension scheme. Contributions were paid gross in those days, with tax relief being claimed from HMRC, although the contributions were collected net from a few years ago, with the tax relief being given up-front. There remain hundreds of thousands of these policies on the books, and I find working with those who have them fascinating (well, someone has to).

    Back in the 1970s and 1980s, interest rates and inflation were much higher than they are today and, thus, annuity rates were much higher (although this is all relative, of course). As a marketing ‘gimmick’, many life offices operating at the time – there were well over 100 selling RAPs, compared to 6 or so serious PPP players today – offered annuity ‘rates’ at about 1% or 2% less than those available on the open market, never expecting interest rates to collapse in the way they did – so much for forecasting!

    The chap I’m dealing with bought a RAP from Scottish Widows and it matures tomorrow, when he is 60. Since buying it in March 1988, he has paid net contributions of about £40,000 into the plan over 31 years. The plan is a conventional ‘with profits’ policy and when he bought it, Scottish Widows guaranteed a retirement fund of £67,000 at age 60 (its a bit like an endowment policy – remember those?).

    So what, you say? That’s terrible! Well, it really isn’t.

    The plan has actually achieved a fund value of a touch under £100,000 and if my client used all of this to buy an annuity on today’s open market (he has no need for tax-free cash – bear with me before you shout!), then he will be offered slightly over £4,500 a year, fixed for life, paid monthly.

    Scottish Widows, however, on a ‘like-for-like’ basis will pay him – drumroll – £9,556.35 a year. So, that’s 9.5% on the pension fund, guaranteed 5 years and for life thereafter.

    But, this chap is married and, like many juicy GARs, the annuity is offered on a single life basis only. So, if he dies sooner than he hopes, that’s a bad deal for his wife. Because the GAR was so attractive, we felt we just had to take it up.

    To give his wife (a lady of certain means, which helps) some kind of return should the worst happen, we agreed to set up a temporary life insurance policy which will finish at age 75. We chose an inexpensive family income benefit policy that will pay out £7,200 a year (there being, ahem, one less mouth to feed), tax-free, from the date of death until age 75. The premium is a piffling £24.72 a month, so he will pay £4,449.60 over the term of the policy, which is written in a flexible trust. If she dies first, then the policy can be binned.

    Its not perfect, but suits the overall financial circumstances of the couple concerned. As far as my costs are concerned, I get paid £13.92 a month in commission for 48 months by the family income benefit provider, and 60p a month from then until the end of the term, so that’s not a great deal. Scottish Widows will pay me nothing for helping arrange the annuity, which is fine.

    A few years ago, I met a fellow who used to have a fund held in an old Equity & Law ‘executive pension plan’. I say used to have, because he transferred the fund into a SIPP with a well-know Bristol-based provider. The transfer value was £116,000, IRRC, but he didn’t realise that there was a GAR. He was 58 at the time of transfer, but this very old policy, into which nothing had been paid for donkey’s years, had a ‘guaranteed fund’ at 65 of £222,000! Even worse, had he left it all alone, the GAR was an astonishing 11.65% per thousand fund at age 65. I make that a pension of £25,863 gross, no risk, no packdrill. I’m afraid he didn’t like it much when I said ‘are you mad?’ or some other rude thing, so the meeting was a one-off – I do wonder how his drawdown plan is doing by comparison? Yikes!

    So, be very careful when looking at RAPs (sometimes called S226 policies) and some PPPs as they can offer sparkling, secure, returns! Same applies to the obscure ‘Section 32’ policies, but these interesting contracts are a subject for another day.

  • 54 MrOptimistic January 22, 2019, 11:38 am

    @ Nearly There. My typing isn’t great but yes, I was talking about index linked gilts ( held as direct holding in ISAs, 2.5% 2024, and a couple of funds holding global Index Linked bonds (hedged I hope), Royal London and L&G.
    @MM. Thanks, interesting. I held a Section 32 buy out policy, now in payment. GAR 8.5% from 1986. Trouble was I got no options, no commencement lump sum or chance to make it joint life. Equitable weren’t very helpful when I tried to vary it so I left it alone. The payout was twice that due on the underlying fund: even the Equitable winding up uplift didn’t dent the gap.

  • 55 Mark Meldon January 22, 2019, 12:12 pm

    Perhaps I should write more about retirement annuities? As I said, there are hundreds of thousands (I believe) still in force and I do worry that too many people don’t think through the GAR ‘issue’.

    @TI A ‘potted history’ of retirement annuities of interest or are your readers just far too young to worry about this? Mind you, they have (or had) parents!

  • 56 The Investor January 22, 2019, 12:44 pm

    @Mark — As you know, I’m always interested in your thoughts. Cheers for adding to the discussion here (and to the other interesting commenters of course) and let’s pick this up on email?

  • 57 Ed January 22, 2019, 10:38 pm

    I was really sad to hear about his passing. Whilst he looked his age, in interviews he sounded half his age.
    A lot of people have had and will have dignity in their old age thanks to him.

  • 58 MrOptimistic January 23, 2019, 12:36 am

    An update on structured products would be of interest to me, if you’re listening 🙂

  • 59 Steve21020 January 23, 2019, 8:39 am

    Re. The Motley Fool, I think they deserve a hell of a lot of credit for what they did in the early 2000s with their aim of educating plebs like me. In 1998 I’d come to the end of a 9-year contract in France and was given all my pension contributions as cash (non-permanent staff). We used this as well as the proceeds from selling our house in France to help purchase a house in Stevenage with a garden the size of our old vegetable plot. Don’t get me started on the tiny rabbit hutches that pass for ‘houses’ in the UK!! I realised that I had a huge gap in my pension contributions at the same time as discovering TMF and had a very steep but enjoyable learning curve. It’s thanks to them that I can look forward to retirement with no worries. Sad that they disappeared, but at least we now have Monevator! 🙂

  • 60 Tim January 23, 2019, 1:44 pm

    @MrOptimistic: Assuming “Alliance” means Alliance Trust Savings: they seem to have the “iShares Europe Quality factor” ETF available just fine under the IEFQ ticker (which is the GBP units). The “Research” tab’s list of “ATS Tradeable ETFs” does indeed omit it… but in my experience it’s not uncommon for the information there about whether something is available to be incorrect; if typing the ticker in the Trade Now search box finds it, you can buy it.

    And for ETFs which genuinely weren’t available on ATS, I’ve always found they’ve been been very happy to add them in response to an emailed request. I’ve probably had a 4 or 5 added over the past few years. The only requirement seems to be a firm commitment to actually invest, and that there be GBP units available (not all ETFs do; although I have a couple of things which subsequently dropped their GBP units and ATS converted my holding to USD units).

  • 61 MrOptimistic January 23, 2019, 11:09 pm

    @Tim. Thanks. Yes Alliance Trust Savings use Morningstar for research but only those investments tradeable can be bought in a SIPP. I will check if it’s an exception but when I have attempted to trade it can’t be done. When they become II may be it will change :). I did speak to them a while back about another stock and I got the impression that they didn’t want to add anything at the moment. It’s no Biggie, I like them and I hope II’s back office functions as well as Alliance.
    When the time comes I will try again. Still puzzled why I had to become a sophisticated investor to buy a physical gold etc though. Mind you, Halifax stopped allowing trading in INPP so it’s all a bit bizarre. Good old mifid and the benevolent EU.

  • 62 Tim January 24, 2019, 1:25 am

    @MrOptimistic: For some specific examples: None of IEMG, ERN1, ERNU, IBTL, DRDR, AGES, DGIT or RBTX actually show up in the ATS Morningstar “ATS Tradeable ETFs” list but I’ve had no problems buying the first 4 of those in my SIPP and the latter 4 in my ISA. The ATS trading screen certainly knows what IEFQ is… but I’m not going to try and buy any myself (already hold some IWFQ) just to see if it complains; what was the error message you saw? I have a vague memory of a couple of larger (5 figures) orders failing with a message to call ATS – I suspect this maybe related to the fact that some of these things trade quite infrequently – I once did call and spoke to a trader who put a market order in for me and got the goods at a good price (they don’t charge “telephone dealing” prices if you have to do this, just the regular online trading price); another time I just tried again online a few hours later and that time it worked.

  • 63 Ben January 24, 2019, 9:27 am

    “Halifax stopped allowing trading in INPP so it’s all a bit bizarre. Good old mifid ”

    I had the same problem (also with the Halifax). You can’t buy certain investments unless you’ve had investment advice, but they don’t ask you if you’ve had investment advice, so as far as they are concerned, none of their customers have had investment advice.

    Added to that, they won’t actually produce a list of investments they’re no longer selling due to mifid. They wouldn’t even guarantee I could still buy a FTSE 100 tracker.
    I havent been back since to check whether that’s the case though.


Leave a Comment