Why I Trust Vanguard with my Investments

One of the best aspects of Capitalism is that, over the long run, companies that create the most value and help the most people will profit the most; and the founders of said companies will be handsomely rewarded.

There are two exceptions to this:

1. In the short-term, companies can prioritize profits at the expense of consumers which is usually unsustainable over longer periods of time.
2. Founders can intentionally create a business structure and establish an altruistic culture that prioritizes the well-being of others over profits.

One example of #2 would be Wikipedia.

Here’s a list of the most visited websites in the world:

1. Google
2. YouTube
3. Facebook
4. Baidu (China’s Google)
5. Yahoo
6. Instagram
7. Twitter
8. Xnxx.com (the French like their porn, apparently)
9. VK.com (Russia’s Facebook)
10. Wikipedia.org

Here’s the approximate net worth of each Founder:

1. Google/Youtube (Larry Page, Sergey Brin: >$100 B)
2. Facebook (Mark Zuckerberg: $60 B)
3. Yahoo (Jerry Yang, David Flo: $8B)
4. Instagram (Kevin Systrom: $2B)
5. Twitter (Jack Dorsey, Ev Williams: >$2B)
6. Wikipedia (Jimmy Wales: $10MM)

Notice that each of the Founders of these internet behemoths are in the Billionaire’s club with one exception, Jimmy Wales, the Founder of Wikipedia, who you’ve likely never heard of.

Why is that?

Wikipedia (the Wikimedia Foundation) was setup as a non-profit in 2003 and is built as a “wiki” — a website that allows users to collectively create, add and edit content.

At any point in time, Jimmy Wales could have added ads to his sites and could’ve immediately started raking in billions of dollars in revenue. In other words, Jimmy could’ve snapped his fingers and instantly increased his net worth by 1,000x.

But, he didn’t.

Thank you, Jimmy.

Another example of a company and a Founder who chose people over profits is Vanguard – which is why I feel so comfortable giving them my money.

The inspiration for this article came on January 16, 2019 when it was announced that Jack Bogle, the Founder of Vanguard, had passed away at the age of 89.

In 1974, Jack Bogle started The Vanguard Company which is now one of the largest and most respected companies in the Investment world. A few years later, he is credited with launching the first Index Fund – a beautifully simple (yet highly complex) idea that would revolutionize the future of investing.

Gary Mishuris says it well in this Forbes tribute:

“He has done more for the average investor than any person that I know of by helping people see that for many a simple, dollar-cost-averaging approach in low fee passive index funds is the best alternative.”

Here’s a list of some of the largest mutual fund companies by assets:

1. Vanguard ($5.1T)
2. Fidelity ($2.5T)
3. Charles Schwab ($3.3T)
4. Capital Research & Mgt. ($1.73T)
5. BlackRock ($6T)
6. Dimensional Funds ($416B)
7. Franklin Templeton ($411B)
8. Pimco ($355B)

Here’s the approximate net worth of each Founder:

1. Vanguard (John Bogle: $80MM)
2. Fidelity (Edward Johnson: $8B)
3. Charles Schwab (Charles Schwab: $8B)
4. Capital Research (Jonathan Bell Lovelace: $2B)
5. BlackRock (Larry Fink: $1B)
6. Dimensional Funds (David Booth: $5B)
7. Franklin Templeton (Rupert Johnson: $5B)
8. Pimco (Bill Gross: $1.5B)

Much like Jimmy Wales, from Wikipedia, Jack Bogle sticks out in a big way in the list above.

Even though Vanguard manages significantly more money than many of their peers, Jack Bogle’s personal fortune is a small fraction of that of his fellow Founders.

Why is that?

Vanguard is structured as a “mutual” mutual fund company (that’s not a typo). It is owned by funds managed by the company, and is therefore owned by its customers.

The typical fund management company is owned by either public or private stockholders, not by the funds it serves. These fund management companies have to charge fund investors fees that are high enough to generate profits for the companies’ owners. Under its agreement with the funds, Vanguard must operate “at-cost”—it can charge the funds only enough to cover its cost of operations.

Vanguard never has to weigh what’s best for clients against what’s best for the company’s owners, because they are one and the same.

At any point in time, Mr. Bogle could’ve snapped his fingers and become a Billionaire.

Instead, he chose to share his personal fortune with you and me so we could build our own personal fortunes.

Thank you, Jack.

May you Rest in Peace.