A Financial System Failing Investors


By John Bogle

“Investors should realize [they] don’t get the market return. … So if I do your average, what percentage of your net growth is going to fees in a 401(k) plan?

“Let me give you [an] example: …an individual who is 20 years old today starting to accumulate for retirement. That person has about 45 years to go before retirement 20 to 65 and then, if you believe the actuarial tables, another 20 years to go before death mercifully brings his or her life to a close. So that’s 65 years of investing.

“If you invest $1,000 at the beginning of that time and earn 8%, that $1,000 will grow …to around $140,000. Now, the financial system the mutual fund system in this case will take about two and a half percentage points out of that return, so you will have… net return of 5.5 percent, and your $1,000 will grow to approximately $30,000!

“$110,000 dollars goes to the financial system and $30,000 to you, the investor.

“Think about that. That means the financial system put up zero percent of the capital and took zero percent of the risk and got almost 80 percent of the return, and you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, took 100 percent of the risk, and got only a little bit over 20 percent of the return.

“That is a financial system that is failing investors because of those costs of financial advice and brokerage, some hidden some out in plain sight that investors face today.

[For clarification] “In the long run [over a 65 year period of investing], the financial system is keeping 80% of the value; and only 20% goes to you, the investor.

Who is John C. Bogle? Founder, Vanguard Mutual Fund Firm

John C. Bogle, 77, is Founder of The Vanguard Group, Inc. He created Vanguard in 1974 and served as Chairman and Chief Executive Officer until 1996. He had been associated with a predecessor company since 1951, immediately following his graduation from Princeton University, magna cum laude in Economics.

In 2004, TIME magazine named Mr. Bogle as one of the world’s 100 most powerful and influential people, and Institutional Investor presented him with its Lifetime Achievement Award.

In 1999, Fortune designated him as one of the investment industry’s four “Giants of the 20th Century.” Mr. Bogle served as Chairman of the Board of Governors of the Investment Company Institute in 1969-1970. In 1997, he was appointed by then U.S. Securities and Exchange Commission Chairman Arthur Levitt.

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