Nate Reineke (00:13)
Hello, physician moms and dads. I'm Nate Rennekee, certified financial planner and primary advisor here at Physician Family Financial Advisors. This last week, I was actually on vacation. My family and another family we know took a trip to Hawaii, eight of us total. β it was me, my spouse, our two boys, and our friends with their two kids, β one of whom isn't even two years old yet. So it was quite the interesting beach trip.
With our young kids. now as you can imagine, booking flights for a group of eight with a toddler is a bit chaotic. β to make sure the family and the baby could sit together, our family had to split up. So we ended up with a group of three in one section and a single seat somewhere else on the plane. and that is how I got the absolute luxury.
My fellow parents out there know that this is a luxury of sitting entirely by myself for a four-hour leg of the flight. Initially, I thought I might take a nap, watch a movie, and instead I decided to listen to a massive four-hour podcast episode about Vanguard. Now, most of our listeners, β you know about Vanguard. You probably have some money in Vanguard funds right now.
And while I am a Vanguard investor myself, I thought it'd be fun to listen to a couple of the great storytellers condense the history of its legendary founder, Jack Bogle. The podcast I listened to, by the way, is called Acquired. They do these deep dives into business history, and this was one I found fascinating. β I planned on kicking back and enjoying it, kind of closing my eyes and and just listening as a consumer.
But I couldn't help myself. I started taking notes for the podcast that you're hearing now. and so today I wanted to share some just great stories about Jack Bogle, the guy who started Vanguard Tackle, kind of β the most common questions we get about Vanguard, and explain hopefully to my non-DIY listeners exactly why Vanguard is on the tip of every DIY investor's tongue. Or at least that's the way it feels.
So I'm gonna start just kind of with the name, Vanguard. β if you look into the history of Vanguard, you'll find that it was actually named after a famous 1700s β British Navy battleship, the HMS Vanguard. Jack Bogle actually chose that name because he felt like he was literally going to war with Wall Street to lower investment costs for regular people. And ultimately, Bogle won that war, built a multi-
Trillion dollar giant. But here's the amazing part. When he passed away, his net worth was around 80 million bucks. 80 million dollars, ton of money. But to put it in perspective, the family that owns Fidelity, the next sort of β most well-known name in investing world, is worth around thirty billion dollars. So Bogle chose to walk away from billions of dollars in personal net worth and continued to choose to walk away from it over his life.
So that those profits would stay inside of the accounts of everyday investors. What's not to love about that? β that is just one β that is the starting point of why Vanguard is on the tip of everybody's tongue. Okay, but as we go along, I hope it becomes obvious that that is where we started. You know, that's kind of that is why Vanguard has such a lore about it.
β but that doesn't mean that's where we are today. Doesn't mean that you have to be in Vanguard funds to enjoy the the with the the world of investing the way it is now. So β I'm gonna start with the first question. And remember, I I did write these. Okay. So β just bear with me if they if they sound too polished. So first question. I keep hearing colleagues in my department talk about Vanguard, like it's the gold standard.
Why does this one company seem to be the default recommendation among physicians? So I just told you a great reason. β but there is a great reason for this beyond low costs. It comes down to a company history and who Jack Bogle was. So when Bogle first launched the index fund, it was a complete flop. Wall Street labeled it Bogle's Folly. They literally called it un American.
Because he wasn't trying to pick winning stocks. An index fund was just buying a tiny piece of everything in the entire market. And if you're an index fund investor, you know that to be the case. You buy a little bit of everything. So when he launched this, he he did some math. He thought, I'm gonna need $150 million to create the first index fund just to get started, but he only raised $11 million.
He didn't even have enough money to buy a st β one one stock for one share β of every stock in the S P five hundred, let alone thousands of other stocks that are available. But Bogle Numath was on his side. He went through a painful war to prove a very powerful point. Trying to outsmart the stock market by picking individual stocks is simply riskier than buying everything.
And while people thought he was foolish for giving up the chance at great returns, Bogle was actually cutting the traditional financial industry off at its knees. So it's important to know here that β the the backlash he got from this wasn't just because of strategy. The backlash he got from this was because the industry was making money hand over fist selling individual stocks.
And he he wanted to sort of bypass the stockbrokers who took high commissions and just let average people into the market. So taking the average return of the entire market, β it shouldn't be looked at like a compromise. It's highly effective. It's a reasonable strategy that allows you to participate in the growth of the economy and capture, at least historically, capture great returns without taking on β the unnecessary risk.
Of single stocks.
Question number two.
I opened my employer 403B and another old retirement account from residency. The accounts are at Fidelity and Schwab instead of Vanguard. Am I at a disadvantage? Do I need to move it? Well, the short answer is no, you don't have to move it. β but you might want to simply to kind of clean things up. And maybe your current 401k, 403B, β has great funds in it, and you want to take advantage of.
Those Vanguard funds or whatever the funds are inside, you like them. They're low cost, they're index funds, and you want to move the money. That's great. But look- but you don't have to. And by that I mean as time went on, β and after Jack Bogle proved to be, I guess you could say right, that index funds worked, people liked them, that the low-cost index fund was kind of the way of the future, it had what is now called.
The Bogle effect. That's this massive shift from single stocks to index, low-cost index funds. So if you have a 403B, 457 that offers fidelity and Schwab index funds, and the cost is next to nothing in those funds. I'm talking like 0.08 or 0.05, 0.03.
That's the cost. Like it's β three basis points, not even close to you know, a tenth of a percent. And it's in an index fund, which means it it buys everything. It buys thousands of stocks with by by buying one fund. β that is Jack Bogle's legacy. It's not just Vanguard the company, it's this huge shift in the entire market to offer index funds to
everyday people, even in your 401ks. So you don't need to take on kind of the task of moving it moving the account over β just to get the brand name of Vanguard. You know, if you want to consolidate from simplicity, that's great. β but if you switch jobs to a new employer that maybe doesn't offer Vanguard, you can leave the money over at your old employer in a Vanguard fund. β but you know, if it's the opposite, β you don't absolutely have to do it.
So the win is simply getting a reliable, diversified, low cost piece of the market without individual stock risk, no matter whose logo is on your statement of your four one K.
Okay, question three. I tried logging into the Vanguard app on my phone and the interface felt clunky and confusing. If it's supposed to be the best, why is the user experience so frustrating? Okay, if you've logged into Vanguard and you felt like you were looking at sort of a dated β interface, you are not alone. And there is actually a reason for this. Jack Bogle himself was a really, really frugal guy. He grew up during the Great Depression. β
When him and his two brothers β were they were all great students, β but when they were graduating high school, they made the choice to send Jack to college. That's, you know, I think their father died early on, their mother was was poor. β and so Jack had this, carried that with him through his whole life, and he was just a really frugal person. And he famously used the same manual typewriter for decades, refused to fly first class.
You know, bought his clothes at discount stores. For him, $80 million was more than enough to make his dream come true of offering a low-cost way for the average person to invest. β but that is that for that reason, because of ja who Jack Bogle was, Vanguard operates entirely at cost, meaning it functions like a grocery store co-op to keep fees as close to zero as possible. And
They just historically have refused to spend money on flashy mobile apps or kind of higher end user designs like other websites do, because and that's how they keep their costs down. So this works great for the hyper frugal DIY investor who treats kind of managing their investments like a hobby because they're really interested in it. But if you find the platform frustrating, you aren't doing anything wrong. β it it's built to be bare bones.
Kind of a warehouse feel to keep costs just at rock bottom. But the good news is you don't have to use Vanguard's platform to buy Vanguard products. You can open it kind of Schwab, Fidelity, Betterment, and and you could also buy Vanguard funds at Vanguard. You can buy it at all of them. These brokerages want to sell you anything that you want to buy.
And a lot of people want to buy low-cost index funds. β but there's some nuance to this as well. Jack Bogle didn't get to make all the decisions in his own company, these companies, these brokerages, they want to sell you anything you want to buy, including investments that don't serve you.
So that brings up a funny bit of history. Jack Bogle actually got fired, or he was relieved from his duties as CEO at age 70 because he refused to create products that tempted people to actively trade. when ETFs, which are exchange-traded funds, first came out, Bogle was against them, violently against them. Not because of the strategy or how they were made, it was because he thought that they would tempt people to actively trade. And
just like i i he saw with with regular stocks. And the Vanguard board wanted to create ETFs, so they sort of enforced a mandatory retirement age for him, though he stayed on for marketing and continued writing books for years.
So if the Vanguard interface feels clunky, that's just the DNA of the company. It's Jack wanting to keep things low cost. β and if that's not easy to navigate for you, that's okay. You can still enjoy Bogle's ideas and the impact he had on the industry β without kind of hosting your own accounts directly at Vanguard.
Okay, question number four, the last question. Jack Bogle did great things to lower costs, but does the strategy of index fund investing actually work? So if you take this question do I actually only buy index funds to a DIY investing community, they will look at you with virtual crazy eyes because they view it as an absolute certainty that this is the way to go. But even most DIY investors don't know that
When Jack Bogle created the index fund, the idea of the of the index fund, it wasn't initially out of strategy. β when he wa worked before Vanguard, he worked for a company and when he wanted to lower costs for people, he he essentially got laughed at him and fired. When he created Vanguard, he wanted to lower costs. And again, β the board didn't like that because they were making money. And so he β was essentially demoted.
he they wanted to fire him, but he convinced them to let him stay on in an administrative capacity. So he wasn't allowed to give investment advice or do make his dream come true of low cost investing. And so because he wasn't allowed to create portfolios, he thought, well, what if I created a portfolio? But what I actually told the board was, I'm not creating anything. We're just buying buying everything. I'm gonna create this thing called an index fund that is just buying everything.
And so it was just a loophole for him to get low-cost investing in your hands. and what happened is that decades later, he he it turns out that this loop that this strategy of index fund investing was superior, at least the math at the time said that. And the math still proves that to be the case in most cases today. And and decades later he got the the ultimate validation of his vision in 2007.
Warren Buffett made a famous one million dollar bet. He he challenged anybody to this bet. One person took him up on it. an elite Wall Street hedge fund manager bet Warren Buffett that the boring S P 500 fund would not outperform β hand-picked portfolio of kind of ex expensive, actively managed funds. So,
Warren Buffett said, I'll bet you a million bucks that the SP 500 beats, actively managed funds over a decade. And these hedge funds are ran by these geniuses of the financial world using super complex strategies and charging massive fees. And over that decade, the boring ultra cheap Vanguard index fund, the SP 500 fund, β didn't just win, it completely blew them out of the water.
The index fund returned 125%. And while the Genius Head Fund averaged under 40%. So does it work? Historically, it has worked very, very well to buy these low-cost funds. And part of that, not all of it in this case, at least in that decade from 2007 to 2017, β part of that is because these fund managers have to outperform the market.
to justify their fees, which means they have to outperform their fees.
So this is the ultimate proof that capturing the market average isn't a consolation prize. It's a it is a great strategy. And when your colleagues talk about hitting a home run on a single stock or an exclusive sort of closed door or private equity deal, they rarely mention the investments that struck out and as a physician, you have an incredible income.
You don't need to take massive unnecessary risks or strike gold on a single stock to win. You just need to turn your great income into great life outcomes. So if you're looking at the outcomes, you you will find that the quote unquote average is really what you need and it should be kind of what you desire because that's what's going to get you what you typically most physicians want in life, which is a great retirement.
Sending your kids to college, paid off house.
So the next time Vanguard comes up
at at work. you can just sit there and smile knowing some of the s the history of the guy who fought Wall Street to make investing cheap for everyone. I really enjoyed learning more about this story I hope you enjoyed hearing about it today. Hope everyone can hear this and know that you don't have to put tons of hours into this yourself. you can spend your time taking care of your family.
And just remember, till next time, you're not just making a living, you're making a life.
