Himadri Buch Moneycontrol News
Legendary investor and index investing guru John Bogle has three pieces of advice to investors -- diversify investments, look at the quality and stability of the stock, and the most importantly, the cost involved in buying a stock or a product.
Bogle founded the Vanguard Group, the world's largest mutual fund firm, which manages $5 trillion in assets.
He termed dividends "as the best friends of stock investors".
"The compounding power of dividends is amazing, and dividends are the key to the huge wealth creation done by index funds,” Bogle said in a recorded video interview at Morningstar Investment Conference 2018, in Mumbai.
He also added that in the long run, corporate earnings and dividend yield will drive stock prices.
The 89-year-old Bogle has battled coronary disease his entire life. He suffered half-a-dozen heart attacks and, in 1996, received a heart transplant.
Bogle says he has roughly half of his money invested in stocks, half in bonds. “I spend about half of my time wondering why I have so much in stocks,” he says, “and about half wondering why I have so little in stocks.”
Talking about the cost of advice and cost of the product, Bogle said that cost of advice should be unbundled from investments. “Unbundled advisory is always the best. Unbundling the product from advice is how Vanguard works today,” Bogle said.
At present, in India, cost of advice is bundled in the cost of regular mutual funds, wherein a percentage of the expense ratio goes to the fund distributor as commission.
To encourage investment in unbundled offerings, SEBI mandated fund companies to launch direct plans, which investors can sign up for directly.
Bogle also said that index funds are gaining popularity in the US due to high management fee of mutual funds.
He explains, "If you are earning an average of 7 percent market returns and 2 percent goes away in the name of fund management fees, it would be a lot of cost to pay."
Bogle founded Vanguard in 1974 and introduced the first index mutual fund in 1975. Vanguard says that index funds have saved US investors approximately $150 billion in fees since the early 1990s.
Talking about the US mutual fund industry, Bogle said that the market there is matured compared to others and investors are better informed. “They're more informed, more concerned about the future, this causes them to go towards indexing,” he added.
On US markets, he said, "There is no stock pickers market. It's looking more at the long term, there is so much noise, in the given year. Past performance does not repeat. To the extent that your psyche can take it, ignore past performance."
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