Common Sense on Mutual Funds

Bogle, John C. 1999. Common Sense on Mutual Funds, New York: Wiley and Sons, 468 pp. plus xxi.

John Bogle, founder of the Vanguard family of mostly index funds, maintains that many (readers can easily infer most) mutual funds are ripping off clients egregiously. Management and owners pad their pockets, focus on marketing, pay little attention to costs, constantly mislead, and are really not very good at what they are supposed to be doing, that is, making money at designated risk levels for their clients. Some might say, they are just capitalists trying to get along.

In part one, Bogle suggests that while there is no guarantee, the historical record is the intelligent investor's best guide in the context of common sense. He suggests that the market is simply unpredictable on any short-term month-to-month or even year-to-year basis. A key to most success is to think long term. In this context he provides evidence that over time stocks have outperformed bonds. While the U.S. stock market is high, stocks should remain the investment of choice for the long-term investor and be the dominant component of a well-balanced asset allocation program. As a crude starting point, he suggests that investors put two-thirds in stocks and one-third in bonds. When all else fails, investors should fall back on simplicity.

In part two, the author discusses investment choices, including indexing. A poll taken in the 1970s by Institutional Investor indicated that...