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Meet the $1.7 Trillion Man

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    The Vanguard Group founder Jack Bogle on investing trends and mutual funds.

  • Duration 6:42
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Vanguard Group is the largest mutual fund provider in the United States now listen to these numbers in January vanguard -- fifteen billion dollars in new investor inflows.

While it's top fifty rivals -- combined outflows of two billion dollars so in for vanguard out.

For some of the other top names in the mutual fund industry.

Let's talk more about this and what it really means as a trend for investors joining us now from valley forge Pennsylvania is Vanguard Group founder Jack.

Well gold -- lovely to have you here what you make of that that vanguard gets the lion's share of inflows for mutual funds why do you think that it's.

Well actually it's quite dramatic I don't a good number we'll stay that high.

In the first four months of the year list we did 92%.

Of the industry's cash flow.

That's powerful -- means the other fifty largest firms essentially divided up.

Two percentage points to cash flow.

And a sexual frightening what's going on -- is that the general trends.

Of the last 25 years.

-- are now turning into -- tsunami -- I think because people understand the three essentials.

For the things we do here and one -- we develop most importantly in a sense.

By far the lowest cost in the business.

So if you go to vanguard fund look at a competitive fund you're gonna pass nineteen basis points less than two hundredths of 1%.

-- -- to -- typical competitor somewhere you know hundred.

Basis points in -- 120.

So we have a one percentage point advantage that huge over the long run for and as people start to look at all -- as long run -- insurer what's the percentage point a year.

It piles up until it over power only is there is between success and failure over an investment lifetime.

So without low cost the other two -- the essentials of that it created that.

And our first our mutual structure.

We don't pay out a lot of profits.

Two conglomerates that own these mutual fund managers.

-- of the private owners of management companies or of the public owners and management companies if all goes back to our shareholders.

And that's a number like.

Twelve billion dollars a year that's a lot of change.

And that comes out and turn those savings come out and turn by the third major part by far the most obvious thing we don't.

And that business buying the market and spending all those monies on asset are active managers.

We all -- market.

We don't every stock in the stock market and our big index funds and -- -- and are big by bond index funds and therefore we give you a market return.

Almost a 100%.

Where the average competitors gonna give you maybe 80% of the market return which compounds over time.

And people under rate listed just complete the thought here -- the power.

Of this low cost right right and -- Morningstar has said they have a vested interest.

And then saying the opposite of what they're saying instead of saying a Morningstar rating system the star rating -- that is the best way to pick up fund.

They say it's a good way to pick -- fun.

But even a better way is simply could go with the low cost fund in the category -- -- so.

This is -- I really want our viewers to hear about you have to check the cost of what you're paying these fund managers because again as you mentioned at the beginning of what you were just talking about.

The Vick could scrape off whatever gains any of the stocks within the fund are making but.

Jack tell me with all of those billions that were coming in to vanguard funds so successfully in the past year to.

Where was the money flowing and is that the place that investors should go right now was it commodity funds is it's funds that are just basic index funds heard general stocks.

-- -- we don't care -- we don't do commodity funds or at least we haven't done commodity funds and I might -- a quick turn over in the grave if I'm gonna got a quiet -- Because there's speculation is they have no internal rate of return.

You're betting you can sell them for more than -- Bob Bogle bought them -- -- of -- of investing in stocks Jack.

No because stocks and bonds have an internal rate of return take -- easy one.

They -- you not only a price change but supported by the interest -- -- pay you every year and the case -- stocks.

Those levels in the long run our account for stock prices.

And stocks -- just a derivative.

Of that when you think about of these corporate corporations that we own.

And those corporations have a lot of capital a lot of savvy.

A lot of marketing great labor forces -- great products and they earn money and that.

They pay you back a dividend that put the rest to work to build the corporation even larger so if you've got the internal rate of return that's an investment.

Just getting betting on price.

This is speculation but I also want another statistic that you have always stood by and that is when you compare active fund managers who are getting paid a lot of money.

Just simple basic index funds something like most of them have lost about 400 billion in assets over the past five years.

Up where you see the real opportunity for an investor right now that.

Well I think -- right now is is -- honestly is not really in my vocabulary.

You can't.

Pick right now at a day in a different right now a year from now and a different right now maybe a year before now.

You auto invest for the long run -- -- saying this for a long time.

You cannot worry about these -- and squiggles in the markets.

Or in the price of individual stocks because they're generated largely by speculation.

Mixed expectations.

Rather than intrinsic value and.

And -- -- haired -- and and talk about your expectations people have for buying if they could get their hands on -- shares of FaceBook.

It it in advance if somebody comes -- and said.

Graham pop -- or you know if it was let me your grandchildren that I I can get an audience -- even as -- -- -- sunny but the sunny outlook would you say.

I'd say don't.

Get into a craze thing like that the odds are poor for any new issue.

You look at the data going back years years years and there are some that will do spectacularly well Google would be a great example.

And but most sub do not.

And you shouldn't get captivated by the romance and I should say this quickly lift more than ever you want to avoid that captive nation because these Internet stocks.

Are you as somebody may come in and put.

A company out tomorrow Larry and other out of business and have been put out of business by some new innovation shack -- calls -- don't have don't speculate.

Don't speculate now agreed and fifty years of investing Jack Bogle the founder of them -- that you so sixty.

But I was trying to make additional cuts are making younger and I said Graham population does not grandchildren.

Simulator that no doubt very much we'll be right back.

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