More Money Podcast - 336 How One Man Changed Investing Forever - Eric Balchunas, Author of The Bogle Effect

Episode Date: September 21, 2022

If you’re an avid listener of the More Money Podcast, then you'll know that I’m a big fan of index investing and playing the long game when it comes to growing your money. But, how and when did index investing start? Luckily my guest today, author Eric Balchunas, is sharing the history of the index fund and how one man named Jack changed Wall Street forever in his new book The Bogle Effect. Eric Balchunas is Senior ETF Analyst at Bloomberg Intelligence, where he leads the ETF and fund research and contributes to Bloomberg Opinion. He is also the co-creator of the Bloomberg podcast Trillions and Bloomberg TV’s ETF IQ. He’s the author of The Bogle Effect (2022) and The Institutional ETF Toolbox (2016).  In today’s episode, we learn more about the founder of the index fund and the Vanguard Group, John Clifton “Jack” Bogle. Eric deep dives into how index funds changed Wall Street, which we're still seeing the effects of in today's investing landscape. Eric is a wealth of knowledge when it comes to index investing and ETFs. I loved being able to pick his brain and get him to share his opinion on cryptocurrency and “vanilla” vs. “hot sauce” investing. I hope you enjoy this episode too! For full episode show notes visit: https://jessicamoorhouse.com/336 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, hello, hello, and welcome back to the More Money Podcast. I'm your host, Jessica Morehouse, and this is episode 336 of the show. Welcome back. I hope you enjoyed last week's kind of season premiere with the two episodes. So if you're new to the show, make sure to, you know, catch up so you're up to speed and everything like that. Because, oh boy, do we have an amazing, and by we, I mean me, have an amazing season ahead for you. I'm so thrilled, especially this episode. This was something actually, this interview I recorded when I was still recording season 14 of the show, but well, I just had too many episodes. So I had to shift it over to this season. And I can't wait

because it's a book that I absolutely love, a guest who was amazing. And I know you're going to enjoy this episode as much as I did recording it. So I have Eric Fortunas on the show. He is a senior ETF analyst at Bloomberg Intelligence, where he leads the ETF and fund research and contributes to Bloomberg opinion. He's also a frequent speaker at industry events and conferences, as well as the co-creator of the Bloomberg podcast, Trillions, and Bloomberg TV's ETF IQ. And recently, like honestly, very recently back in the spring, he published The Bogle Effect, his new book. And of course, he has another book called The Institutional ETF Toolbox, which came out in 2016.

And if you're interested, Eric holds a bachelor's degree in journalism and environmental economics from Rutgers University. And so we are predominantly going to be talking about his new book, The Bogle Effect, because it has everything to do with passive investing and basically kind of the origin story of the index fund, which was, you know, first kind of developed and came from the mind of John C. Bogle or Jack Bogle, whatever you like to call him. And I used to call him Boggle because, I don't know, it just looks like Boggle to me, but it's Boggle. Everybody, it's Boggle. But yeah, I absolutely loved his book. I feel like one way if you're like, oh, gosh, investing is so intimidating and scary. One way to get around that is honestly to read kind of these biographies, or even just more historical books. So you can understand the context of how did this happen? How did this, you know, work instead of just learning the theory straight up? And you're like, I don't understand, like, maybe this is me. But for me,

I need to know, you know, how things, you know, were created. That's why another book that I'd always suggest kind of in companion with this is the book that I featured, I believe, last season called Trillions. That was also a really great book and also gives you so much more context for like, how do these things work? How are all these ETF providers creating these funds? How did the first ETF get created? All this kind of stuff. So anyways, we've got a great show for you today. But before I get to that episode with Eric, here's just a few words I want to share about this season's podcast sponsor. This episode of the More Money Podcast is supported by Desjardins. Does your financial institution share your values? Because Desjardins is about more than just money. They are on a

mission to enrich people's lives and improve the economic and social well-being of Canadians everywhere. Desjardins' main goal as a cooperative is to support its members and make a positive impact on their communities by providing exceptional customer care, offering a variety of financial services, and above all, listening to its members. They've also been at the forefront of sustainable investing as one of the first financial institutions to offer responsible investment portfolios. To learn more about Desjardins and how they're a cooperative making a difference, visit Desjardins.com. Welcome to the More Money Podcast, Eric. I'm so excited to have you on the show. Oh, it's a delight to be here. Thank you for having me.

Oh, good. No, I'm thrilled to have you. Really loved your book. It was definitely right up my street because I love talking to guests on the show about passive investing. And especially, too, I love kind of diving into, you know, kind of the history of it because I think a lot of us, you know, especially I feel like over the past two years because the pandemic, a lot more people have, you know, started learning about passive investing and maybe even trying it themselves, but they may have no idea what the origin story is, and especially how impactful, you know, kind of the quote unquote inventor of the index fund is Jack Bogle. And so really loved your book, you really dive as deep as I think anyone possibly could about him and just, you know, what exactly the boggle

effect is and how he it's, you know, I never really thought about it until reading your book, how impactful him, you know, starting Vanguard and having the specific kind of philosophy he had for his business really impacted the whole financial industry. And thank goodness, because I mean, you know, I'm from Canada, and we are notorious for having the highest fees in the world for mutual funds. But over the past 10 years, luckily, we've been seeing those MIRs go down and especially have seen a lot more development in terms of different index funds, ETFs and things like that, which has been really great because I swear like when I first started, you know, doing this 10 years ago and reading

about like self-directed investing, there really weren't any options. And I used to always look at like the U.S. and be like, wow, they have a lot more, you know, stuff because people would be like, oh, just, you know, invest with Vanguard. And that's not something that you can do with Canada. Like there's Vanguard Canada, but they aren't exactly the same setup as the US. They basically are just a product provider, but you have to either work with an advisor or use a discount brokerage, but you can't just invest with the platform. And so really excited to have you on the show to talk about all these things. Yeah, no, it's huge. And I think if you're an investor and you understand the origins and the history and the impact and just what Vanguard, the uniqueness of that structure where

the funds own the company and the investors own the funds, I think it really will help you. Probably if you're already into passive, it'll probably reconfirm that you're on the right track. But I think, you know, anybody who's not in there, I think, you know, will drive home the importance of costs. There's also a lot of business. It's a business case study too. It's about somebody who utterly disrupted an industry. And it's also, I think about Wall Street tends to want to get the most money out of retail as possible. It's just the nature of the business. And this guy went to complete other direction. And why? Totally unique dude. Yeah. I mean, one of the things that I found

striking, because I can't really think of anyone else who's like him in that his focus wasn't just profit. Like you mentioned in the book, it's like if he went kind of a different route, he could have easily been one of the billionaires and he chose not to be. I mean, he still would have like a net worth of like 80 million. But, you know, like you kind of said in the book, compared to his peers, he was, you know, a pauper, basically. But, you know a pauper basically but you know and it's interesting because i feel like even in this time a lot of people look up to the billionaires that is the uh kind of you know marking of success to have so much money and so much power but as i feel like a lot of those people they're not actually necessarily doing any good they just have a lot of money and then

they're kind of just going to space or something like that. Or like, how is this helping, you know, climate change? Sure. Right? Yeah, no, I think especially in asset management, there's a stat that made its way around at least our media about, I don't know, nine or 10 years ago, which was that the top 25 hedge fund managers make more than all of the country's kindergarten teachers. And it's those kinds of stats that really annoy people. And if you look at, it's not just those 25 though, the amount of money people make just by getting attached to other people's money,

it's a lot. And you could argue that there's too much skimming going on. And so I try to explain that even though mutual funds are as interesting to most people as watching like C-SPAN, which is like when they film Congress, it's very boring. You can't overstate the importance of this industry because it sits in between all the value created by everybody who gets up and goes to work at corporations and everybody's the entire retirement nest egg of the nation. So in between there is the mutual funds and other vehicles. And I think Bogle being there, it was a good spot for a guy like him.

I think the industry needed to get corrected because the natural tendency is to just extract more and more. And as the market goes up and up, some of the fees and the dollar fees were just really, really ridiculously high, probably just not worth what the value created by the asset management industry was. And I think Bogle saw that, came in and corrected it. And everybody's benefiting since. And I think even people in the industry, I think, appreciate him and they feel like they're doing better for their clients. I think he really just increased the amount of fiduciary mindset in the whole industry. So he is way beyond the index fund father, uh, label that he gets.

I think he, he really shapeshifted the whole thing. He almost, uh, I think even created like a, created like a new religion, you know, for a low cost. And he spawned a group called the Bogleheads. And they have, you know, they're all over the nation and they're like nonprofit. And they sort of preach his gospel. And it's, you know, I think it's something that's just bigger than Vanguard. I think he really, you know, took on many aspects of that, again, the people in the middle. And by an index fund, obviously, is his most known

invention. But he did a lot of work across the board. And I think that'll ripple out across other industries in the financial industry. And then, of course, across the world, although it's slower, like you said, it's slower across the world. And one of the big reasons is because you guys, the brokers still get paid by commission and people tend to lean on their banks more. The US is a little bit of a different animal, but I do think it will ultimately spread just like it did here. When people like yourself just talking about it, this is how it spread in the nins before the internet. It was just people sort of talking about it, sharing information. And ultimately, once people locked in that they think that they wanted cheap investing products, the assets came, you know, it was they have $8.3 trillion. But $7.3 trillion of that came in the last 15 years. And the company is 45 years old. So it took a while. And I think it'll be slow overseas,

but I think it'll happen there too, simply because the amount of money you get to keep, especially as it compounds, it's extraordinary. And we're talking hundreds of thousands of dollars, if not millions, for people after 20, 30 years versus not getting that. Those fees, they seem small, but they really wreak havoc long term and they really ruin the magic of compounding for people. And that's something he really drove home. Yeah. I mean, I think that's the thing that for me, when I started, you know, learning about this stuff and, you know, researching Jack Bogle, really the fees was like at the center of it that, you know, indexing. Yeah, it made a lot of sense, but really it was the fees because I think a lot of people just don't realize how much they're paying. And I think part of the problem is because, you know, these advisors, these managers talk about it in percentages. And what's 1%? That sounds like hardly anything. But

if you actually talk about it in terms of dollars, that's where and also dollars over time over decades, I think that's where people are getting a little like, Oh, well, I had no idea. And of course, usually the because I mean, I talked to people all the time who were shifting from expensive, you know, actively managed mutual funds over to cheaper, you know, ETFs. And usually what I hear is, well, they tried to convince me to stay because they said, well, what this the higher fees, you know, provide is better value advice, etc, etc. Though I think a lot of people aren't actually getting that extra value. And like you said, too, if you have a, you know, million dollar portfolio, and you're paying 1%, you're paying a lot of people aren't actually getting that extra value. And like you said, too, if you have a, you know, million dollar portfolio, and you're paying 1%, you're paying a lot of money for that advice, it actually be probably cheaper to hire a fee only financial

planner at that point, that won't be incentivized to sell you a particular product or get you into a particular fund, because it, you know, give them a commission, but they'll just give you the advice that you need and the financial plan that you're looking for. So I think a lot more people, especially young people, because they're, like you said, there's so much more available information, more books, more information on the internet, they're becoming a little bit more aware. And I think that has been the biggest change I've seen in the last decade that people are asking more questions and demanding more. And you've, you know, so many great charts in your book that show how that has impacted the products that are available and the fees that are being charged. Because yeah, when I started investing, there

were not that many options. I think I actually did start investing in index funds through a bank. It was at the time the only online bank that offered index mutual funds, and they did have cheaper fees compared. It was like 1.07%. So cheaper than like a 2.5% mutual fund from some of the big banks. Hold on a second. That is wild. The relativity, when you can find 1% cheap, it really is. In the US, they'll sell one fund that's 6.06% to buy one that's 0.04. It's gotten so intense, I call it cost obsession. It's almost maybe over the top, but the idea that 1% is a good deal is crazy because I think that's ultimately, I think, where the US would be without

Bogle and Vanguard. I think there would be index funds because he didn't invent indexing, but I think they would probably be in the 90 to 100 basis point range, which doesn't do that much good. The power of indexing and index funds is really because they're almost free. And Bogle was very smart. He had to sell indexing to a country that wants the best. America is all about performance and the best, and indexing seems like average. And one of the ways he did that was the growth of $10,000 chart. And he basically tried to say that over 50 years, if you get 7% annually, here's what you end up with. I think it's something like $240,000. And then if you get 5% annually, which would be the 1% fund fee plus the 1% of turnover trading

costs that the fund gets because they're active and they have to pay for their trades. So then you get 5% with that fund and you get something like 120,000 or something. So basically over 50 years, 60% of your returns and compounding went to that asset manager, which is insane. Again, the numbers aren't major year to year, but over time they are major. And I think the fee also doesn't, you don't write a check for the fee. And that's something I think where, um, even advisors I talked to who were, who are like, well, I I'd happily lower or do a flat rate, but the people like the fact that it's 1%. But I think there's a movement in the U S to try to explain to them. Yeah. But your 1% on this amount of money is like $25,000 a year. And nobody pays that much for their car to get repaired, for a lawyer,

for a doctor. And I think if the money was put into that, if you had to write a check, it would change quickly. I think it's the psychological situation of having a small percentage as what they take. It's actually a pretty brilliant way to get paid if you're in the asset management industry, but I think it is a little deceiving versus what it is in dollars. Well, exactly. I feel like it should be on statements being like, this is how much in dollars that you've paid internally within your fund to have it. No one knows that number. No one really even looks at the percentage and does the math to see how much they've actually paid, which I think is the huge problem. But I think luckily, more people are becoming aware of it. And then, you know, asking for something better or jumping ship and looking for something better.

But I guess there's, and you kind of mentioned this in your book, there's kind of two sides to it. So there's obviously like, okay, we want to be aware of fees. But then, you know, when people get really into it, go down that rabbit hole, they can kind of get cost obsessed and trying to find the cheapest fund, even if it's not necessarily maybe the most diversified or the best fund for their particular portfolio. Do you want to kind of speak to that? Like how there's kind of the other side of the coin where you can get a little too obsessed with cost?

Yeah, I think, you know, all else equal, you should probably pick the cheapest fund. But in the US, we've seen a couple issuers come out, this one issuer named Focus Shares, and they were as cheap as Vanguard, but nobody bought their stuff. They kept going to BlackRock and Vanguard and Schwab. And so we realized it's not just low cost. I think people want a popular brand, a trusted brand. And I also think you've got to look at the holdings. So if it's tracking the S&P 500 and there's three of them, I mean, fine, you pick the cheapest one. There's really no harm in that. I think it's when it gets to be like, well, the one that's called the Russell 1500 is actually two basis points cheaper than the S&P 500. Well, that's going to

be a thousand extra stocks. You're going to have more mid-cap exposure. You should really look at the return history and also the holdings, make sure you want it. So I think you really want to look at the holdings first. I think that's the most important thing. I think, you know, and once you're below, I don't know, we kind of call 20 basis points, the international lowcost demarcation line. That just seems to be in the U.S. what separates something that's costly versus cheap. And once, like ESG ETFs in particular, once they got below 20 basis points here, they took off. And I think the advisors here who are RIAs and independent, that's sort of where they like to play is in the under 20 basis point area. So I guess I would use that as a rule of thumb. And I would wonder if it's a general, you know, Canadian broad market index,

I would think you probably have some choices that are low cost because typically the lower, the lower cost stuff is usually in the broadest stuff, which is good because that's probably the most efficient way to invest where it gets more expensive is in the specialty stuff. Like in the US, there's ARC, right? They charge, I think, 75 basis points, but they're doing some unique, I call it hot sauce type stuff. And people will pay a little more for that and that's okay. I think for the broad stuff though, it's just important to keep an eye on cost, especially again, because the broad stuff, though, it's just important to keep an eye on cost, especially, again, because the broad stuff you're probably going to own for a long time. And you have to think about that compounding and how much you'll lose in the compounding part if the costs are high. Yeah, absolutely.

And for anyone listening, because I know we've probably used the term basis points, that just means one one-hundredth of a percentage. So 20 basis points is 0.20% for anyone listening who's wondering what that is. I want to actually talk about, yeah, when you talked about ARK and the hot sauce on the video, because I think that's where people when they really get into indexing, and especially I feel like I've seen over the past couple years when the stock, I mean, not right now, but like as a stock market was just rising after, you know, March 2020, people, everyone, you know, thought they were a genius when it came to investing, and then wanted to take on some risk. And we saw a lot of that with like Robinhood, and just like the popularity of, you know, NFTs and crypto, everyone thought they're like, oh, I could do no wrong. Look at my portfolio, it's gone up so much. Do you think part of the problem with kind of an index portfolio is some people will just get bored of the plain vanilla i mean this is something i've been talking about for years and some people just think it's too simple it's too boring they want some hot sauce on their portfolio and so they want to dabble what are your kind of opinions on on like does

it make sense for people to have like a satellite portfolio so they can have fun or is it like yeah have your fun but it's it's probably not going to actually do any good. It's just for fun. Well, in one of his books, probably Vogel wrote 12 books, and his best one, in my opinion, is called The Little Book of Common Sense Investing. Yeah, love that book. And in that book, he says what index funds make up for in their boringness is exciting long-term returns. And so I would just look at a 30-year chart, you know, or just get that book. He really shows it, or get my book. I show it to him anyway. But yeah, I think you have

to look at the long-term to make indexing exciting. A lot of people do that, and they are just stuck with indexing, and they are fine just waiting 30 years, and they are committed. Those people are a certain type of investor. But there is another type of investor forming, and I probably am more in this camp, and I think most people are, frankly, which is, okay, fine. I understand that indexing is the best way to get frictionless exposure and get as much compounding as possible long term. That said, it is very boring, and indexes are conservative. For a stock to get into a broad market index from like MSCI or S&P, it has to jump through a bunch of hurdles. It's like almost needs to be a teenager or adult before it gets in the index.

Well, there's stuff out there that's not in the index, and you may want to get exposure to it. It's a new theme like cannabis stocks or something like that. You guys have a popular cannabis ETF up there. And so it's okay to speculate, in my opinion. And so what we're finding is this barbelling where there's 80% in the boring, broad, vanilla, cheap index funds. And then 10% to 20% you go crazy with. And you speculate, almost like buying lottery tickets and just decorating your portfolio with them. That way you don't have any FOMO. ARK is a perfect example of that. Crypto is a perfect example of that. And the good news

about that is some of that stuff, like Cathie Wood is like, this is a 5-10 year plan for me. Or the cannabis industry, it's going to take a while for this to spread through and be legalized and all this. So you have to hang in there. But by having a boring core and all of the serious stocks covered and the adult stocks covered, I think you can be more tolerant with the volatility of the hot sauce. So to me, they actually complement each other in a way. And that's part of why I think you haven't seen a bunch of outflows from thematic ETFs and ARK that you normally would. If that stuff was in your core, you would panic because you'd think of your kids and your retirement dreams. You'd be like, I got to get out, but crypto is only worth what somebody else will buy it from you later. At least with stocks, you get cash flow. You're actually, you know, the businesses generate dividends.

There's earnings growth. You literally, they grow. And this is part of what the reason Bogle was not into commodities or crypto. That said, again, I think it's fine as a sort of accent or something to decorate on your broader portfolio. But I do worry a little bit about the crypto move and whether young people will just abandon the stock market entirely because they think it's too boomer. But I hope I tried to really make clear in this book that the stock market is cool because of these companies.

It's not just the stock. It's a business. And the people go to work every day, and they create value there. It's like getting a piece of capitalism. And you don't have to do any work. You just get your hooks in there, and it grows, and you get paid for that. That said, Bogle was one of the things he did that was brilliant, I thought, was when he was trying to explain investing to people, he'd say, look, there's investment return, which is dividends and earnings growth. That's what

the business kicks out. That's what you're here for. But there's something else. It's speculative return. And that's the sort of supply and demand of the market that makes stocks go up a ton and then crash. And if you eliminate, if you look at the past 10 decades, investment returns are positive every decade. But the speculative return, once you add that in, the decades are all over the place. One decade's up, one decade's down, one year's up, one year's down. So I think what he was trying to say is just forget speculative return. Keep your eye on the investment return that you're getting. And that's also, I think, a good case for indexing because it's a good way to capture all that investment return at a low cost.

And that's something I tried to explore in the book as well, because, you know, what are we all really here for? And I think there's a difference between gambling in the stock market and actually like investing. And he certainly was all for investing. He ranted and raved against all of the stuff. And he would not like the hot sauce. If he were here, he'd say, don't invest in any of that. But people are human. And I don't think anybody's as pure and hardcore as him. So I acknowledge that. And I think just a little allocation to it probably goes a long way, especially if it helps you behaviorally not touch the vanilla stuff. Now, one thing that, and this is kind of the sense I got after reading his book,

The Little Book of Common Sense Investing, was he believes in what he believes, and he has a hard time changing his mind. And for example, he's very much into index mutual funds. And I mean, what's interesting is I read his book. I'm like, oh, we actually in Canada don't have that as many options for index mutual funds. And also the fees are actually quite high. Typically, you will still see them at 1%. ETS is kind of our kind of sweet spot where you can finally see below those 20 basis points and get that lots of options, very

accessible, very cheap. But he kind of talked about in that book, and I think for a long time, talked about how he wasn't really into ETFs. And I understand where he's kind of coming from, but do you want to kind of share, you explained it so well in the book, why he wasn't as gung-ho about ETFs and what some of his, I think, concerns about them into the future, which I feel like we're kind of seeing a lot of that today. Yeah. I mean, so he had index mutual funds and he got them to be cheap and he thought, look, you buy into this 30, 40 years, you sell out of it. What do you need the index fund to trade for? He just didn't see any point to having it trade intraday. And he didn't like trading to begin with. And so he was just not into ETFs. The guy who invented the ETF, Nate Most, actually came to Bogle's office and said, can we use

the Vanguard 500 Index Mutual Fund as the model for our first ETF? And Bogle told him, you know, get the hell out of here. Although they were friendly. He said he liked Nate Most a lot. But he said, no way. Well, then Bogle steps down as CEO and the new CEO and the CIO decide that they should get into ETFs. And they thought ETFs would be a good place for short-term money to not bother the long-term money in the index mutual fund. Also, it would allow Vanguard to go to people more because Vanguard always asked you to come to them.

And this would spread Vanguard a little more. And so I think it did a lot for Bogle and indexing, for sure. And he relented a little bit. He would always say the broad market ones are fine, as long as you don't trade them. That's as close as he would get to a compromise. But then he would never let that statement just hang there. Then he'd go, but nobody's actually holding them. They're trading them all the time. And there's all this lunatics and fruit case ETFs. And he hated all the theme stuff. And he was like old man yelling at cloud when it came to ETF. And even his closest friends kind of disagreed with him here. They thought, you know, I get it. I get his opinion, but ETFs are fine. And I interviewed a lot of advisors and

none of them had a problem not trading. They were like, I'm totally fine buying and holding an ETF. I think Bogle, one thing he did was he would take the total volume number and he would use it to say everybody is trading out of their minds. But you could have a couple of big investors making the volume and yet you could have 500 people who didn't trade at all for years. So you couldn't because you can't deconstruct the volume to find out exactly who's doing what. So I think he was a little off there, and we debated this in my interviews with him, and I explore that in the book. But generally speaking, he didn't like trading, and he didn't like the marketing and the gimmickry. And so I think those are valid points.

You know, again, you have to understand this guy really was truly a champion of the small investor and tried to look out for them every turn of the way. And he thought ETFs were a Wall Street kind of invention to sell you stuff. And he was trying to protect the little guy. That said, he might have gone a little too far, I think, in his admonition. Is that the right word? Yeah. I like it.

There you go. It sounds good. Yeah. Sounds good. I mean, I totally understand where he's coming from because from where ETF started, which was like just an index-based exchange-traded fund, which, again again is is great makes it a little bit more maybe accessible for people to invest in and it can be still a great product to um you know do long-term investing with it didn't stop there and i think that's probably where his concern was it's like he knew it was going to evolve into like all these like fruitcake kind of funds and they have

like every fund provider out there even kind of including Vanguard, has a lot of very, you know, thematic ETFs or innovation ETFs, all these, you know, very siloed specific ETFs. And so, you know, I think it started as like, oh, this is an index fund, just a different format. But now when people are like, I'm looking for an ETF to invest in for my retirement. Now there's like thousands and it may feel a bit confusing. Whereas when you just talk about an index mutual fund, okay, you know, there's a menu. It's not so complicated. So I understand that because, you know, I talk to people all the time and they're like, what do I invest? Like, I want to invest in ETFs. I heard those were good. And what they're talking about is index ETFs. But then if they're doing their

own research, they may have no idea what a benchmark is, an index, or because a lot of these thematic ETFs, they have indexes. So people get confused. They're like, oh, that's an index fund. It's like, no, no, no, that's a very specific index that someone made that has nothing to do with the broad market. It's almost like they should, I mean, and we sort of do this, divide the world into vanilla and hot sauce. Yeah, I like that. Or specialty. Yeah, something like that. I also think, you know, it can get very confusing. And that's why in the book, I have a chapter called The Great Cost Migration, because I do feel as though the move from mutual fund to ETF is there's some gray area there.

The move from active to passive, some active stuff is pretty tame and passive-ish, and some passive stuff is crazy, as we just said. And so I think really the real mother of all trends and what he kicked off and what I consider to be the Vogel effect is high cost to low cost. So through it all, I think that's going to continue to permeate everything, especially in, again, that core going to continue to permeate everything, especially in, again, that core area. And it should. I think the more something gets commoditized, the price should go down. But I think in asset management, the incentives are so skewed to actually increase

the prices that this probably wouldn't have happened, at least not in the intensity that it's had without Bogle, because he was a unique guy. And Vanguard is a unique structure in that it's customer-owned. And nobody has followed or copied that structure in 45 years, which is one of the reasons I wanted to write the book. I found that interesting. And then people were like, well, there's no economic incentive to turn over all the future profits to the customers. That's like crazy. Nobody goes to Wall Street to drive a Volvo like Bogle did. And so then I was like, well,

why did this guy do it? And so I have a whole chapter called Explaining Bogle, where I deconstruct what went into creating somebody who would have done this. Because it's, if you sit there and ponder it, it's so unique and weird. And that was exciting to me is to sort of try to get to the bottom of all this. And it's, it's a, it was a great case study. And I just think if it's a good place to go and because you'd write a book, you got to, it's like living in a foreign country for two years, you have to really like that country. And I was like, I want to hang out at, you know, in, in the Bogle country for a while. And I learned a lot. It was great. And I think other people, I think, would do them a service to sort of learn that as well, both as an investor and

just, again, a unique, unusual Wall Street story, as most of the stuff they write about are either people who had a good run gambling in Wall Street or rise and falls or people doing nefarious things. This is a completely different story about somebody who didn't play the game well or go from rags to riches to rags, but somebody who changed the game entirely. That said, there's no fall. A lot of books, you want a dramatic arc and then a fall. There's no fall. And i there wasn't a lot of like juicy uh scandalous stuff i couldn't so i tried to make up for that in really accenting the massive impact and the weirdness of the vanguard structure and the structure of the man himself yeah i mean there's

not many i think figures who who've worked in finance for as long as he did and he was just consistent like you know you gotta give up to him he was consistent the whole way through, which to me is comforting because it's like a lot of people that get into that, like most people that go into the financial industry or asset management, it's because they, yeah, are attracted to the lifestyle, you know, maybe the greed factor, just, you know, it's money is what they're interested in. He actually wasn't really interested in money. He was actually, which is difficult that, you know, there's, I can't really name anyone else who was so focused on trying to provide value and a better service and better product for investors and consumers. And to, not his detriment, but like, you know, he could have been a lot wealthier if he went

the way that every other, you know, company went. And it's kind of shocking. It's like, why did he do that and i think part of it was just he was really passionate about what he believed in and i love i love that fact i think that's why vanguard is so popular and there are you know fans and you know forums that are dedicated um to him and to kind of the movement that he started and uh why i think i and so many other people kind of got attracted to the whole idea of passive investing is because you like this idea and it made sense and it's simple and and that's you know and i don't like for me it's like i love what i do financial education but i have no desire to be a stock

picker or day trader i'm not interested i want something simple and i want to be able to explain to other people how they can save up for their kids college fund or retire one day and be like, it's not that hard. Yeah. One of the people I interviewed for the book was Michael Lewis. And he was a Vanguard investor right off the bat. I think in the 80s, he read Burt Malkiel's Random Walk Down Wall Street. And he said the side benefit of this is time. I don't have to think about this. He said it made him a better writer because he doesn't have to worry about the market anymore. That's a big gift to give somebody. And I also think Michael Lewis did ask, why did this take so long? And one of the things, and this is a bold move by Bogle back in the day, was he would not pay brokers, which has basically

made Vanguard outside of an entire system. And that took a long time. So like 97% of Vanguard's assets came after Bogle stepped down as CEO. So he was toiling around in the wilderness in oblivion for a long time. And I give him credit because to your earlier point about cycles and getting carried away and people going to Wall Street with the fire in the belly thing, there's a great book of his called Character Counts. I wouldn't put it in the top two or three, but it's interesting, especially if you're researching him. And it's a book of his speeches through basically the late 70s all the way till the mid 90s. And, you know, as somebody who is Gen X, I remember the 80s, you know,

they were the interest rates were wild and everybody's having fun. And so you see his speeches in like 83, 84, 85. And then in 87, I had this thing in the book where I sort of talk about how that was the year of the movie Wall Street came out. And Gordon Gekko is giving the speech, greed is good to theaters all over America and inspiring a whole class of young people to go into finance for the wrong reasons. And meanwhile, Bogle was at a Christmas party in 87, and he's talking about, oh, we trimmed two basis points off the fee. We've got to remember fiduciary stewardship, blah, blah, blah. And I'm like, nobody was asking for it in the 80s. Everybody was just having fun getting carried away. He did the same thing in the 90s.

His speeches are completely consistent, but the culture and the markets were going these huge swoons and then crashes. And it just really was amazing. And nobody really cared about cost back then either. So the vision of him to be able to be disciplined and visionary, but the patience as well, those were underrated parts of the story uh because they took 25 years to play out and um he again uh he got to see a lot of it grow but it didn't happen when he was there but he i like to tell people what he did was lay a foundation that you could

build an empire state building on um and they did yeah yeah i mean that's it's the hardest thing i mean that's also like the hardest part of being a passive investor is being patient because no one's patient these days. We all want things automatically right away. And I feel like one thing, and I appreciate that you talked about this in the book as well, is the other kind of argument I've been seeing as indexing has gained a lot more popularity over the years is that, oh, this is a trend or this is ultimately going to hurt investors in the industry. Indexing is a bubble. Do you want to kind of speak to that and why, you know, I mean, I don't think so. I think it makes a lot of sense for the long term. But why would some kind of critics say, oh, this isn't going to last? Yeah, usually, if you pull this, if you look at the article that says that, I call it some worry articles. The some worrier is usually an active manager or an academic study that was funded by an active manager. The media should be a little more careful about this.

Instead of the article being some worry index funds are going to blow up the world, it really should be active manager is threatened by index funds and has has here's their issues. You can then judge them through that lens, which is fair. Look, people are going to own a bunch of stocks. Right. And a bunch of bonds. It's just the way it is. They used to do it through mutual funds that were active. So the Fidelity Magellan was the biggest fund in the 90s. The top holdings in that are Amazon, Apple, JP Morgan, Microsoft, Google. All these funds are owning the same stuff, basically.

So all that's happened is people are just owning those stocks through a much cheaper vehicle. I liken the whole trend to the move from compact discs to digital music. MP3s, the MP3 in particular, disrupted the music industry big time. It cut the revenue in half. But the industry kind of did it to themselves. CDs were going for $17, but the cost to make them had dropped to only 50 cents.

And they didn't share any of those economies of scale. And the MP3 just destroyed that industry. It's building back up now. i still listen to music i just do it through a rapper that's cheaper more flexible and i can pick the songs i want to buy the whole album it's just better and this happens uber's the same way uber was like five evolutionary steps forward you're still gonna get a car somewhere just happens to be it's not a taxi. So people really need to find out. It's not a sector. There's no way it's a bubble because all it is is a better wrapper to get stuff. You could argue that the stock market is bubblicious, but that's arguably more because demand for stocks. Why? Well, because the Fed had an easy policy or earnings are good. There's a myriad of reasons stocks could be overvalued. That's a different argument.

But the index funds didn't create that. People were going to own them one way or another. And so that's my main gist of it, which is where I come up with this metaphor, which is that blaming index funds for a stock market bubble is like blaming MP3s

for the rise of Nickelback. I don't know if you know that band, but... Oh, no. They're Canadian, so yes, I do. Oh,hmm. I don't know if you know that band, but... Oh, no. They're Canadian, so yes, they are. Oh, sorry. I shouldn't have said it on this show. I'm going to get... People are going to get hate mail.

Sorry. Oh, no, I do. Oh, gosh. I do, unfortunately. So one thing I want to kind of... Wrapping this up and kind of just talk about is Vanguard, you kind of mentioned this, has evolved so much after Bogle left kind of a leadership role

um what are your kind of thoughts you've done so much research about kind of his philosophy and his vision what do you think he would think about vanguard now if you were still around would he be pleased or would he just you know maybe it was just too too far for him to kind of envision well i think he would think that they're just involved in a lot of things that are distractions. That's one. Now they have an advisory arm now, which is, this is a big deal. Because once you're an advisor, you then have to have things more than index funds. You've got to have private equity.

They're probably going to have a crypto offering. This is going to get Vanguard into a lot of different areas that are unboglian. But maybe that's okay. Maybe private equity needs a little Vanguarding. I mean, I'm torn on that. But the bigger overarching problem wasn't that Vanguard was getting, because these aren't big asset areas for them. The bulk of money still goes to the broad market Boglian type stuff. What Bogle really worried about, and he writes in many of his books, is that the one thing that could bring down Vanguard, he said, wasn't the market because they just sold the market. They give you the market return. It's not like their assets are predicated on beating the market, which is what they're predecessing, or people who were leaders

before them. That's how they fell because they finally stopped outperforming like a fidelity and whatnot. So he said, we should be fine. The problem is if we get too big and we stop seeing our customers as sort of, you know, human beings and we start to have a bureaucracy, the customer service that we get, you get to call a phone line and be on hold. And he thought that is the Achilles heel. And I think he nailed it because that's, that's the thing you hear complaints about the most when it comes to Vanguard and they're getting louder. And like the reviews on Yelp are pretty bad. And I went to the Bogleheads website and even they're complaining and, you know, some of them are debating going to Fidelity. Part of this is

because Vanguard doesn't make a lot of money, which is why they, people love them. They don't have a lot of revenue to play with, but this is part of why he was always warning about them being too ambitious and trying to grow too big, is because they would lose touch with the people. And so he has a phrase in his book. I forget what book it came from. I'd have to go back and look. But it's a line from some novel where the guy says, sir, I've met the enemy and it is us. And he thought that is, that's the problem. Vanguard is the biggest risk for Vanguard. And I think that would be my takeaway on that.

But I do think that, again, I think the Bogle had sometimes hit Vanguard too hard on this issue. I do think the bulk of the money still goes to totally vanilla Bogle-esque type strategies. You also understand though that Bogle was such a Puritan. He actually dumped on stuff he started while CEO. He didn't like value and growth, even though he started those funds. Over his life, he just got to the point where he just thought everything's pretty pointless except a total market index fund and hold it for 50 years. Once you lock into that's all you need, you really start to become very

critical about everything else. But not everybody agrees with that Puritan approach to investing. So I just think it's complicated. And I tried to really be careful with that material in the book, because I can understand all sides here. But the customer service is, I think, objectively, the area most people would agree is the Achilles heel of Vanguard, and they need to work on it. Definitely. I mean, yeah. I mean, I've never really seen it go well when a company that starts with kind of a grassroots vibe becomes this big you know, big monolith. It's never because then people are like, this isn't what I signed up to. This isn't what you know, we started with. So yeah, it'll be interesting to see what happens.

But I think in general, no matter what, you know, happens with the company, I think what he's done for getting investors aware of fees, different investment strategies, and just having a certain investment philosophy, I think will kind of go beyond the company that he started, which is what I hope for. Well, and just real quick to that point, let's say you're at Vanguard and you're just too upset about the customer service

and you move to Fidelity. And then you want to go into Fidelity funds. They now have near- free index funds. So does Schwab. So does BlackRock. So those, that, and that ultimately is the Bogle effect. The fact is that that ship has sailed, even if Vanguard stumbles because of this issue, that everybody now is into the low cost thing. And even Bogle, who this, and when I read this, I almost fell off my chair. I never heard anybody who ran a business say this, but he said in 1991, which is way before Vanguard got big, but he said, I'll know that Vanguard's mission to make a better world

for investors is beginning to be complete when our market share erodes. Because he thought that's when everybody else would get cheap like them. And so I don't even think he'd mind that much. If people went to another firm and had low cost, that would still, I think that would be fine by him. That's how different of a trip he was on and how unusual he was that he would be okay with his company's market share eroding. And I think that's why I also called the book The Bogle Effect and not The Vanguard Effect, because I think it's really him and that message that's, again, almost spreading like a religion, more so than the company Vanguard, which could rise and fall. But the Bogle message, I think, and that trend he created where now

everybody has cheap offerings, that's really, I think, the core of the situation. So I agree with you. I think it's a good question. I've been asked about that Vanguard issues with that company on many of the podcasts as well. Yeah. Yeah. No, I completely agree. And yeah, there's so much in your book. So I highly recommend everyone grab a copy. For me, I love a book that really goes into the background. It just makes like for me as like an indexer, it just confirms things that I kind of already know, but kind of goes in depth with some things. And just for me, it's a good like reminder of like everything you're doing it right everything's okay just keep doing it don't you know you kind of talk a little bit about the book but the shiny object syndrome

and we're all susceptible to that so highly recommend it um before i let you go where can people grab a copy of your book or find you on social media if you are on social media or online how can people get in touch with you uh yeah i I am. So the book you can get at Amazon, I think that's, or any Audible, wherever you get books, it's pretty widely distributed. Where you can find me socially is at Eric Balchunas. Somehow that handle was available. Yeah, good for you. That's the good news of having my last name. It's always available. I can go on Instagram today and it would be there.'m not on Instagram though I'm only on Twitter um and I'm on LinkedIn um if you want to if you're a professional and you want to uh you know LinkedIn with me that's fine too um but uh I think Twitter is the best place to keep in touch and I have a podcast like yours um it's called Trillions and that's free that's also

on on any place you get podcasts and we cover ETF topics in the US. So I think those are some ways you can find me for free. If you happen to have a Bloomberg terminal, my stuff is on bietfgo. But there's not many terminal users out there outside of the sort of like core professional crowd. Well, you never know who's listening, so. Yeah, you never know. Well, thank you so much, Eric, for taking the time to be on the show.

Pleasure having you on. Thank you so much. This has been fun. And that was episode 336 with Eric Balchunas. You can grab a copy now of his new book, The Bogle Effect, and make sure to follow him on Twitter. You can find him very easily at Eric Balchunas. His last name is B-A-L-C-H-U-N-A-S. And of course, you can also find him on LinkedIn and you can find him on Bloomberg.com.

I will put a bunch of helpful links so you can find out more about, you know, what he writes and just what he's up to at Jessicaorehouse.com slash 336, 336. And just an FYI, if you're ever looking for the podcast show notes for any episode, you know, first you can just go to jessicamorehouse.com slash podcast. And then you can, you know, look by season. But also you can just go jessicamorehouse.com slash whatever the number of that particular episode is very Very easy peasy. So I've got, of course, as always, quite a bit to share with you. So do not go away. Here's just a few words I want to share about this podcast season's sponsor. This episode of the More Money Podcast is supported by Desjardins. Do you feel valued at your financial institution? Because Desjardins is on a mission to enrich the lives of Canadians, help build stronger communities, and educate

its members so they can confidently reach their financial goals. Not only do they offer one-of-a-kind customer care and offer a variety of financial services to fit your needs, as a cooperative, they put their members first. So if you're looking for an institution that's making an impact, look no further than Desjardins. To learn more about Desjardins and how they're making a difference, visit Desjardins.com. All right, so first off, I am of course going to give away a copy of Eric's book, The Bogle Effect. You can enter to win a copy at jessicamorehouse.com slash contest. And of course, you can find other books that I'm going to be giving away. I'm going to be

updating the page as I go along this season. And I've got a lot of authors this season. And so if you go there right now, you'll find Eric's book that I'm giving away. But also I'm giving away a copy of Nicole Lappin's book, Becoming Superwoman. So you can enter to win either book. So go ahead, just go to jessicamorehouse.com slash contest for that. Some other things that you may or may not be aware of. But first off, I always get questions about, hey, do you have any great book recommendations? You know, obviously, I have been very, very lucky in that over the past seven years of having this podcast, I've interviewed some amazing, amazing authors and had the privilege of reading their books. And so of course, I've

been able to kind of curate some amazing lists of books. And you can find them on my website, if you go jessicamorehouse.com slash favorite things, or just go to jessicamorehouse.com and it's right in the main navigation favorite things, you can find all the books that you should read in my opinion. Not only that, if you click on the button, you know, what are all the books because it just shows you like some highlights. It then has a nice little organizational, you know, curation for you of American personal finance books, Canadian and those from the UK. Just because I know sometimes you're like, I want to read it by a Canadian author or

I want to read one by a UK author or American author. Got a nice and organized for you just to make it very easy for you. Also on that page, though, is, you know, I've got a list of some women and finance that you should follow on Instagram, because I like to support my fellow woman. And also, if you're ever looking for, you know, some ideas on financial products and platforms and some suggestions, I've also got a big list going on there of products that I personally really like. And also to if you are looking for, you know, a financial professional, just Canadian, I only have Canadians listed on here, such as, you know, a CFP, like a financial planner or an investment coach or gosh, a business lawyer, accountant, bookkeeper. I just thought I

would, you know, list the people that I know and I've, you know, maybe I've worked with them or interviewed them before. So you can check them out. I've even included a list that is actually from John Robertson, who you may know, he's the author of The Value of Simple, and he has the website Holy Potato. He has a really big comprehensive running list of financial planners and counselors and things like that. So that is all there on that page. Another thing I want to let you know and recommend, one of my favorite things for you to do is to subscribe to my email newsletter. You see, I love to kind of give you updates on the podcast. But as you know, sometimes and yeah,

this is exactly what I'm doing. I will kind of record a bunch of these episodes, send them off to my editor, they will not be in real time. So sometimes things will happen and I don't have time to share them. But you will find out exactly what's going on. For example, if I'm doing a public speaking thing, like, you know, last week, I did that financial diet online workshop. And you would have known about it if you were subscribed to my email list. So if you want to just go to jessicamorehouse.com slash subscribe and then you could be in the know and always find out what's going on for example did you know that i also for the summer super secret but recorded a second podcast and what was really cool about doing that is it's not just a podcast but it's

also a video podcast so you can actually see me it was actually a very different experience doing it while being recorded or video, I will say. It was a different experience for sure. But you can find all that information at cbc.ca slash clean dash slate. Apparently, too, I guess the CBC is promoting it on lots of their channels. So I was getting some friends saying, oh, my gosh, I've been seeing you on like when I'm watching CBC Jam and you're like coming up on one of the ads, which is so weird and kind of cool. So anyways, check out Clean Slate. I interview four really incredible guests that are not finance related at all. They're just doing their thing, doing kind of amazing things in their own

field. But we talk about money. So it's really about just kind of having the conversation and making it less, I don't know, awkward. So it's like, oh, yeah, it doesn't matter what you're doing or what your background is, we can all talk about money and feel a little bit more comfortable with it because we all should be more comfortable with talking about money, right? So just letting you know, got a second podcast there. And lastly, as a reminder, because I recently did that investing workshop last week with TFD, I do have an investing course specifically for Canadians. And it is available to you if you want to apply. If you go to JessicaMorris.com slash course, you will find all the information and the curriculum.

But if you listen to this particular episode and you're like, oh gosh, I really need to get my stuff together. I want to invest in index funds. That sounds like it makes a lot of sense. Well, things work a little bit differently in Canada, which is why I made a course specifically for Canadians. And you can find all the details at jessicamorehouse.com slash course. You can apply, then you get a call with me. Yes, one-on-one with me to see if it's a good fit for you. And then you can enroll and learn all the things that you need to know to start investing on the right path in a passive way. So that is it for me. I will see you back here next Wednesday with a fresh new episode that you're going to absolutely love. I have another

author that you are going to be so excited to hear. It's one of my favorite books, I would say. I honestly will say this is one of my favorite books that has come out that I've had the privilege of featuring on the show. So I've got Alan Henry on the show to talk about his book, Seen, Heard, and Paid. You're not going to want to miss it. You're not going to want to miss that episode. So once again, big shout out to my wonderful podcast editor, Matt Rideout, and have a good rest of your week and weekend. I'll see you back here next Wednesday. you you you you you you you you you you you you you you you you you you you you you you Thank you. This podcast is distributed by the Women in Media Podcast Network. Find out more at womeninmedia.network.