John C. “Jack” Bogle, founder of the Vanguard Group, died on January 16, 2019 at age 89. Bogle was known as the father of index investing, a low-cost, passive strategy that aims to match returns of a broad market index, such as the S&P 500 Index. Many 529 plans offer Vanguard index funds as underlying investments.
After graduating from Princeton in 1951, Bogle worked for Walter L. Morgan at Wellington Management, where he eventually became president before launching Vanguard in 1974. He challenged the mutual fund industry in 1976 when he created the first index fund, the First Index Investment Trust, which was eventually renamed the Vanguard 500 Index Fund. This was the first index fund available to retail investors.
The fund was originally known as “Bogle’s Folly” among critics. At the time, the idea of matching, rather than beating, market returns was said to be “un-American,” and a “sure path to mediocrity.” Bogle ignored the critics and stuck to his goal of making Vanguard the mutual fund industry’s low-cost provider. In 1977, he cut prices even further by selling mutual funds directly to consumers, removing brokers and their sales charges. He promoted the simple idea that “in investing, you get what you don’t pay for.”
40 years later, Bogle’s idea of index investing has become conventional wisdom among investors. Today, the Vanguard Group has over $5 trillion in assets under management, with 20 million investors in about 170 countries. Bogle has authored numerous books based on his investing theories and has developed a loyal following, including 75,000 investors known as Bogleheads who participate in an online forum.
How index investing works
Index investing is a passive investment strategy that tracks a list of securities representing a particular market or sector, also known as an index. An index fund is a mutual fund that is designed to replicate the performance of an index. Many index funds track the S&P 500 Index, a list of the 500 largest publicly traded U.S. companies.
Index funds are a low-cost alternative to actively managed mutual funds, which aim to outperform a benchmark index. With an index fund, there is no need to pay a portfolio manager or research analysts to manage the investments, since the index fund simply tracks the index. Index funds also utilize a tax-efficient buy-and-hold strategy, rather than trying to take advantage of market price fluctuations. By eliminating the fund management and trading costs, index funds are able to offer significantly lower expense ratios than actively managed funds.
Investors looking for a cost-effective way to diversify their portfolio can gain access to hundreds or thousands of stocks or bonds by investing in an index fund. Diversification helps reduce risk in a portfolio. If one security loses value, others may gain value during the same period, offsetting any losses.
Index funds and college savings
Index funds work well for long-term investments such as retirement or college savings. According to Bogle, active fund managers cannot consistently outperform the market. Over time, fluctuating performance and high fees will have a significant impact on the investor’s account balance.
Many 529 plans offer passive investment options, including Vanguard index funds. Index funds are used in age-based portfolios, where the asset allocation shifts toward more conservative investments as the beneficiary gets closer to college, and static portfolios, where the asset allocation remains the same unless manually changed by the account owner.
529 plans that offer Vanguard Index Funds
State |
Plan Name |
Investment Options |
Alabama |
CollegeCounts 529 Fund |
|
Arkansas |
GIFT College Investing Plan |
|
Colorado |
Direct Portfolio College Savings Plan |
|
District of Columbia |
DC College Savings Plan |
|
Hawaii |
Hawaii’s College Savings Program |
|
Idaho |
Idaho College Savings Program (IDeal) |
|
Illinois |
Bright Start College Savings |
|
Indiana |
CollegeChoice 529 Direct Savings Plan |
|
Indiana |
CollegeChoice Advisor 529 Savings Plan |
|
Iowa |
College Savings Iowa |
|
Kansas |
Learning Quest Education Savings Program (Direct-Sold) |
|
Kansas |
Schwab 529 College Savings Plan |
|
Louisiana |
START Saving Program |
|
Missouri |
MOST – Missouri’s 529 College Savings Plan (Direct-Sold) |
|
Montana |
Achieve Montana |
|
Nebraska |
Nebraska Education Savings Trust – Advisor College Savings Plan |
|
Nebraska |
Nebraska Education Savings Trust – Direct-Sold College Savings Plan |
|
Nebraska |
State Farm College Savings Plan |
|
Nebraska |
TD Ameritrade 529 College Savings Plan |
|
Nevada |
The Vanguard College Savings Plan |
|
Nevada |
Wealthfront 529 College Savings Plan |
|
New York |
New York’s 529 College Savings Program – Direct Sold |
|
North Carolina |
National College Savings Program |
|
North Dakota |
North Dakota SAVE (Advisor) |
|
North Dakota |
North Dakota SAVE (Direct) |
|
Ohio |
Ohio’s 529 Plan, College Advantage |
|
Oregon |
Oregon College Savings Plan |
|
Pennsylvania |
Pennsylvania 529 Investment Plan |
|
Rhode Island |
CollegeBound Saver (Direct-Sold) |
|
South Carolina |
Future Scholar 529 College Savings Plan (Direct-Sold) |
|
Tennessee |
TN Stars College Savings 529 Program |
|
Texas |
Texas College Savings Plan |
|
Utah |
Utah Educational Savings Plan (UESP) |
|
Vermont |
Vermont Higher Education Investment Plan |
|
Washington |
DreamAhead College Investment Plan |
|
West Virginia |
SMART529 WV Direct College Savings Plan |