The (Unintended) Darker Side of John Bogle’s Legacy
The industry titan changed the way millions of people invest, but indexing has greater implications now than it did 50 years ago.
John C. Bogle, a champion of stock investing for average people, passed away on January 16. I didn’t personally know Bogle, but I was fortunate to be present at what I’m sure was one of his many retirement parties in 1996. In his speech, he quoted at length from Tennyson’s “Ulysses,” including the lines,
“Come, my friends,
‘Tis not too late to seek a newer world.”
And he did help create a newer world, one where stock investing went from being mostly for the wealthy to being accessible to the many, aiding the abilities of uncounted people to retire more comfortably and send their children to college. Jack Bogle democratized investing. He made access to the stock market possible for more Americans, including the middle class. This, rightfully, is his great legacy.
The other facet of his work, indiscriminate stock investment via indexing, has now come to undermine the world he sought to make better. The darker, and I have no doubt unintended, outcome of Bogle’s approach to portfolio construction, is that today too much capital—and too many individuals and institutions—are invested in legacy businesses that are visibly destructive to the global economy. Because most of us today simply “index and forget” our IRAs and 401(k)s, we’re not necessarily aware that our money is tied up in dozens of fossil fuels companies, in pipelines, in damaging agricultural practices like glyphosate manufacture and in worsening inequality.
The darker, and I have no doubt unintended, outcome of Bogle’s approach to portfolio construction, is that today too much capital—and too many individuals and institutions—are invested in legacy businesses that are visibly destructive to the global economy.
Because he did such a fantastic job democratizing access to them, the indexes Bogle championed are now so widely held that almost all of us who own stocks now passively own the seeds of economic and planetary collapse. As long as most of our money is still invested in the destructive energies and businesses of the 20th century, the risky, outdated economy is the economy we will continue to get.
Citing these and other risks, the World Economic Forum (WEF) on January 15, the day before Bogle’s death, in its The Global Risks Report 2019, wrote, “Could the world be sleepwalking into a crisis? Global risks are intensifying but the collective will to tackle them appears to be lacking.”
The will to tackle them is certainly missing from our investments. All the risks WEF and many of us worry about are significantly represented in the S&P 500, the benchmark upon which the most popular index funds are built. This unknowing investment keeps the stock prices of these companies high and makes them appear to be the stalwarts of the global economy they once were. But times are changing.
Worldwide, wind and solar are now gaining market share from fossil fuels. Electric vehicles are finally beginning to disrupt internal combustion and transportation. Better agricultural practices are gaining at the margins of the older ways that are diminishing our topsoil and creating oceanic dead zones. Digitalization is making economics more efficient and many things are now available at a low or zero marginal cost. These developments matter, and before long they will graduate from early adoption and simply be the incumbent economy.
Times are changing, but our investments, largely due to indexing, remain stuck in the past. We are blindly, unwittingly invested in companies of the past that are also causing a frightening future. But we don’t have to be.
We need today a modern echo of Bogle’s vision: democratization of access to investing in a de-risked, innovative economy that can help us thrive indefinitely without succumbing to our planetary threats. Simultaneously, we must remove from portfolios the most intense risks to both long-term performance and to the well-being of our civilization.
If I’d had the chance to meet John Bogle and have a long discussion about all this, I like to imagine he would have seen my point. He clearly valued innovation and he wasn’t afraid to agitate, to shake things up and to help people in the ways he knew how.
I couldn’t help but notice, back on that evening in ’96, the particular emphasis he gave to the last line of Tennyson’s poem, perhaps in reference to how he planned to spend his retirement years: “To strive, to seek, to find, and not to yield.” Maybe it’s time to reinvent investing, again.
Garvin Jabusch is the cofounder and chief investment officer of Boulder, Colo.-based Green Alpha Advisors.