John Bogle on Investing: The First 50 Years

ChapterI

ADVANTAGES TO THE INDIVIDUAL INVESTOR

THAT THE INVESTMENT company has fulfilled its functions to the individual investor appears manifest. The very fact that the number of shareholders has trebled in the last ten years seems to indicate that they have found it a suitable means to accomplish their investment ends.¹ It will be the place of this chapter to show what advantages the investment company gives the investor, using particular examples wherever practicable.

Several things must be made clear, however. First, investment companies have generally tried to encourage the purchase of their shares by investors, not savers. Many funds point to the need for adequate cash reserves, insurance, and perhaps additional savings or government bonds before placing the remainder in a mutual fund. This chapter, then, will be oriented toward those individual investors who can afford investment, which by its very nature entails a certain amount of risk.

Second, the funds can make no claim to superiority over the market averages, which are in a sense investment trusts with fixed portfolios; e.g., the stocks composing the particular “average.” They state, rather, that their performance must be judged against what the individual could have done at the same cost over the same period, with the same objectives as has a given fund.

Third, it is evident that the open-end investment company cannot attain perfect fulfillment of all the objectives stated below, but makes available the most adequate ...