Who is Jack Bogle and who are the Gotrocks?

Jack Bogle, founder and retired CEO of The Vanguard Group, speaks during the Global Wealth Management Summit in New York June 17, 2014. REUTERS/Shannon Stapleton  (UNITED STATES  - Tags: BUSINESS) - RTR3UA5V
26 Apr 2017

Casey Mushrush wrote a great blog about the difference between active & passive investing and how you can use both styles together to help achieve financial success. A January 19, 2017 CNBC article ‘Peak Passive’? Money is gushing out of actively managed funds1 estimated that a record $208.4 billion left active fund managers, while passive funds brought in $236.7 billion! Why is it that passive investing is winning the hearts of millions of American investors each year? It may have something to with Jack Bogle and his fictional family the Gotrocks.

Jack Bogle was born on May 8, 1929. He founded the Vanguard Company in 1974, and in 1975, he founded the Vanguard 500 Index Fund based on the idea at the time that “everybody” was trying to speculate and outperform the stock market in the short-term, while the “average investor” would be better off having a longer time horizon.  One of Jack’s famous quotes captures this idea perfectly; “Don’t look for the needle in the haystack. Just buy the haystack!”  This “long-term” approach usually has the added benefits of lower trading costs (because you’re not buying and selling all the time), and lower taxes (because you’re not buying and selling all the time).

Jack’s favorite fictional story about the Gotrocks family describes his investment philosophy. Here’s the quick version:

Once upon a time… a wealth family named the Gotrocks, grown over many generations to include thousands of brothers, sisters, aunts, uncles, and cousins, owned 100% of all stocks in America. The investments continued to grow and compound over the year’s building the family’s wealth. Until one day some ‘helpers’ arrived and persuaded some of the ‘smart’ Gotrocks cousins that they can earn a larger share than their relatives by selling some shares in the companies to their relatives and buying other shares from them in return. The ‘helpers’ handle the transactions and as brokers receive a fee for their services.
The family wealth begins to grow at a slower pace. Why? Because now some of the return is consumed by the helpers. Additionally, while the family was only paying taxes on their dividends in the past, they are now paying taxes on the capital gains they realize from buying and selling their shares. Disappointed, the Gotrocks family realizes that they could have been better off just holding their investments.

While this story is just a hypothetical example, and passive investing does not guarantee more profit or protect from losses, it is a good reminder that sometimes doing less can be beneficial. Like the great Warren Buffett once said, “If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.”

Good Luck!


1. http://www.cnbc.com/2017/01/19/peak-passive-money-is-gushing-out-of-actively-managed-funds.html


Jonas Everett

Jonas C. Everett is originally from Cedar Rapids, Iowa, where he still resides with his wife, JoDee, and daughters, Ella and Addison. He graduated from the University of Northern Iowa in 1993 where he majored in Communications. He has 22 years of experience in the investment industry and estate planning business. He is currently a Partner of “Premier Investments of Iowa, Inc.” Jonas is also the founder and creator of “Lighted Tunnel Succession Systems,” which can be found on www.lightedtunnel.com. The last 10 years, he has been in charge of mergers and acquisitions for Premier Investments of Iowa, Inc. In 2011, Jonas founded the National Association of Retired Insurance Agents, to help retiring insurance agents implement their own business succession plans. His main focus is Estate Planning and Investments for Retirees and Pre-Retirees, and he also specializes in Retirement Income. He is a speaker for the Cedar Rapids School Buddies Program for 5th and 6th Graders. In his free time he enjoys golf, reading, and spending time with family and friends.