An Unlikely Effect of Jack Bogle’s Creation: Helping to Keep Inflation Low

By December 2018, Vanguard accounted for 24.8 percent of all stock and bond mutual fund assets in the United States, according to Morningstar. And Vanguard and BlackRock together controlled more than 34 percent of those assets. The two companies continue to attract enormous sums of money around the world: $176 billion flowed into Vanguard last year; $167 billion went to BlackRock. Fidelity was a “distant third’ with $24 billion, Morningstar said.

“In effect, we are living in a Vanguard-BlackRock duopoly,” said Kevin McDevitt, a senior analyst with Morningstar. The two are so big that everyone else must respond to them, he said, often by slashing costs.

Last summer, Fidelity announced that it was cutting fees to zero for some of its mutual funds. Charles Schwab quickly followed suit. Now, Fidelity and Schwab are offering broad arrays of exchange-traded funds that may be bought and sold without commissions, competing with Vanguard, which already does so.

That’s why the index fund revolution hasn’t been a blessing for all profit-making asset management companies. Revenue that would have swelled corporate coffers has instead remained in the pockets of people who shifted their savings into low-cost funds.

Companies that focus on actively managed funds with higher fees have had a hard time over the same period. For example, investors pulled $44 billion out of Franklin Templeton in 2018, Morningstar estimated. Partly because of that, the company’s parent, Franklin Resources, reported a sharp decline in earnings per share, to $1.39 in 2018 from $3.01 in 2017, according to public filings.

From other perspectives, the effects of low-cost index funds may not turn out to be entirely positive. The implications of concentrating market power in the hands of a few giant investment companies have yet to be fully understood.

But the benefits are clear. For consumers, paying less for a bag of apples or a gallon of gas is a good thing. So is paying less for the privilege of owning a piece of the stock or bond market. As costs drop, Jack Bogle’s legacy lives on.