*** Index Fund Comments By John Bogle ***
Vanguard chairman takes on index-fund myths
By Craig Tolliver, CBS MarketWatch
Vanguard's senior chairman, John C. Bogle, speaking at an index-fund conference in Palm Springs, Calif., took hammer in hand to shatter a few myths surrounding index investing. "In all, with the bountiful decade of the 1990s nearing its conclusion only a year hence, the S&P 500 index has produced an average annual return of 17.3 percent, compared to a gain of 13.9 percent for the average diversified equity mutual fund," Bogle said. "That 3.4 percentage-point margin, in a sense, conceals more than it reveals. Compounded, the S&P 500 has risen more than 300 percent, so far during the 1990s, while the average equity fund has gained just over 200 percent."
The founder, in 1976, of the first index mutual fund -- the Vanguard Index 500 Fund (VFINX) -- challenged the notion that actively managed funds will outperform the indexes now that volatility has created a stock pickers' market. Bogle said the fees associated with actively managed funds can create a "cash drag," affecting returns by 2.5 percent per year. He also questioned the idea that index investors have no downside protection in a bear market. Bogle points out that during last summer's correction, an index fund based on the Wiltshire 5000 declined 20.7 percent, an index fund tracking the S&P 500 fell 19 percent and the average equity fund dropped 22.2 percent.
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