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Quote of the Day

“Ever vigorously selling the idea, we also presented a table showing that $1 million invested at an assumed market return of 10% would be worth $17.5 million after 30 years, while a similar investment at 8.5% (using the 1.5% cost differential) would have been worth but $11.5 million. The cost saving resulted, I noted, in a $6 million payoff that was a mere six times the original amount of the initial investment. (To this very day, I use that example in my work at Vanguard.)”

-John Bogle

Curious how much you can save by selecting low cost investments? Visit our Expense Ratio Calculator

August 31st – This Day in Stock Market History

August 31st, 1976 – Vanguard introduces the first retail index mutual fund, the “Vanguard First Index Investment Trust” which tracked the S&P 500.

Source: Vanguard “In the Vanguard” Newsletter – Summer 2003

The fund was started with $11.3 million in assets – a far cry from Vanguard’s desired $150 million.

But assets grew at a compounded annual growth rate of 53% over the next 2 decades. Today the fund manages $490 billion!

Bogle recites the early history of Vanguard and his first index fund in a piece here, called The First Index Mutual Fund

August 31st, 1998 – As worldwide stock markets tank, Long Term Capital Management continues to rack up loses. The fund finishes the month down $1.9 billion, down 45% for the month. The fund’s leverage stands at 55 to 1 at the end of the month. The fund would be bankrupt in just over 3 weeks.

Source: When Genius Failed

The Dow Jones Industrial Average falls 512 points, or 6.4% on the day due to worries of economic weakness in Russia, Latin America and Asia. U.S. markets are down 19% in just the past month and a half.

Source: The Market’s Measure

Best August 31st in Dow Jones Industrial Average History

1897 – Up 2.97%, 1.16 points.

 

Worst August 31 in Dow Jones Industrial Average History

1998 – Down 6.37%, 512.61 points.

Read of the Day

There is one classic book that is frequently referenced by Jack Bogle on investing in index funds –  Burton Malkiel’s A Random Walk Down Wall Street

Originally published in 1973 (before the first index fund), newer editions of the book have been updated with more of Malkiel’s wisdom and wit. There are few books that make it on everyone’s “must read” list – this is one that you will hear nearly everyone praise.

<– Go To Previous Day: August 30th, 1983: On his birthday, Warren Buffett makes one of his most famous purchases.

Go To Next Day: September 1st, 1976: Mexico devalues the peso 50% overnight as the country struggles to repay debt. –>