Vanguard 50-year anniversary CEO letter

> always considered the stock market to be gambling

I also feel this way, and all of the terminology and marketing around the stock market definitely reinforces this belief. I have my retirement put into one of those diversified retirement mutual fund things which I completely ignore, but other than that, I don't mess around with stock market stuff at all. The up & down junk, trying to decide when to buy or sell, all that stuff makes me feel terrible. Same feeling as going to a casino. Not my kind of fun. I don't want anything to do with it.

My Grandfather was young during the Great Depression, and his relationship with money was much different than I can imagine. His idea of diversified investments was cash in several different banks. He just didn't spend money if he didn't have to -- to the point of not wanting to get a cordless phone (which could be carried in his walker) because he had a perfectly good wired one in the phone nook.

When he died in his 90s, his car was the one he bought to visit my parents when I was born.

They aren't wrong. It kind of is gambling, depending on how you do it. Even if you do it the smart way there's still some small risk. That's why the fine print on any perspectus says you could lose all of your investment.

If you needed the money immediately, that's an understandable reaction to the Depression.

If you did dollar-cost averaging through the Depression, and didn't have any immediate need to withdraw, you'd have come out of it doing pretty well.

It is gambling, but the kind where the odds are in your favor!

Even right now a lot of people retire and then liquidate their 401k

I just don't get it. My father and father-in-law both did it.

Market/fund investment for us normal folk is so passive and disempowered that it really does amount to gambling. You put some share of your hard-earned wages in and hope for the best.

It's been shown to be a mostly rewarding strategy over the last century of so, averaged out at least, and so of course it's not really a foolish bet for most folks, but it's not the only way to secure one's financial health and isn't the ideal one for everybody.

Scrappy hustlers, skilled trade workers, and (SMB-scale) entrepreneurs in particular can often see a better return by investing in themselves and in ventures in their own community, where things are not so passive. Likewise, people with modest dreams and a preference for stability often might prefer securing a paid off house, car, etc before throwing too much money into the casino -- even on good bets. And others with strong and healthy family bonds benefit most by prioritizing enrichment and opportunity for family members who can be trusted to return the favor in less flush/capable times. etc

Many young people have only really been exposed to the idea of market investment as a retirement strategy, and its a good one for many, but there are a lot of roads to staying financially healthy through late life.

Agreed, that generation generally viewed the stock market as gambling and thus didn't tend to invest. I'm not sure I can blame them for coming to that conclusion after living through the Roaring 20s bubble and the ensuing Depression.

The way it worked for my grandpa, who also lived through the depression was basically this:

1. Living through the depression made him singularly focused on money, to the point where that's basically all he talked about

2. Throughout life, he tried everything to hustle money - normal job, individual stock tracking, index funds sure, but then also hustling collectibles at garage sales (especially rare coins, because, you know, they are also money), a wide ranging used car sales operation (he'd drive 10 hours cross multiple states to get a good deal on a car to flip), etc etc.

3. He also was pretty good with math (money is numbers), and wasn't dumb, so in the very long run he kept rough track, and realized that of all the things, index funds probably did the best, and also took like zero time. But at least he had his kinda fun doing it.

So when before I went to college (even at age 12), he'd call us up and tell us to go to a good but cheap state school, and study something like engineering that makes a good income.

So then after I graduated (from a good and cheap state school, with two engineering degrees, and also a CS degree), and got a real job, his phone calls changed to telling me to invest in the S&P 500 with as much as I could, and ignore crashes. (He would also call and try to predict crashes, some he missed (dot com), some of which he got right (2007-8), and some of which were basically fiction (2013, 2015).

So I lived like a monk for 5+ years and still live pretty frugally. I think the highest I've ever spent on my income is 50% of after tax, and it used to be more like 20-25% before house+kid.

On the plus side, working for a long time at a >50% savings rate means you're much more immune to short term work shenanigans like layoffs.

On the down side, you gotta resist buying new stuff all the time, which can be hard when there's lots of cool stuff.

Living below your means and saving is absolutely important, but the Vanguard-style index fund is what made the compounding you mention available to the general public. Without that investment vehicle, cash saved would lose value relative to inflation or be subject to a lot more risk, making retiring at a reasonable age much harder.

> I don't really see how Vanguard gets "power" here. They have no choices.

They do have voting rights in companies that are part of the index. In my judgement, that's the more reasonable interpretation of the GP's point.

On the other hand, the more of the market held in index funds, the less is available to active investors to perform their valuation service, as described elsewhere in this discussion.[0]

[0] https://news.ycombinator.com/item?id=43859024

Vanguard do still have a lot of control by choosing their investments, because many of the people investing through them are buying blended funds rather than ones invested in a single index. For instance, if you look at funds like the LifeStrategy ones (which you'll commonly see recommended online by people), it's made up of lots of different funds:

https://www.vanguardinvestor.co.uk/investments/vanguard-life...

So while they can't easily pick and choose which S&P 500 stocks they include in a fund like that, they can decide if the S&P 500 is 1% or 10% or 50% of what that fund invests in. And given the total amount of investments they have, if they decide to move towards or away from certain countries/indexes/etc that could have a significant impact.

One of the key ideas behind the stock market is that is allows capital to efficiently allocated - perform well and have good potential more people buying their shares, and companies that perform badly or have poor potential get fewer. So money should go towards more productive companies, although how well this works in practice is debatable.

Passive investment breaks that approach, because you're basically buying shares in every company in an index, regardless of its performance or future prospects.

And if passive investment is 1% (as it was back in the 90s) of the market then that's not a big deal, because most of the investment should still be based around performance and productivity. Nowadays its more like 50% - but what happens when that gets even higher? Does the stock market still work effectively if 90% of the money is just blindly invested without any regard of individual company performance or merit? 99%? 100%?

I don't know. But we may well reach a point where the inefficiency of passive investment creates serious problems.

I’m less concerned about all the companies failing and more concerned about the implications of an index itself that is managed by a few titans.

Anything stand out to you? I’ll add it to the list but in the meantime I found these points from Chat interesting.

3. Impact on Corporate Governance

With substantial holdings across numerous companies, major index fund providers possess significant voting power in shareholder decisions. Wigglesworth discusses the implications of this influence, questioning whether these firms can effectively oversee corporate management without the traditional incentives that drive active investors.

4. Systemic Risks and Market Stability

The author also examines the potential systemic risks posed by the dominance of index funds. He explores scenarios where market shocks could be exacerbated by the passive nature of index investing, potentially leading to increased volatility and reduced market resilience.

I HATE the new web interface. It's significantly slower, shows less useful information, and has many more times where it just doesn't work as compared to the old web interface. If there was an option to go back to using the old web interface fully, I would sign up for that immediately.

For an example of a thing I hate about the new web interface is trying to buy a stock. You end up in some different part of the website where after you place your order it shows you a differently formatted order status page than the normal order status page. There's an Exit button at the top. Pressing the Exit button will pop up asking if you want to leave because you'll lose all your unplaced orders, of which you have none because how you got to the Order Status page was by fully placing an order. It's confusing for no reason.

Not the OP, but besides the subdomains, it feels like each section/UI/subdomain was designed by a different team. The overall interface doesn't feel cohesive (to me).

But you still can’t turn off sms fallback? Or can you now?

Also, Aiui, for a very large index like VTI and fund admins have some flexibility for inclusion and weighting. They look out for obvious problems and try to adjust a bit.

It's not just company being added or removed from the index but also company selling new shares or buying existing shares.

Dimensional U.S. Equity Market ETF (DFUS) is an ETF freely tradable by many brokerages.