I am reading Bogle's "The Little Book of Common Sense Investing". Here, he spends a lot of time trashing mutual funds, and pumping up Vanguard. I'm comparing Vanguard's offerings using a blog post, and it seems two of them (VFINX, VFIAX) are actually mutual funds! The other (VOO) seems to be the ETF.

Now I'm confused at this apparent (to a newbie) hypocrisy. Are these mutual funds supposedly better (lower fees, run by Vanguard), or are they as bad as the ones Bogle trashes, and the ETF is what he would likely recommend even in this case?

  • 1
    Quid, I think that is an answer...
    – Pete B.
    Jul 10, 2017 at 17:46
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    I'm writing a full answer now. And I'll stop with the answer comments!
    – quid
    Jul 10, 2017 at 18:02

1 Answer 1


When Bogle broadly refers to "mutual funds" he's generally referring to high-fee, actively-managed, non-index tracking funds; either mutual funds or exchange traded funds (ETFs).

The most practical difference between ETFs and mutual funds arises when/if you ever want to move your account from one broker to another. ETF shares can generally be transferred from one broker to another while mutual funds generally need to be sold and rebought. There are technical differences but those are largely irrelevant to individual investors.

Bogle and others in his ilk advocate for passively buying a diversified representation of a broad market index, like an S&P Index fund. Bogle was a pioneer of the field offering low cost index funds (both exchange traded funds and mutual funds). Warren Buffett is also an advocate in this area and recently won a 10-year bet with Ted Seides, a fund manager, that Vanguard's S&P Index fund outperform any actively managed fund of Ted's choosing.

The general conclusion after many studies is that the performance of actively managed funds trail index funds when you consider the fees. S&P index funds generally charge an expense ratio of about 0.02% to 0.10% while actively managed funds can be as high as seven or eight times as much. Over the years the compounding effect of the increased fees materially erode your nest-egg.

Whether or not you choose an ETF or a mutual fund as the vehicle, the idea is to invest in a low-cost broad market tracking index fund over an "actively managed," expensive, high-turnover stock-picker's fund.

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    +1. When Bogle makes the distinction between traditional mutual funds and what Vanguard does, he's not talking about traditional vs. ETF, he's talking about traditional (actively managed) vs. index.
    – Ben Miller
    Jul 10, 2017 at 18:25

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