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  • edited April 14
    I’ve long been convinced that there is a link between the end of Madoff’s scheme and the overwhelming popularity of index-fund investing in the aftermath of the financial crisis. It’s not simply that, as the Wall Street Journal theorized, people realized pricey money managers hadn’t seen what was coming. Nor was it merely that the regulators’ cursory investigations into Madoff’s fund left many dubious of all sorts of investments (and the officials tasked with overseeing them). Instead, Madoff demonstrated the lie that almost any savvy individual investor could produce steady gains in a way that nothing else could. By destroying the retirements and dreams of so many, he inadvertently performed a much-needed service.
    I'm not so convinced. Outside the realm of the ultra-rich, Madoff was hardly known before the scandal because it was an exclusive hedge fund. Meanwhile, Bogle was already practically a household name by the time of the scandal. I would say the growth of no load funds and fee-only/fee-based financial advisers had more to do with the shift to indexing. Instead of selling high cost active management with a commission or load based fund, advisers were charging a percentage of asset fee, typically 1%. Combine that fee with a high cost active fund charging 1.5% and you've got a 2.5% drag on returns each year. A 0.05% index fund combined with the 1% was far more palatable and produced better results. The whole advice model has shifted dramatically.
    Any bull market of course will drive investors to index too, and of course Bogle's own presence, his constant evangelizing and having the numbers to back it up. If there was any fund's fall that might have done more harm to active manager's influence on retail investors it would be Bill Miller's Legg Mason Value when it got completely crushed during the 2008-09 crisis after 15 straight years of beating the market. He was one of the last great heroes of active management in the retail world. Who by contrast in retail-land heard of Madoff before everyone who had heard of him lost their shirts?
  • Greed factor. Too good to be true, eh?
  • Good point. Madoff scammed a number of selected groups of investor, not the average retail investors.
  • Does anyone know how much monies are invested with advisors who are the actual custodians of said funds? Meaning the investor gave full custody of their money to someone else?

    Was on the road and stopped for dinner at a co worker's house for dinner whose husband was a retired heavy hitter executive for a large well known company. Thought to myself, geez they got to have a large place. Drove up, thought I had bad directions. Don't get me wrong, nice home, wonderful folks but not a mansion

    Turns out husband tells me lost most of his money with crooked advisor he met at church

    True story. Be careful there are lots of mini Madoff s out there

    And his wife meaning Madoff didn't know? Sheet, I can't even stop for an ice cream on the way home without my wife finding a piece of the wrapper in the car ...

    Baseball Fan

  • edited April 15
    Yep, although I will always maintain that the greatest crimes are generally the legal ones. Much of what occurred with mortgage backed securities prior to and during the 2008 financial crisis was legal, and that behavior nearly destroyed capitalism in the U.S. That's why Madoff is so despicable in retrospect. During the period in which he ran his funds, there was so much money to be made legally that to actually employee a Ponzi scheme like he did was just pure greed. The other striking thing is that his wife still was allowed to keep $2.5 million after all of this calamity. What an ordinary working person would do for that kind of "punishment!"
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