John Bogle on Investing: The First 50 Years

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25 YEARS OF INDEXING: WHEN ACTIVE MANAGERS WIN, WHO LOSES?

Keynote SpeechThe Superbowl of Indexing IVPhoenix, ArizonaDecember 5, 1999

JUST A YEAR HENCE, the world's first index mutual fund, proudly named “First Index Investment Trust” at its incorporation on December 31, 1975, will celebrate the 25^th anniversary of its birth. What is now Vanguard 500 Index Fund began with assets of just $11 million; on November 16, 1999, assets crossed the $100 billion milestone for the first time, a remarkable compound growth rate of nearly 50% per year. At the outset, the Fund was both excoriated and denigrated—“un-American” was the least of it—so, while I'm rarely one who thinks asset totals are very important as such, perhaps that date may serve as a useful landmark of the moment that heresy finally turned to dogma.

Index funds, of course, have spread far beyond Vanguard, and now constitute an important subset of the financial services industry. Assets of equity index funds total $300 billion, nearly 10% of the equity mutual fund total. There are 334 index mutual funds, 139 modeled on the Standard & Poor's 500 Index, and 195 in other categories, some of which make considerable sense, and some of which do not. Among those that do not are 69 funds which carry sales loads; the reason for their existence totally escapes me. Among those that do are international index funds and fixed-income index funds. Because of the extra costs of managed international funds—higher fees and expense ratios, higher ...