Index Funds Are King, But Some Indexers Are Passive-Aggressive

Vanguard Group founder Jack Bogle, who died on Jan. 16 at age 89, ushered in an era of low-cost investing for the many. He launched the first index mutual fund for individual investors at the end of 1975 for the purpose of passive investing: Skip the stockpicking, save on fees, and simply ride the ups and downs of the overall market. His fringe idea has become mainstream. Sometime this year, analysts at Morningstar Inc. say, assets in passively managed U.S. equity funds are likely to surpass assets in actively managed ones. By pushing down fees across the industry, Bogle may have saved American investors $1 trillion over his lifetime, calculates Bloomberg Intelligence analyst Eric Balchunas.

Bogle theorized that you can’t reliably beat the market, so you might as well join it and settle for average performance. So far, so good: Through August, only 17 percent of actively managed funds in the U.S. “large blend” category had beaten the performance of their passive peers over 20 years.