40 years ago yesterday, August 31, 1976, the first index fund was born. For those who follow us here at AFT Trivest, you know that we are big supporters of index based investing. We use mostly exchange traded funds (ETFs) mind you, not mutual funds, but the idea is the same. So we felt it was important to recognize this important birthday of one of the most important inventions the financial services industry has had in recent memory.
The idea of an index fund first appeared in 1960 at the University of Chicago, however it was never put into practice until the 1970’s when computers could handle the complex (for the time) models that were required. That first index fund was built by John Vogle, CEO and founder of the Vanguard Group. Bogle previously had worked for Wellington Management Co., but was fired because he wouldn’t stop talking about creating an index fund, so he decided to build his own once given the chance. The idea of indexing had some support from University professors and others who had studied the markets, but it was wildly unpopular on Wall Street. As it should be, considering the very idea of an index fund was that the professionals on Wall Street weren’t any better at picking stocks than a monkey throwing darts.
Bogle’s first index fund, called the First Index Investment Trust, was praised by Fortune magazine, but unfortunately it was a complete flop, at first. The fund was expecting to raise as much as $150 million during it’s initial offering, but it only got $11.3 million. Vanguard was not swayed however, and kept on working to reduce fees and tout the importance of diversified low cost index investing. It took a while, but it has paid off well. The financial crisis was a huge boon to index investing, as it’s stellar performance numbers and low fees won over a lot of investing hearts that had become disenfranchised by Wall Street after 2008. Today, Vanguard now manages about $3.6 trillion in assets. And while it certainly still has it’s detractors, they have fewer legs to stand on then ever before.
Cheers to the Index Fund and here’s hoping for another 40 to be just as productive!