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Market story

How “Bogle’s Folly” grew into trillions

Published .

The first index fund for retail investors raised just $11 million, and competitors dubbed the venture “Bogle’s Folly.” At the end of 1975, the American John Bogle launched a fund that refused to try to beat the market: it simply bought the entire S&P 500 index. To his peers this sounded like an insult to the profession. Bogle believed that after management fees few active funds outperform the index over the long run, so paying for the attempt made no sense.

Low cost was built into the design itself: with no one trying to guess the market, the fund cost investors next to nothing. It quietly grew along with the index, and by the end of the 20th century it managed $100 billion. The fund is still alive today as part of Vanguard, which has become the world’s largest seller of mutual funds, with $13.3 trillion in client money. The head of Fidelity did not believe investors would settle for an average result; now that very company offers them exactly that average.

Source: Wikipedia: articles “Index fund”, “John C. Bogle”, “The Vanguard Group”

Story archive

All issues in order, newest first.

  1. How a goatskin bond outlived the guilder and pays in eurosOf the tens of thousands of manuscripts in Yale’s rare book library, one still earns interest.
  2. The pension where the last survivor winsThe tontine insured against a misfortune nobody expects: living too long.
  3. How a pact of 24 brokers became the New York Stock ExchangeThe world’s largest stock exchange began as a cartel: 24 brokers promised each other to hold their commissions.
  4. How “Bogle’s Folly” grew into trillionsThe first index fund for retail investors raised just $11 million, and competitors dubbed the venture “Bogle’s Folly.”
  5. How two traders cost the exchange its onionsA sack of onions was once worth less than an empty sack.

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