On the 40th anniversary[1] of the launch of the First Index Investment Trust (now the Vanguard 500 Index Fund), it is interesting to note how the original premise of index funds has held up over time.  The premise that a low-cost, unmanaged fund, simply composed of the index constituent stocks, could beat a conventional actively managed fund run by a staff of stock analysts and portfolio managers, has been borne out both by outperforming the vast majority of actively managed funds[2] as well as investors voting with their dollars.  Indexed based U.S. mutual funds and ETFs have experienced net inflows of $1.2 trillion from 2007 through 2015 compared to net outflows of $835 million from actively managed U.S. equity mutual funds over the same period[3].

A recent Bloomberg article offers a brief history of the origins of index investing….

[1] The fund launched on August 31st 1976.

[2] SPIVA U.S. Scorecard Year-End 2015. In the ten-year period ending 2015, 82% of Large-Cap funds underperformed the S&P 500.

[3] Investment Company Institute – 2016 Investment Company Fact Book