The Vanguard 500 Index Fund Turns 40

Today is a major milestone in the history of investing. Forty years ago, on August 31st, 1976, John C. Bogle launched the first-ever S&P 500 index fund.

Bloomberg’s Ben Steverman with a bit of background:

In 1960, two University of Chicago graduate students published an article in Financial Analysts Journal calling for an “unmanaged investment company.” “Investment companies as a whole have not outperformed representative stock averages,” Edward Renshaw and Paul Feldstein wrote, so why not offer a portfolio that automatically buys every stock in the Dow Jones Industrial Average or some other index?

Easier said than done. It wasn’t until the early 1970s when Vasicek and others at Wells Fargo tried using computers to build index portfolios for pensions. And it wasn’t until Aug. 31, 1976—40 years ago today—that a new firm started offering an index mutual fund, one that anyone could invest in.

Today, that firm, Vanguard Group, is the largest fund company in the world, with $3.6 trillion in assets.

I highly recommend reading Bogle’s classic Common Sense on Mutual Funds to get the whole history from the man himself. It’s the story of a man who, despite early failure and a constant chorus of naysayers, took a very powerful insight and turned it into a massive business. Bogle’s work has benefited tens of millions of investors and it all started with the launch of his first index fund, which was seeded with just $11.4 million and was greeted with near universal apathy and scorn.

That was then, this is now. Vanguard has become one of the largest and possibly the single most influential force in the asset management industry today. It’s been estimated that the firm has saved investors approximately $1 trillion in unnecessary fees over the years. If the truth is even close, that’s a remarkable story.

Now let me show you something. I asked Michael Batnick to run a performance calculation of the Vanguard 500 fund since inception. We come up with a 10.86% annual return, and a cumulative total return of 6,091%! That number is f***ing bonkers. Not bad for a “dumb” product that holds all the losers along with the winners.

Check this out:

Happy anniversary.