Fifty Years of Passive Success

The investment approach of passive index investing began inauspiciously. In 1975 Jack Bogle, founder of The Vanguard Group, launched the first index fund available to retail investors. He hoped to raise $150 million but only managed to gather $11 million. His effort was broadly derided as “Bogle’s Folly.”

Ned Johnson, son of the founder of Fidelity Investments and its chairman at the time, famously offered, “I can’t believe that the great mass of investors are going to be satisfied with receiving just average returns.”

Fifty years on, it is fair to say Bogle confuted those detractors. In fact, the Johnson family of Fidelity Investments launched a private indexing effort for its own family wealth in 2001. Today that firm, Geode Capital Management, is open to outside capital and manages close to $2 trillion in index strategies. If you can’t beat ‘em, join ‘em.

That pales in comparison to Vanguard’s success. What started as a “folly” has grown to over $10 trillion in assets and is the face of low-cost, tax-efficient passive investing. That first, feeble effort has come to be a massive force, steadily taking market share from active managers by the year.

Morningstar recently published a report on asset flows, and the numbers tell the story. The topline revealed that in 2025 net flows into traditional equity mutual funds and ETFs were anemic at +$26 billion. That’s a drop in the bucket considering the size of the global public equity market held by US investors is estimated at north of $50 trillion.

The interesting part appears when looking below the surface. According to Morningstar, almost $500 billion flowed out of active managers while $521 billion flowed into passive strategies. In total, the outcome was a trillion-dollar shift away from active management toward passive in a single year.

While this trend has been established for decades now, it gained pace after the Great Financial Crisis of 2008 when the assurances of protection in times of market strain made by active managers proved wanting.

According to the Investment Company Institute, at year-end 2025, 63% of US public equity assets were indexed vs. just 37% with active managers. It’s an open question how far this tilt toward passive will go. There are some who think fewer assets under active management could eventually lead to active being able to reliably outperform passive. We are open to that possibility.

While there can still be a role for active management, for example, in areas of the market where indexing is not available or markets are less efficient, the flow of investor assets from active to passive reflects how effective passive investing can be for achieving long-term investment goals.

What began so meekly as a contrary approach to investing has come to dominate the investment industry. Fifty years on, investors continue to abandon active management in favor of plain, boring, “average,” passive investing. So far, they have usually been better off for it.

Jeff Buck