VALLEY FORGE, PA — Vanguard’s first index mutual fund turned 50 on Aug. 31, marking five decades since a poorly received $11.3 million launch helped set in motion an investment model that would ultimately pressure fees across the asset-management industry.
First Index Investment Trust, now the Vanguard 500 Index Fund, began operations Aug. 31, 1976, seeking to track the S&P 500 rather than employ managers to select stocks in an effort to outperform the market.
The fund initially attracted just $11.3 million, less than 8% of its $150 million fundraising target, according to Vanguard. Indexing at the time challenged the prevailing view that investors should pay professional managers to try to beat market benchmarks.
Vanguard founder John C. Bogle instead built the strategy around broad diversification, lower costs and holding investments over long periods, limiting the amount of investor returns consumed by management expenses.
That approach subsequently moved into the mainstream. Index mutual funds and exchange-traded funds are now widely used in retirement accounts, advisory portfolios, education savings plans and other investment vehicles.
Vanguard estimates that index investing has collectively saved investors about $570 billion in investment fees since 2000. The growth of indexing also intensified fee competition among asset managers, putting pressure on investment costs outside index products themselves.
“Fifty years ago, indexing challenged a deeply held assumption — that investors had to beat the market using high-cost active funds to achieve better investment outcomes,” Vanguard President and Chief Investment Officer Greg Davis said.
The performance of the underlying U.S. stock market illustrates the effect of compounding over the fund’s history. Vanguard said $10,000 invested in the Vanguard 500 Index Fund at its 1976 launch would have grown to more than $2.4 million by July 31, 2026.
That figure spans multiple recessions, bear markets and market recoveries and assumes the investment remained in the fund over the period.
Vanguard subsequently expanded its index offerings beyond large U.S. companies to include bonds, international and emerging-market equities, mid- and small-cap stocks, and growth and value strategies.
The expansion coincided with broader changes in how Americans save and invest. As 401(k) plans became a central component of workplace retirement savings and exchange-traded funds gained acceptance, index products became building blocks for portfolios across asset classes, sectors, company sizes and geographic markets.
The rise of passive investing has also altered competition within asset management by making cost a more prominent factor for investors choosing between funds and investment strategies.
“The fundamental promise of indexing remains unchanged: broad diversification, low costs, and the power of staying invested for the long term,” Davis said.
Vanguard plans to mark the anniversary by displaying an original stock certificate from the 1976 First Index Investment Trust later this fall at the Museum of American Finance’s new location on Boston’s waterfront.
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