Happy 50th birthday Vanguard 500 Index Fund, the first ever index mutual fund which revolutionized how Americans invest.
The Vanguard 500 Index Fund, a staple in millions of portfolios, began as First Index Investment Trust on Aug. 31, 1976. The first publicly available fund tracking the S&P 500 index was the brainchild of the late John Bogle, founder of The Vanguard Group. At the time, an index mutual fund was considered an unconventional idea but now, it's ubiquitous and has fundamentally changed investing.
In its half century, the index fund expanded investor access to a broad cross-section of the U.S. stock market, dramatically lowered costs and helped millions of Americans build long-term wealth. All classes of the Vanguard 500 Index hold
$1.67 trillion in assets, according to research and data provider Morningstar. Index mutual funds and exchange-traded funds comprise 50% more assets than actively managed U.S. stock funds, the Investment Company Institute said.
"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," said Vanguard President and Chief Investment Officer Greg Davis in a release. "By making broad market exposure simple, accessible, and low cost, indexing helped millions of individuals participate in the long-term growth of businesses and financial markets in ways that were previously out of reach."
What have Vanguard funds done for Americans?
Vanguard allowed everyone to invest in stocks without having to know how to read a balance sheet to pick stock winners. Americans could buy a diversified index fund, passively hold it for the long-term and reap the rewards. Index funds lowered the barriers to entry, making investing easy and cheap and helped encourage people to invest earlier.
To demonstrate the power of long-term investing, Vanguard noted that a $10,000 investment in the Vanguard 500 Index Fund at its launch in 1976 would have grown to more than $2.4 million by July 31, 2026. It also estimates that since 2000, index investing has helped investors collectively save approximately $570 billion in investment fees.
Retirement funds embrace index investing
Over the years, as 401(k) plans became a primary vehicle for retirement savings in the United States, index funds emerged as a foundational building block for millions of retirement portfolios for many reasons.
Costs are low and indexes are generally diversified, which makes maintenance easy, analysts said.
For retirees, "that’s an important consideration, given that many retirees have better things to do with their time than monitor the news flow related to their holdings," said Christine Benz, director of personal finance and retirement planning for Morningstar, in a blog.
Index funds also are more tax efficient than actively traded portfolios because they require less buying and selling of securities. Lower turnover means less tax-triggering capital gains events.
For retirees, "controlling taxable income in retirement doesn’t just have the potential to lower your tax bill," Benz said. "It may also reduce the extent to which your Social Security income is taxed and reduce your susceptibility to Medicare premium surcharges that apply to high-income Medicare enrollees."
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: Happy birthday! Vanguard 500 Index Fund turns 50
