With the 500 Index Fund having recently marked its 40th anniversary, it’s worth taking a moment to consider the impact that indexing has had on investing.

Cost is a key indexing advantage

Lower operating and transaction costs and very low advisory fees can give index funds a head start in performance over many actively managed funds.

Mr. Bogle’s analogy has been borne out by historical returns. As you can see in the chart below, out of 1,238 actively managed large-capitalization funds, a clear majority—65%—trailed the 7.31% average annual return of the Standard & Poor’s 500 Index over the decade ended December 31, 2015. And 518 funds, or about 42% of the total number, trailed by more than 1 percentage point.

Active large-cap funds and the S&P 500 Index

The data speak for themselves

The track record looks even more discouraging for active funds when you consider that of the 35% of them that outperformed the index, only 119—or about 10% in all—did so by more than 1 percentage point. The 315 others also took on risk to try to outperform the index (and likely experienced greater volatility) but surpassed it by less than 1 percentage point in average annual return.

Indexing may have been a hard sell 40 years ago, but it has won over many investors in the decades since. Its share of U.S.-based exchange-traded fund and mutual fund assets stands at a little more than one-third, representing about $3.5 trillion.

Notes:

Past performance is not a guarantee of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

All investing is subject to risk, including the possible loss of the money you invest.