All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident. ~Arthur Schopenhauer
19th-century German philosopher, Arthur Schopenhauer thought truth (and in this case, we'll extrapolate to include “new ideas”) passed through three stages: ridicule, opposition, then acceptance. While the index fund, which turned 40 last year, is a new idea no longer, based on the massive shift in assets that are moving from active to passive, one could argue their “truth” is now self-evident.
According to Michael Mauboussin and others at Credit Suisse, “Since the end of 2006, investors have withdrawn nearly $1.2 trillion from actively managed U.S. equity mutual funds and have allocated roughly $1.4 trillion to U.S. equity index funds and exchange-traded funds (ETFs).”
This shift from active to passive funds has driven total assets invested in index mutual funds to around $2 trillion with another $2 trillion invested in ETFs.
Clearly, index investing is an idea that is catching on and gaining momentum.
But sometimes it feels like people are disappointed to have to “settle” for indexing. No one wants to be passive or merely average. It can feel to many like settling for meatloaf because you can’t afford the prime rib.