When boring became beautiful for stock-market investors

Boring can be beautiful— and, it turns out, bountiful.

- AllanSloan

That's certainly the case when it comes to investors’ long-term returns on mutual funds and exchange-traded funds.

What I'm talking about is one of the most interesting—and least exciting—broad-based trends in retail finance over the past 50 or so years: the rise of index funds.

Index funds are probably the most enduring and transformative innovation for individual investors since mutual funds became available to them in 1928.

When the first index fund for individuals made its debut in 1976, it started the process of making investing simpler and more understandable to regular people. No need to pick individual stocks or choose a fund manager to make investment decisions for you—just buy a stake in the whole market or a broad chunk of it with a familiar name, like the S&P 500.

Index funds also revealed one of Wall Street's secrets—that high-cost mutual funds run by highly paid managers hardly ever outperform the market in the long run. Index funds, on the other hand, let anyone match the market's return, minus tiny fees that these days are measured in hundredths of a percent of an investor's holding.

But the launch of the first index fund in 1976 was such a dog that when Vanguard Group tried to raise money for it, you could almost hear it howling. Vanguard wanted to raise $150 million from investors for the fund, then called First Index Investment Trust, but managed to collect only $11.3 million. That wasn’teven enough to buy 100 shares of each of the 500 stocks in the S&P index.