What has been the single most successful and socially useful investment innovation of the last 30 years? Although paradoxically few investors will know what it is, or why they should be grateful that it exists, my nomination is the index fund. On 31 August this year, largely unheralded in the media, this dull but remarkable invention celebrated its 30th year in existence.
An index fund, also known colloquially as a tracker fund, is a fund that does nothing more exciting than set out to mimic the performance of one of the market indices that are regularly featured in media reports about the day’s events in the stock market. Most of us are attuned to hearing such names as the Dow Jones Industrial Average (the oldest Wall Street index) and the ‘Footsie’, or FTSE–100, which has been recording how London’s leading shares have moved since 1984. But what, you might well ask, is so special about a fund that prosaically tries to mimic the performance of this or that index?
The surprising answer is: a hell of a lot.
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