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How Index Funds Were Born

The video traces the origin of modern index and passive funds back to a 1974 article in the Journal of Portfolio Management by Nobel‑economist Paul Samuelson. Samuelson’s research showed that, historically, active managers could not systematically outperform the market, prompting his call for a vehicle that would "ape the whole market, require no load, and keep commissions, turnover, and management fees to the feasible minimum." He argued that such a fund would offer investors broad market exposure at the lowest possible cost, challenging the prevailing belief that skilled managers could add value. The industry’s initial reaction was one of skepticism rather than panic; few imagined the eventual scale of passive investing. Samuelson’s proposal resonated with early pioneers like John Bogle, who later launched the first retail index mutual fund, and set the stage for today’s trillion‑dollar passive‑investment industry. The rise of index funds has forced a fee‑compression race, altered asset‑allocation strategies, and sparked debate over market efficiency, making the humble concept born in 1974 a cornerstone of contemporary finance.