Index investing was once dismissed as a niche experiment.

Today, it is a $25 trillion force shaping global finance. How did this transformation happen? 

Where Did Index Investing Begin? 

The seeds of index investing were sown by academic theories like the Efficient Market Hypothesis, which argued that markets were too efficient to consistently outperform.

Inspired by this, the first index fund was created in 1975 with a radical premise: instead of trying to beat the market, investors could efficiently own it. This challenged the dominance of active management, where outperformance was the goal, and expanded market access to a broader audience previously sidelined by complexity or cost. 

Before index funds, investors had two main choices: painstakingly research individual stocks or opt for actively managed mutual funds, which often charged fees of 1% or more.

Wall Street scoffed at John Bogle’s first index fund—some even called it “un-American” for rejecting the pursuit of outperformance. Yet, the Vanguard 500’s expense ratio, which debuted at 0.43% and eventually fell below 0.1%, slashed barriers to entry, letting investors keep more of their returns. What began as a mocked experiment became a quiet revolution. 

The Role of Technology in the Evolution of Index Investing 

Early index funds thrived on a simple, rules-based approach that required little technological sophistication. When the Vanguard 500 Index Fund launched in 1976, it tracked the S&P 500 using basic tools, with minimal computational demands. But as adoption soared, technology took centre stage.

By the 1980s and 1990s, asset managers leveraged computing power to automate rebalancing, process corporate actions, and improve tracking precision. 

As computing power grew, so did the ambition of index investing. The emergence of factor-based and thematic indices was driven by advances in data handling, automation, and backtesting capabilities. From early mainframes to modern cloud infrastructure, each technological leap expanded the possibilities—transforming index funds from a passive market snapshot into a scalable platform for precision-driven investment strategies. 

The Ripple Effect 

The rise of indexing reshaped the financial ecosystem. By the 1990s, institutional investors like pension funds embraced it, drawn by its transparency and cost efficiency. This paved the way for a retail boom in the 2000s, as exchange-traded funds (ETFs) made index strategies even more accessible.

Asset managers shifted from simply crafting products to integrating indexing into broader solutions. End investors—whether institutions or everyday savers—benefited from lower costs, greater transparency, and better long-term outcomes. 

From a modest start, index strategies have grown into an estimated $25 trillion industry, a scale unthinkable in 1976. Today, they anchor everything from retirement accounts to sovereign wealth funds, forming the backbone of modern portfolio construction. What began as a passive alternative has become a global force shaping how wealth is built and preserved. 

Looking Forward 

Index investing’s success rests on elegant simplicity, technological enablement, and a focus on investor outcomes—the same traits that democratized markets for millions. As financial innovation accelerates, these principles promise to unlock even greater access and customization.

The question isn’t whether technology will keep reshaping indexing, but how swiftly it will meet the demands of tomorrow’s markets.  

This is the first in a three-part series exploring the past, present, and future of index investing. Stay tuned for our next instalment examining the current state of index investing and the opportunities that lie ahead.