Back in 1976 when John “Jack” Bogle started the first index fund, his goal was to “capture the overall market’s return at much lower costs than the stock picking fund managers who so often failed to match it,” writes Bloomberg’s Michael Regan in a recent interview with the octogenarian and retired head of Vanguard. The lengthy conversation covers a wealth of topics including these highlights regarding index investing:

• While Bogle acknowledges that there are plenty of naysayers of index investing, he defends the strategy by stressing that there is an “underlying, fundamental trend” toward indexing that is “not one built on opinion, but on the relentless rules of humble arithmetic.”
• Index investing, according to Bogle, has caused a “revolution” that has significantly changed the mutual fund landscape. He argues that it is “shifting the allocation of stock market returns away from Wall Street and toward Main Street.”
• When Regan asked about the criticism of indexing based on the notion that it could lead to an increased level of correlation among stocks and perhaps impede efficient allocation of capital, Bogle’s response was blunt: “The stock market has nothing—n-o-t-h-i-n-g—to do with the allocation of capital.” Bogle agrees that there is some evidence of correlation resulting from indexing, but dismisses it as a cause for concern. “The efficient market theory,” he says, “ignores the fact that for every buyer there’s a seller.”

“Indexing ultimately proved to be a fantastic idea,” says Bogle, “in part because it’s very difficult for investors to get disappointed in it.”