Jack Bogle Feared What Would Happen If Everyone Indexed

It is ironic that Jack Bogle, the man who did the most to popularize the index fund, would live to see his creation dominate the public markets to an extent that it threatened the entire system.

Shortly before his death, Mr. Bogle was asked what would happen if everyone in the market indexed. He replied, “If everybody indexed, the only word you could use is chaos, catastrophe. There would be no trading, there would be no way to convert a stream of income into a pile of capital or a pile of capital into a stream of income. The markets would fail.

Well, given that fact that passive vehicles already dominate half of the U.S. stock market and are gaining significant share every year, it appears to be only a matter of time before Bogle’s nightmare comes true. In the 2017 interview, Mr. Bogle hedged and said passive could exceed 75% of the market and there would not be dangerous consequences. However, we demonstrate why this belief was based on flawed assumptions. Furthermore, at the current rate of growth, index funds could hit his 75% target in just several years, since we have already seen tremendous growth in passive funds from 2017 to the present.

Then what happens?

In fact, there is evidence that in his private conversations, Mr. Bogle was more candid about the risks of indexing becoming the dominant market strategy. After his death in January 2019, prominent financial author Diana B. Henriques posted on Twitter, “I talked with him many times, and he was wonderful. But he realized, in recent years, that universal indexing could be the new tragedy of the commons: individually good, communally very dangerous. RIP, Jack, I will miss you.”

So, it seems even the biggest indexing proponent knew that he created a monster and was much more afraid of the consequences than he let on to the public.