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Barry Ritholtz

Index Funds Don’t Hurt Consumers, But Monopolies Do

Critics of passive investing blame the wrong thing for higher prices in some industries.

That depends on the definition of great.

That depends on the definition of great.

Photographer: Chris Graythen/Getty Images North America

It’s clearer than ever that the actively managed mutual-fund industry, after 75 years of dominance, has succumbed to competition from low-cost indexing. There’s no one to blame but the funds themselves: They charge investors a lot more for inferior performance, which goes a long way toward explaining the multitrillion-dollar shift in how Americans invest their money.

This disruption has been driven largely by the recently deceased Jack Bogle and Vanguard Group, along with BlackRock Inc., State Street Corp. and others. My Bloomberg colleague Eric Balchunas has looked at the total cost savings of indexing, and calculated that the plunge in fees charged for investment-management services, otherwise known as the Vanguard effect , has saved investors about $1 trillion in fees.