Fifty years ago today, Vanguard launched the first publicly available S&P 500 index fund. It raised $11.3 million against a $150 million target — a debut so weak the underwriters wanted to hand the money back — and Wall Street mocked it as “Bogle’s Folly,” a guaranteed path to mediocrity. Passive investing is now the dominant force in U.S. funds, and the question for investors is less whether to index than which index to own.
Vanguard’s first index investment fund, now the Vanguard 500 Index Fund, launched on Aug. 31, 1976. Today, index funds and ETFs account for 64% of U.S. stock-fund assets, according to Investment Company Institute data cited by Axios, with more than $18 trillion invested in equity index products as of June 2026.
The performance argument has been equally powerful. In 2025, 79% of active large-cap U.S. equity funds underperformed the S&P 500, while a majority of active funds across equity categories have lagged their benchmarks over 15 years.
But after years of large-cap and mega-cap technology dominance, investors may need to think beyond simply buying the S&P 500.
The S&P 500 Still Sets the Standard
There is little evidence that investors should abandon the benchmark. The S&P 500 gained 18% in 2025 and was up roughly 12% in 2026 through late August. A Reuters poll of 46 strategists put its year-end target at 7,900, about 3% above its Aug. 25 level, with second-quarter earnings up 33.5% year over year and continued AI investment supporting the outlook.
The issue is concentration. The biggest companies now account for a much larger share of the benchmark than they did when Vanguard launched its fund. The top five holdings accounted for about 27.7% of the Vanguard 500 recently, compared with roughly 21.7% in the original portfolio, according to data cited by the Financial Times.
That makes the S&P 500 both a broad-market investment and a significant bet on mega-cap corporate earnings and AI.
Equal Weight Could Benefit From Broader Leadership
One way to reduce that concentration is an equal-weight S&P 500 ETF, which gives each constituent roughly the same allocation rather than sizing positions by market value. Invesco S&P 500 Equal Weight ETF (RSP) is the largest, making it a useful counterpoint to cap-weighted funds such as SPDR S&P 500 ETF Trust (SPY) and Vanguard S&P 500 ETF (VOO).
The case becomes stronger if market leadership broadens. Large caps beat the S&P MidCap 400 by 10 percentage points and the S&P SmallCap 600 by 12 points in 2025, according to S&P Global, marking the third straight year of large-cap outperformance.
Amundi has already reduced its positive stance on the conventional S&P 500 while maintaining a constructive view on its equally weighted version, citing broader earnings momentum.
Small Caps and International Indexes Offer Diversification
Small-cap index ETFs provide another way to position for a broader market. The potential catalyst is easier financial conditions, although the current rate outlook is hardly straightforward: the probability of a September Fed hike has risen to around 60% amid renewed inflation concerns, according to Reuters.
For investors looking beyond large caps, the iShares Russell 2000 ETF (IWM) and Vanguard Small-Cap ETF (VB) offer broad exposure to smaller U.S. companies.
International indexes may offer an even cleaner diversification trade. The S&P World Ex-U.S. Index outperformed the S&P World by 11 percentage points in 2025, while 63% of international active funds failed to beat their benchmark, according to S&P Global data.
The trend has continued into 2026. Vanguard Total International Stock Index Fund ETF Shares (VXUS) is up 16% year to date, while European ETF investors have been directing substantial money toward global, Japanese and emerging-market indexes.
Bottom Line
The bigger lesson from Bogle’s 50-year experiment may therefore be changing.
Investors no longer need to pick the winning stock or even the winning fund manager. But as index investing has evolved, investors increasingly need to pick the right index.
For the coming months, that could mean the S&P 500 as a core holding, complemented by equal-weight equity ETFs if leadership broadens, small cap ETFs if financial conditions ease, and international index ETFs if U.S. exceptionalism fades.
Fifty years ago, indexing simplified investing. The next 50 may be about making index selection smarter.
