Nvidia, a technology giant, opened its doors in 1993 and went public in 1999. With a current market cap of nearly $2.2 trillion, it is evident that the company’s future success was not obvious to most investors back in the 1990s. Many investors did not anticipate the massive growth and success that Nvidia would achieve over the years. This serves as a reminder that predicting the next big company or success story is nearly impossible, as evidenced by the rarity of billionaires.
Index funds have become a popular choice for many investors, as they provide broad market exposure to a diverse range of companies. Investors who missed out on the opportunity to invest in companies like Nvidia, Tesla, Apple, and Alphabet can benefit from index funds, which allow them to ride on the success of future market giants. By gaining exposure to a range of companies, investors can increase their chances of benefiting from the next big success story without having to predict which company it will be.
Despite the rapid growth of index funds, there are concerns that these passive investment vehicles could use their market share to influence corporations in a political manner. The Federal Energy Regulatory Commission (FERC) has expressed concerns about index funds leaning on public utilities with ESG (Environmental, Social, and Governance) considerations in mind. However, these fears are unwarranted, as index funds are primarily focused on providing market exposure to investors at a low cost.
Large mutual fund companies like Vanguard, T. Rowe Price, and State Street have controls in place to ensure that their index funds do not influence corporate activity. Vanguard, for example, practices passive stewardship of investor funds to prevent using its market share to sway corporate decisions. Index funds are designed to offer investors low-cost exposure to the market, rather than actively influencing or controlling corporate behavior.
Mutual fund companies like Vanguard have aligned incentives with their index funds, as shareholders in the funds are also owners of the company. The aim of index funds is market exposure, and any perceptions of political influence or activism are unfounded. Efforts to involve the government in overseeing index funds are excessive and baseless, as these funds are not intended to influence corporate activity but rather to provide a passive investment option for investors looking for broad market exposure.
