In last year’s 40th anniversary issue of the Journal of Portfolio Management, John (Jack) Bogle recounts how he founded Vanguard Group and the ubiquitous index strategy now synonymous with the $3 trillion firm. His inspiration: a 1974 paper by Nobel economic sciences laureate Paul Samuelson in the first issue of JPM, Institutional Investor’s sister publication, outlining a fund that would track the S&P 500 index. Bogle launched Valley Forge, Pennsylvania–based Vanguard the following year; he retired as CEO in 1996 and is now president of the Bogle Financial Markets Research Center, where he does research on behalf of investors.

The index idea caught on: In 2014 active U.S. equity funds had outflows for ten consecutive months through December, reports Chicago-based Morningstar; passive U.S. equity funds saw inflows for 11 straight months. Vanguard was the winner among passive-fund firms.

Among the changes since the early days of index investing is the proliferation of exchange-traded funds. Active managers are fighting back with so-called smart beta products, which use new indexes built around factors such as value and growth. Senior Writer Julie Segal talked to Bogle, 85, about the passive craze, ETFs and the future of indexing.

1 Investors are sending massive amounts of money to index funds. Have they finally gotten your message, or is something else going on?

We’ve been through ups and downs, and we’ve seen actively managed funds come and go in terms of performance. Nothing lasts forever. While it’s hard to understand reversion to the mean and that past is not prologue in this business, investors do finally get the value of indexing from their own personal experience in the markets. I get letters all the time from people thanking me for how they’ve done. “You should know I’m now over $1 million or $3 million,” they write. More than anything, it’s the experience of investors and the power and logic of my ideas, which aren’t world-shaking. It’s gross return minus costs equals net returns.

2 Exchange-traded funds make up a big part of the flows into passive. Have you changed your views on ETFs?

No. I’ve often said the ETF is the greatest marketing idea so far in the 21st century; I doubt it’s the greatest investment idea. ETFs are fine if you don’t trade them; and if you don’t trade, you might as well own the regular fund. We’re indifferent at Vanguard. We have the exact same portfolio available in different packages; ETFs or regular funds. Look, I’ve had to invent my own word now: a traditional index fund, to differentiate it from the ETF. Dividend reinvestment and other things are cleaner with the TIF.