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What a difference a day makes. And if you think that'ssomething, just imagine what a difference two days make.

Forget days. What about a decade? This is the problem withthinking any one investment philosophy is the end all and beall. This is the problem with index funds. This is a problem401(k) plan sponsors can no longer ignore (see"When Do Index Funds Raise A Fiduciary Issue With401k Plan Sponsors?" FiduciaryNews.com, February 25, 2020).

Let's take a brief trip down history lane. For those too youngto have lived it, building index funds was considered "impossible" inthe 1980s. I know, I know, you're all thinking, "But didn't Boglestart the first index fund in 1974?"

Yes, he did. But that didn't prevent MBA professors from sayingthe trading costs, tax consequences, and the logistical constraintsof mass trading prevented anyone from building a fund that couldreliably and consistently duplicate the returns of any index.

The world began to change in the 1990s when systems upgradeswithin back office operations and the slow death of brokeragecommissions began to accelerate. At the same time, those same MBAprofessors who dissed index funds had convinced themselves, theirstudents, and the industry to bend to the altar of Modern PortfolioTheory.

With more efficient trading systems, index funds became viable.The debate moved from the classroom to the boiler room. And the1990s provided the perfect market to fertilize the growing indexfund industry. By the end of the decade, their popularity grewbeyond the bounds of mere market share. Index funds could do nowrong.

But then the tech bubble burst. And for a long 10 years– the "Lost Decade" – index funds wallowed in desperation. Itdidn't help we saw two dramatic market drops within nine yearsafter the turn of the millennium. By the end of that decade, theaverage active fund far exceeded index funds.

That smaller market share index funds held during that awfulperiod turned out to be an advantage. Quite simply, not enoughinvestors experienced the Lost Decade because most remained inactive funds.

But then the pendulum swung the other way. As we recovered fromthe 2008-2009 recession, while slow on a historic basis, indexfunds began to do better. This made sense because they had fallenso much farther. (For those unfamiliar with it, look up the meaningof the term "dead cat bounce.")

As index fund returns showed greater positive separation fromactive funds, it drew greater interest. That greater interestgenerated greater inflows into passive funds. That constantreinvestment within underlying index stocks pulled up index returnsby their own bootstraps.

By the end of last year, the market share of passive investmentsexceeded that of active funds. What Jack Bogle once told me wouldnever happen had happened.

And now, the end of index funds is near.

That's a safe prediction. The pendulum never stops swinging. Itseems it swings from active to passive and back to activeevery 10 years.

We're right on schedule.

Only this time, when the index returns significantly lagactively managed funds, a lot more investors will experience thisfirst hand.

And they won't like it.

If you want a prediction, here it is. From a behavioralperspective, people need to blame something for a systemic loss.They often find a suitable scapegoat in that thing that held out somuch promise.

In the past, that thing was portfolio managers of activelymanaged funds, paving the way for index funds to fill that void.This time around, index funds shoulder the blame.

Will that blame be a temporary blip or a permanent scar? Thatall depends on what's waiting in the wings to replace thescapegoat. Active funds survived earlier bouts because there wasnothing to replace them. Once index funds had matured, when thetime came to find a replacement for the disgraced active fund, theindex fund was now ready and willing.

Is there an alternative to index funds right now? It can't beactive funds. They're damaged goods.

But a movement is growing on the horizon – a new hero, if youwill. It is the ESG fund.

The beauty of the ESG fund is that it is not exclusively anactive or a passive fund. It can be either, so the claim could bemade it can possess the advantages and disadvantages of both, butwith a unique differentiator.

After all, what we're talking about here – what we've beentalking about whenever we talk about this – isn't about theinvestment theory, it's about the selling proposition.

READ MORE:

• I couldn't believe Bogle's answer to this question– Carosa
• 401(k) menu: One isn't the loneliest number –Carosa
• Does removing inappropriate investment options leadto adding them? – Carosa