Book review: ‘Trillions’ highlights the rise of a career in finance far off the beaten path

Finance work is often portrayed on the big screen as high-level trade brokerage or making split-second stock market decisions. In reality, the world of finance has many different roles that require a variety of skills. One such area is investment management, which denotes the management of institutional-level portfolios, such as retirement assets, often over longer periods. This industry has gone through many transformations over the decades and one of the best books that chronicles the journey and in turn the professional learnings for practitioners is Robin Wigglesworth’s book, “Trillions: How a group of Wall Street renegades invented the index fund and changed finance forever“

1975 and the historic innovation of index funds

The book discusses the rise of index funds, a method by which a portfolio of stocks can mimic a selected section of the stock market, rather than a portfolio manager actively selecting stocks to outperform the market. This innovation, called passive funds, transformed the investment industry.

The creator of this segment, John Bogle, had a vision to create a low-cost, diversified investment vehicle that could match the performance of the market rather than try to beat it. He created Vanguard 500 to replicate the performance of the S&P 500 index.

The book chronicles the different levels at which funds began to operate, which became known globally as passive funds, index funds or exchange-traded funds (ETFs). These funds have performed well over time, but initially faced resistance from traditional investors.

For people working in the sector, it also meant testing new skills, such as building different types of portfolios using these new methods. Passive investing also makes the investment process more efficient by reducing costs and the need for constant transactions. The book takes the example of one such ETF, called the SPDR S&P 500 ETF, launched in 1993. It soon became famous due to its low fees and the broad exposure it provided to the US stock market. Its success highlighted the cost advantage of passive investing.

The impact on the industry today

By 2020, these passive funds had attracted over $10 trillion in investments, which has dramatically changed the situation in the sector by increasing people’s access to formalized savings instruments. Today, there are more low-cost index funds and ETFs that many individual investors use to build diversified portfolios.

In terms of skills, the market has shifted from individual passive funds to exchange-traded funds and computer-based trading strategies to help index funds scale quickly. Automation and technology have also opened up more technical positions in the sector.

Some, however, worry about a potential index fund bubble if too many such funds distort markets.

For those new to the investment management industry, ETFs are a key part of their portfolio strategies, and the book provides a deep understanding of the history of this trend.