We used to think that the average investor are the dumb money since they are likely to herd and make bad investing decisions.

But apparently the dumb money are pouring so much into Vanguard’s index funds. It does show that perhaps they have given up on active managers showing any ability to out performed the markets.

Active managers have underperformed this year probably being under invested. And indexers are doing pretty well since they are 100% in it.

It is really a recency effect, but I wonder if they finally see that cost matters.

Vanguard has benefited as investors pull money from actively managed funds and plow it into products that track indexes. Mutual funds whose managers pick domestic stocks experienced redemptions of $497 billion in the five years ended June 30 while index funds took in $117 billion, data from Chicago-based Morningstar Inc. show.

Vanguard’s mutual funds charge an ...