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THE NATIONAL Aeronautics and Space Administration (NASA) has good reason to boast. Its programs serve as a catalyst to generate billions of dollars of economic activity that’s spread across all 50 states and the District of Columbia. Also, the transfer of NASA spinoff technologies and products to private businesses improves the lives of each of us in myriad ways.
Along the way, it’s even put men on the moon—and plans to do so again, along with the first woman.
A couple of years ago, NASA released a comprehensive analysis of the economic impact the space agency has had. It estimated that NASA’s 2019 budget of $21.5 billion spawned $64 billion of economic activity, and supported more than 312,000 good-paying jobs nationwide.
In addition, the work of NASA engineers touches all of us. Whether it’s an omega-3 fatty acid in baby formula or the memory foam that helps our aging bodies sleep well at night, there’s a good chance that NASA knowledge benefits us every day of our lives.
In 2019 alone, the work of the agency’s personnel generated 85 new patent applications, and 122 new patents were approved. Many of these innovations eventually find their way into private businesses and American homes.
NASA makes a strong argument for the economic benefits that accrue to Americans through its efforts. But as great as they are, I think there’s another economic star to celebrate in our lives—one that’s arguably delivered even greater financial benefits: the index fund. Its results have been an epic success since its introduction in 1976.
The total amount invested in passively managed index funds eclipsed that in active funds for the first time this year, and for good reason: They outperform them. A recent report found that 95% of actively managed large-cap stock funds lagged their benchmark index over 20 years. A big reason index funds perform better is because they charge so much less, allowing investors to save an astronomical amount of money.
Index funds helped us avoid a cumulative $357 billion in fund management fees from 1995 to 2020, according to S&P Dow Jones Indices. Their low expense ratios also put downward pressure on the fees charged by active funds, which have fallen 34% since 1996, according to the Investment Company Institute.
Accumulating sufficient savings for retirement requires a massive effort, and we need every advantage we can get. The low cost of index funds helps us keep more money within our own orbit—and out of the pockets of active fund managers. That cost savings is a crucial part of the compounding that multiplies our money so it can support us in our later years.
NASA is amazingly complex. Index funds are wonderfully simple. Yet, in their own way, they each deliver stellar results.
In principle, I am against the government spending taxpayer money on business endeavors. But I agree that NASA has been an exception not necessarily because of the beautiful pictures. I do not see the connection between NASA and index funds. Index funds save investors huge amount of money. I did not know it was $357 billion over a period of 25 years. If you compound the benefits, index funds save investors trillions of dollars. If you assume the returns are 6% before the cost and the cost of investment is 0.5 percent the net return after cost would be 5.5 percent. Now calculate the compounded return at 5.5 percent. The difference would be trillions of dollars over the same 25 year period.
I agree with you, no comment needed.
Edmund thanks for an interesting and intriguing article. I spend a large portion of my career supporting NASA. Over those 4 decades I was exposed to many people who did not share your enthusiasm for our space program. Many people assumed the budget was orders of magnitude larger that it actually was. In FY2020 NASA’s budget was $21.6B, which was 0.47% of the Federal budget. NASA’s leadership has always spread the spending over many states to try to keep their programs sold. They do support good jobs, and most of them are not able to be outsourced. But each citizen needs to decide if the amazing pictures from the Hubble and James Webb telescopes are with the billion dollar price tag.
Not to imply that the most important thing NASA contributes is amazing pictures. I comment on this wording because I wouldn’t want readers to think that you believe that based on your experience, and I suspect you wouldn’t either.
Michael, thanks. I used that example because it is the kind of comment I’ve often heard. NASA does great work with meteorological, communication, and earth resource satellites. They provide information and services we use everyday. They are currently working on advanced laser communication, and technology that should enable in-orbit servicing of satellites. They are also providing incubator funding and collaboration for the growing commercial space industry.
Thanks Rick. It’s sad that it’s a common comment, but I guess not surprising. I already appreciated the benefits of space programs, but your response to my comment touches on things I didn’t know either. Fascinating stuff with payoffs we don’t yet realize.
Rick, thanks for your comment. I knew of your work history, and thought of you as I wrote this.