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All of the studies show that you are statistically better off going in an indexed fund, v. a managed account with a financial advisor. The answer to the titula

All of the studies show that you are statistically better off going in an indexed fund, v. a managed account with a financial advisor. The answer to the titular question is "duh." Even without the conflict of interest.

meric 11y ago
The irony is if everyone went to an index fund and no one went it alone or with the help of a financial advisor, the markets will be compromised - there would be no rational actor giving their input into pricing of securities and all investment would be based on sentiment alone.
- isoos 11y ago
  One can always count on greed, and the overconfidence of actors that try to make big by outperforming the market. Also, there are different kind of indexing strategies, e.g. one that is based on revenue and similar stuff..
- bloaf 11y ago
  All investment would be based on whatever happened to be indexed. Which would mean that somewhat-competent advisers would probably be able to beat the market and therefore be worth their fees. I think advisers and index funds sit on two ends of a see-saw. If "everyone" ran to one side, the other would start to look more attractive.
- lazyant 11y ago
  I don't understand, index follows basically the whole market by a representation of it like SP500 or Dow 100, how investing in whole market compromises it or it's based on sentiment versus investing in stock of particular companies?
  - afterstep13 11y ago
    Index investing is passive investing. We need investors who actively invest, by evaluating the companies, so that more money goes to good companies and less money goes to bad companies. The index represents the current batch of the top 500 good companies in recent times as decided by the active investors. The index is re-balanced as the preferences of the active investors change. So, if there were no active investing, then investing would be completely pointless.
  - boxy310 11y ago
    Relative pricing between stocks is due to investors actively bidding up the price or letting it slide down. They do this based on either information about company fundamentals, or instinct on how the market will eventually react to news. This form of information or instinctual arbitrage nets active traders a profit. As an increasing number of low-intensity investors broadly invest in the entire market space, it overinflates asset prices and diminishes the efficiency of this market space, to a degree. It's hard for news to knock on VW stock prices, for example, if the index funds keep buying it like clockwork anyway. Of course, it's possible that this system increases information arbitrage, but the overall effect is that index funds become less efficient as more investors rely on them.
- dragonwriter 11y ago
  > The irony is if everyone went to an index fund and no one went it alone or with the help of a financial advisor, the markets will be compromised I'm not sure where the irony is in that; sure, it would be bad if every dollar invested in the markets was invested that way, but no one that I've seen has ever suggested that every investment in the market should be done that way; the closest argument I've seen is that individuals whose primary focus isn't personally, actively managing investments that just want good returns for, e.g., retirement and financial security should prefer index funds.
- matthewmcg 11y ago
  This is like the old joke about the Chicago School economist telling his companion not to pick up the $100 bill on the ground because "if it were a real bill, someone would have picked it up."
lectrick 11y ago
1) This reminds me of the seminal book "Where Are The Customers' Yachts?" http://smile.amazon.com/Where-Are-Customers-Yachts-Street/dp/0471770892?sa-no-redirect=1 http://smile.amazon.com/Where-Are-Customers-Yachts-Street/dp... 2) I have been having good returns (for over a year now) with 2 vehicles: lendingclub.com (P2P lending) and futureadvisor.com (which is in a space I suppose is called "computer-assisted wealth management"; competitors include Wealthfront, etc.) It's basically a financial advisor without the advisor, and thus, extremely low-fee. You get a person if you need a person, and they lean heavily on quantitative analysis to reduce their own investment-decision workload.

meric 11y ago

The irony is if everyone went to an index fund and no one went it alone or with the help of a financial advisor, the markets will be compromised - there would be no rational actor giving their input into pricing of securities and all investment would be based on sentiment alone.

isoos 11y ago
One can always count on greed, and the overconfidence of actors that try to make big by outperforming the market. Also, there are different kind of indexing strategies, e.g. one that is based on revenue and similar stuff..
bloaf 11y ago
All investment would be based on whatever happened to be indexed. Which would mean that somewhat-competent advisers would probably be able to beat the market and therefore be worth their fees. I think advisers and index funds sit on two ends of a see-saw. If "everyone" ran to one side, the other would start to look more attractive.
lazyant 11y ago
I don't understand, index follows basically the whole market by a representation of it like SP500 or Dow 100, how investing in whole market compromises it or it's based on sentiment versus investing in stock of particular companies?
- afterstep13 11y ago
  Index investing is passive investing. We need investors who actively invest, by evaluating the companies, so that more money goes to good companies and less money goes to bad companies. The index represents the current batch of the top 500 good companies in recent times as decided by the active investors. The index is re-balanced as the preferences of the active investors change. So, if there were no active investing, then investing would be completely pointless.
- boxy310 11y ago
  Relative pricing between stocks is due to investors actively bidding up the price or letting it slide down. They do this based on either information about company fundamentals, or instinct on how the market will eventually react to news. This form of information or instinctual arbitrage nets active traders a profit. As an increasing number of low-intensity investors broadly invest in the entire market space, it overinflates asset prices and diminishes the efficiency of this market space, to a degree. It's hard for news to knock on VW stock prices, for example, if the index funds keep buying it like clockwork anyway. Of course, it's possible that this system increases information arbitrage, but the overall effect is that index funds become less efficient as more investors rely on them.
dragonwriter 11y ago
> The irony is if everyone went to an index fund and no one went it alone or with the help of a financial advisor, the markets will be compromised I'm not sure where the irony is in that; sure, it would be bad if every dollar invested in the markets was invested that way, but no one that I've seen has ever suggested that every investment in the market should be done that way; the closest argument I've seen is that individuals whose primary focus isn't personally, actively managing investments that just want good returns for, e.g., retirement and financial security should prefer index funds.
matthewmcg 11y ago
This is like the old joke about the Chicago School economist telling his companion not to pick up the $100 bill on the ground because "if it were a real bill, someone would have picked it up."

lectrick 11y ago

1) This reminds me of the seminal book "Where Are The Customers' Yachts?" http://smile.amazon.com/Where-Are-Customers-Yachts-Street/dp/0471770892?sa-no-redirect=1 http://smile.amazon.com/Where-Are-Customers-Yachts-Street/dp... 2) I have been having good returns (for over a year now) with 2 vehicles: lendingclub.com (P2P lending) and futureadvisor.com (which is in a space I suppose is called "computer-assisted wealth management"; competitors include Wealthfront, etc.) It's basically a financial advisor without the advisor, and thus, extremely low-fee. You get a person if you need a person, and they lean heavily on quantitative analysis to reduce their own investment-decision workload.