4 ms·

Index funds expose you to essentially the entire market; it's the sum of thousands of tiny pieces of businesses all across America. We're not putting all our eg

by JamilD 10y ago

Index funds expose you to essentially the entire market; it's the sum of thousands of tiny pieces of businesses all across America. We're not putting all our eggs in one basket, rather, we're all distributing them across many. If you can pick an investment that will weather an economic downturn, and still provide a decent return — let me know, because I want to get in on it ;)

fdsaaf 10y ago
But when everyone invests in everything equally, we all end up investing in nothing!
- JamilD 10y ago
  The previous post on the same blog debunks this. http://www.philosophicaleconomics.com/2016/05/passive/ http://www.philosophicaleconomics.com/2016/05/passive/
  - fdsaaf 10y ago
    http://www.ironbridgellc.net/PDF/hidden_risks_of_passive_investing.pdf http://www.ironbridgellc.net/PDF/hidden_risks_of_passive_inv... is an interesting countervailing read
- savanaly 10y ago
  What you're missing is that the stock market isn't a zero sum game. More money comes out of it than goes into it, because it represents companies that generally do useful things.
pbreit 10y ago
Except the biggest index by far is only 500 of the companies, not even remotely "the entire market".
- dmm 10y ago
  Vanguard total stock market fund (VTSMX) has over 3000 stocks, right?
  - pbreit 10y ago
    Oh, there are definitely indexes/funds with broader coverage but the S&P500 funds continue to get a disproportionate share.
    - tanderson92 10y ago
      Are you sure about that? I mean, have you actually verified that with any particular fund family? I did, for the Vanguard family. Vanguard S&P 500 index fund has $227.5B net assets (across all share classes)[1]. Vanguard Extended Market Index fund (which is the set difference of Vanguard Total Stock Market Index Fund and the S&P 500 fund) has $42.8B net assets (across all share classes)[2]. That is 18.8% of funds in Extended Market. The true ratio is 19% of funds in Extended Market[3]. Not so different. Now you can argue that funds like the SPYder are the ones which receive a disproportionate share of attention. I would counter that (1) SPY is a smaller fund than Vanguard's (2) How much of that is investors vs. traders who use it for the liquidity. In conclusion, I'm unconvinced that S&P500 index funds receive a disproportionate share of attention in investment, apart from investment professionals discussions. Even Buffet doesn't appear to care, and may simply use the S&P 500 because it is more well-known: > Okay, so gold is not a screaming buy to Buffett. What should a typical upper-middle-class person in the U.S. buy to prepare for retirement? > "Equities," Buffett answers without a moment's hesitation. > "The VTI?" I ask. > "That's good enough. Maybe a selection of high-dividend-paying stocks that are likely to raise their dividends. Maybe the top 100 dividend payers of the S&P 500." >Then, after a second's thought, he adds, "Well, maybe not that, but equities."[4] [1]: https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT#tab=2 https://personal.vanguard.com/us/funds/snapshot?FundId=0040&... [2]: https://personal.vanguard.com/us/funds/snapshot?FundId=0098&FundIntExt=INT#tab=2 https://personal.vanguard.com/us/funds/snapshot?FundId=0098&... [3]: https://www.bogleheads.org/wiki/Approximating_total_stock_market https://www.bogleheads.org/wiki/Approximating_total_stock_ma... [4]: http://archive.fortune.com/2010/10/18/pf/investing/buffett_ben_stein.fortune/index.htm http://archive.fortune.com/2010/10/18/pf/investing/buffett_b...

by JamilD 10y ago

fdsaaf 10y ago

But when everyone invests in everything equally, we all end up investing in nothing!

JamilD 10y ago
The previous post on the same blog debunks this. http://www.philosophicaleconomics.com/2016/05/passive/ http://www.philosophicaleconomics.com/2016/05/passive/
- fdsaaf 10y ago
  http://www.ironbridgellc.net/PDF/hidden_risks_of_passive_investing.pdf http://www.ironbridgellc.net/PDF/hidden_risks_of_passive_inv... is an interesting countervailing read
savanaly 10y ago
What you're missing is that the stock market isn't a zero sum game. More money comes out of it than goes into it, because it represents companies that generally do useful things.

pbreit 10y ago

Except the biggest index by far is only 500 of the companies, not even remotely "the entire market".

dmm 10y ago
Vanguard total stock market fund (VTSMX) has over 3000 stocks, right?
- pbreit 10y ago
  Oh, there are definitely indexes/funds with broader coverage but the S&P500 funds continue to get a disproportionate share.
  - tanderson92 10y ago
    Are you sure about that? I mean, have you actually verified that with any particular fund family? I did, for the Vanguard family. Vanguard S&P 500 index fund has $227.5B net assets (across all share classes)[1]. Vanguard Extended Market Index fund (which is the set difference of Vanguard Total Stock Market Index Fund and the S&P 500 fund) has $42.8B net assets (across all share classes)[2]. That is 18.8% of funds in Extended Market. The true ratio is 19% of funds in Extended Market[3]. Not so different. Now you can argue that funds like the SPYder are the ones which receive a disproportionate share of attention. I would counter that (1) SPY is a smaller fund than Vanguard's (2) How much of that is investors vs. traders who use it for the liquidity. In conclusion, I'm unconvinced that S&P500 index funds receive a disproportionate share of attention in investment, apart from investment professionals discussions. Even Buffet doesn't appear to care, and may simply use the S&P 500 because it is more well-known: > Okay, so gold is not a screaming buy to Buffett. What should a typical upper-middle-class person in the U.S. buy to prepare for retirement? > "Equities," Buffett answers without a moment's hesitation. > "The VTI?" I ask. > "That's good enough. Maybe a selection of high-dividend-paying stocks that are likely to raise their dividends. Maybe the top 100 dividend payers of the S&P 500." >Then, after a second's thought, he adds, "Well, maybe not that, but equities."[4] [1]: https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT#tab=2 https://personal.vanguard.com/us/funds/snapshot?FundId=0040&... [2]: https://personal.vanguard.com/us/funds/snapshot?FundId=0098&FundIntExt=INT#tab=2 https://personal.vanguard.com/us/funds/snapshot?FundId=0098&... [3]: https://www.bogleheads.org/wiki/Approximating_total_stock_market https://www.bogleheads.org/wiki/Approximating_total_stock_ma... [4]: http://archive.fortune.com/2010/10/18/pf/investing/buffett_ben_stein.fortune/index.htm http://archive.fortune.com/2010/10/18/pf/investing/buffett_b...