I've been feeling the same way. Having millions of people and billions of dollars blindly dumped into index funds leaves me uneasy. Many view index funds as a "

I've been feeling the same way. Having millions of people and billions of dollars blindly dumped into index funds leaves me uneasy. Many view index funds as a "7% return machine". The conventional wisdom is "buy and hold", blindly, regardless of what the market does, what companies fail, or who you're investing in. Most 401k users probably couldn't name more than 10 stocks that their fund is comprised of. Stock markets assume people buy stocks because they believe in some fundemental value of the stock, and have thus done analysis to believe so. When markets are composed of people who don't adhere to this philosophy... I'm not sure what happens next. Having such a large mass of investors who are not thinking rationally about their investment seems like a recipe for disaster, but I'm no economist. REITs, small-cap funds, international stocks, and perhaps commodities seem like the best choices if you're looking to diversify. The reality is if everyone's investment behavior precipitates a large collapse, pretty much no sane investment strategy is going to do well. Diversify, hedge your bets, and just stop worrying about it. That's the conclusion I've come to, anyway.