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Real life doesn't work like that. Not everyone can put money into a magic ETF that guarentees returns. The passive index funds are piggy backing off the work o
by turtlecloud 8y ago
Real life doesn't work like that.
Not everyone can put money into a magic ETF that guarentees returns. The passive index funds are piggy backing off the work of active investors.
Thought experiment: If everyone put money into an index fund that guarantees returns, what is the difference between that and a Ponzi scheme?
- icelancer 8y agoAt no point did the parent comment say the returns were guaranteed, only that they were generally better than actively-managed funds (mostly due to fees).
- projektfu 8y agoSimple. The fundamentals. If the guaranteed return is less than or equal to the earnings per share, then the game can continue indefinitely. Index funds don't have gains because people keep believing the price will increase. They have them because the market as a whole gains in the long run. Index funds lose value during market downturns. Anyhow, no index fund offers guaranteed returns. These days I only see that from crypto ponzis.
- tathougies 8y ago> If everyone put money into an index fund that guarantees returns, what is the difference between that and a Ponzi scheme? No index fund guarantees returns, so the question is a non-sequitur. With regard to the question of how does the fund keep value -- the fund holds the equities that are in the index. The equity prices rise and fall with the market, which is hopefully based on the fundamental discounted future value of all cash flows from the company.