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Given that index funds track the most popular funds is it actually the case that money is distributed differently than before? As an index fund investor I have

Given that index funds track the most popular funds is it actually the case that money is distributed differently than before? As an index fund investor I have no illusions that the index funds are immune to dips, but I know that I'm saved from the extremes that individual stocks provide - the odds are excellent I'll never wake up ruined overnight, but by also I'll never get spontaneously rich either. Just for context, while they have grown index funds only make up 10% of the market according to vanguard[1]. [1] https://www.vanguard.ca/documents/truth-about-indexing-en.pdf https://www.vanguard.ca/documents/truth-about-indexing-en.pd...

Jensson 4y ago
The passive vs active investor numbers I see tend to put them roughly equal or passive investors being more. Not sure exactly how index funds and passive investments are different, but since vanguard are selling index funds they probably define it as strictly as possible to make it look like it is a smaller part of the market.
- SketchySeaBeast 4y ago
  That may be the case, doing a bit of research here I see some numbers where if you slice only the America market passive investors are near parity of even a minor majority - but the question still remains, has that fundamentally changed the market composition? I wonder if it'll make it more stable because the passive investors aren't as inclined to randomly shift money around or pull it out. Even if they are inclined to pull it out, does the behaviour of the money being pulled out look much different when looking at the market in aggregate? It stands to reason even active investors would be heavily invested in those exact same companies and would be deliberately pulling money out as well? It seems to me that all the investors investing in the average just means the market will continue to be average.
  - Rury 4y ago
    If all investment activity was passive investment, there would be no pricing mechanism left in the market. If everyone just equally invested in everything, there'd be no discrepancy between stocks. Complete scam businesses would given value equally to businesses which actually do create value. So, yes, passive investing helps stabilize the entire market to trade in tandem, but too much is a danger to the health & stability of our market and economy as it enables misallocation of capital.
    - SketchySeaBeast 4y ago
      But that's not how the passive investing works - it's predicated off of curated indexes, so people are still making decisions. And there's not equal weighting in everything. What you're worried about isn't the current situation and it makes no sense that it ever would be.
      - Rury 4y ago
        Unless weighting is done by business fundamentals, it still enables misallocation of capital. Many curated indexes and decisions are based on market cap, liquidity, public float, sector classification - all hardly fundamental.
        SketchySeaBeast 4y ago
        > Unless weighting is done by business fundamentals, it still enables misallocation of capital. Is it your assertion that without index funds this would be occurring? We just saw deliberate decisions to buy companies like TSLA and GME that stronly argue against that.

Jensson 4y ago

The passive vs active investor numbers I see tend to put them roughly equal or passive investors being more. Not sure exactly how index funds and passive investments are different, but since vanguard are selling index funds they probably define it as strictly as possible to make it look like it is a smaller part of the market.

SketchySeaBeast 4y ago
That may be the case, doing a bit of research here I see some numbers where if you slice only the America market passive investors are near parity of even a minor majority - but the question still remains, has that fundamentally changed the market composition? I wonder if it'll make it more stable because the passive investors aren't as inclined to randomly shift money around or pull it out. Even if they are inclined to pull it out, does the behaviour of the money being pulled out look much different when looking at the market in aggregate? It stands to reason even active investors would be heavily invested in those exact same companies and would be deliberately pulling money out as well? It seems to me that all the investors investing in the average just means the market will continue to be average.
- Rury 4y ago
  If all investment activity was passive investment, there would be no pricing mechanism left in the market. If everyone just equally invested in everything, there'd be no discrepancy between stocks. Complete scam businesses would given value equally to businesses which actually do create value. So, yes, passive investing helps stabilize the entire market to trade in tandem, but too much is a danger to the health & stability of our market and economy as it enables misallocation of capital.
  - SketchySeaBeast 4y ago
    But that's not how the passive investing works - it's predicated off of curated indexes, so people are still making decisions. And there's not equal weighting in everything. What you're worried about isn't the current situation and it makes no sense that it ever would be.
    - Rury 4y ago
      Unless weighting is done by business fundamentals, it still enables misallocation of capital. Many curated indexes and decisions are based on market cap, liquidity, public float, sector classification - all hardly fundamental.
      - SketchySeaBeast 4y ago
        > Unless weighting is done by business fundamentals, it still enables misallocation of capital. Is it your assertion that without index funds this would be occurring? We just saw deliberate decisions to buy companies like TSLA and GME that stronly argue against that.