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Is Indexing Going To Eat The Financial Markets?

TedTed
in Fund Discussions
FYI: Indexing is the new stock picking. It is, by far, the most efficient way to obtain a low cost and diversified portfolio. So it makes sense that index funds are gobbling up the financial markets. But this has some people concerned – what will happen when indexing gets so large that it becomes “the market”? Will prices become less efficient? Will the market become a homogenous basket of single prices?
Regards,
Ted
http://www.pragcap.com/is-indexing-going-to-eat-the-financial-markets

Comments

  • JoJo26
    Dumb article. Indexing is not active. If you invest in an index fund then you get the return of that index (less small fees). There is nothing active about this. To be active there has to be some potential to outperform the index. My merely investing in an index fund, there is no such possibility.
  • STB65
    Maybe, maybe not. I'm choosing equal weight index funds and VMVFX for my future investments. I suspect I'll be reasonably satisfied in 20 years.
  • SamanthaWatts
    I think the author makes a good point. The act of managing an index means there will always be market makers buying and selling the underlying securities. The fact that there are index funds means that this "activity" isn't going away. So, there is an active element to any index fund. It's just that most retail investors don't see how active the actual management of an index is because it's all happening behind the scenes at the market making level.
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