- If everybody keeps indexing, at some point doing active trading will become so profitable that there will be a partial reversion of some indexers, so in other words it’s a self correcting feedback loop like many other economical phenomenas.
- Index funds will be nearly bullet proof _if_ the capitalistic machine that powers our domestic and global economy will continue to overall thrive, with increasing population/consumption and/or increasing productivity. This one in my opinion is the real threat, considering how horribly we are treating our natural habitat these days.
It is difficult to argue with the diversification of the ETFs and I by no means avoid them, but given that most are market-cap weighted, they skew toward large stocks and self-perpetuate the growth of a handful of large cap stocks. So every $ invested in VOO, has 4.2% in APPL. I'm not sure what impact that would have other than perhaps making these large caps more volatile during a market readjustment or collapse. I also, am not sure there is a better alternative as you probably wouldn't want equal weighting between #1 and #500 on an S&P index fund.
Not a financial guy so am interested in peoples thoughts on this.
[1] http://archive.fortune.com/magazines/fortune/fortune_archive...
