The methodology that S&P uses to construct their indices is published and known to everyone involved, which means it's not really the same as "managing" your investment. (For example: https://us.spindices.com/documents/methodologies/methodology...)

It's also not clear that you are not their customer: the ETF you use pays a fee to S&P to track their index, so S&P definitely want people to buy funds that track their own indices. (For example, see https://eu.spindices.com/services/index-licensing/) I'm pretty sure it's in S&P's interests to publish meaningful relevant indices, the incentives seem to be aligned there.

Quoting the document you linked: "Constituent selection is at the discretion of the Index Committee and is based on the eligibility criteria".

The methodology is published, but largely defines eligibility; it isn't completely systematic. Even if it was, it'd still be liable to change (eg. changes to exclude some classes of shares from the float).

The indices S&P provides are used for a number of things, not all of which are retail ETFs tracking them. If you think benchmarks are never manipulated by some of the larger stakeholders, see what happened to Libor.

Libor is a wholly different type of benchmark, how is it relevant here? Even the way it was manipulated is inapplicable for stock market indices.

> The methodology is published, but largely defines eligibility; it isn't completely systematic. Even if it was, it'd still be liable to change (eg. changes to exclude some classes of shares from the float).

I do not understand the point you are trying to make here.

My point is that the publisher of the index does have more discretion than you claim they do, they are not entirely passive and rules-driven. Even where they are, they do change the rules from time to time.

They are also trying to please a number of people who depend on the index, not all of which are retail investors buying ETFs.

But passive doesn't mean that the rules never change, it's passive as opposed to active, not passive in the sense of static. There might be some kind of miscommunication here or something.

> It's not necessarily a bad idea, but it's hardly a panacea with perfect incentives.

Sure, but I'd argue it's the best thing available to most retail investors.

What's the alternative? Asking my mom to day trade and pick stocks to fund her retirement? Or investing in actively managed funds that charge 1-2 % fees, yet don't really outperform the market over the long term?

Index funds make it easy to get your money in the market and diversify, while keeping costs super low.

They're definitely not bad, but government bonds or corporate bonds are also decent long term investments, and real estate generally also is, since it's connected to inflation and cost of living.

Kind of a silly thing to say.

Stocks are the backbone of a retirement portfolio. With only bonds plus a dash of REITs, you’d need like 300% more momey to retire than if you were heavily weighted to equities

Straw man. I don't know why you think it's silly to diversify into less volatile asset classes for retirement purposes. Returns aren't everything, risk matters.

The giant straw man in this discussion is your original statement: it's hardly a panacea with perfect incentives

Who said it was? People responded to you, giving you the benefit of the doubt by assuming you actually were making some kind of point. But you're not saying they're bad... you're not saying they shouldn't be part of a retirement portfolio...

Apparently you're literally just saying "they're not a panacea"? I think everyone is in agreement here then, nothing to see here.

I know it's not there yet but how far from "best thing available" is crypto?

> It's not necessarily a bad idea

True. Even Warren Buffet says it's a great idea. In fact, he tells all of his rich friends to do exactly that - just park your money in index funds.

"Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades. A major reason has been fees: Many institutions pay substantial sums to consultants who, in turn, recommend high-fee managers. And that is a fool's game."

"The 21st century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners — neither he nor his 'helpers' can do that — but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal."

http://longbets.org/362/

http://www.berkshirehathaway.com/letters/2016ltr.pdf

> without you being their customer.

> but it's hardly a panacea with perfect incentives.

Huh? The management of the fund is so stupidly simple - just put money in every stock across the S&P 500. How do their incentives change because of that?

Absolutely if you can only afford $50/$100 a month the an index tracking the FTSE or the DOW makes sense.

Once your portfolio gets bigger start having a minimum investment amount of $1000 you need to start thinking about diversification.

A fund tracking the DOW is not such a great idea, considering it's not a representative slice of the market, and the process of deciding what's included is opaque and not exclusively dependent on externally verifiable factors. Tracking the S&P 500 or FTSE 100 is better, because the criteria for what they include can be validated externally.

I mean it's better than picking stocks yourself, but what isn't? As long as it's equally easy to choose a good option and a less good option, why not choose the one that's better?

Sorry I should have said the S&P 500

> start thinking about diversification

Buying an index fund composed of 500 large U.S.-listed companies is pretty diversified. I suppose you could diversify internationally, but no need to stray from index funds if you're not managing your money full-time.

Stocks aren't the only asset available for investment, regardless of geographical location. They're also fairly volatile, so retail investment often consists of blending that with more stable fixed income assets.

I meant in different countries and sectors I did very well with a commercial property trust a few years back when the sector was out of favour.

You can use an international stock index fund like VT. That will include some real estate companies like EQR, but if you want extra real estate exposure, there are index funds like VNQ for that. Or if you want bonds, there are index funds like BND.

Closed end funds (investment trusts etc) are much better for property for technical reasons a fund or OIEC has to retain cash.

So you invest in other index funds and bonds. What the balance looks like requires taking some kind of position, I suppose, although a fairly common piece of advice seems to be to have investments in different geographical areas in proportion to their share of the global market. Bonds vs. equities is a matter of investment timescale and risk tolerance.

That's the best I've managed to suss it out anyway, If you meant something different I'd be interested to hear it!