The market is always shifting. People who deeply understand the companies in their portfolio will generally outperform the market at large by finding and exploiting mismatches in the market (i.e. active management). The question is how much people are willing to pay for active management. The more that investment moves towards index funds, the larger the gains to be made from active management. Higher demand for active management results in higher fees for actively managed funds, and investment capital goes back to index funds, and the cycle repeats.

If people forget anything about index funds, it's that they're not guaranteed to go up, just like any other investment vehicle. It's a reasonable choice to make to put decades' worth of savings away for retirement, because the stock market trends positive over the long-term, but people are kind of looking at index funds right now as "if I put my money in index funds then I'll be set for retirement because they're 'de-facto guaranteed' to go up over the long-term" and well, that's a dangerous over-simplification.

>People who deeply understand the companies in their portfolio will generally outperform the market at large by finding and exploiting mismatches in the market (i.e. active management)

There is no evidence that I'm aware of suggesting that active management "generally' outperforms the market. In fact, most evidence points to the majority of active managers performing worse than the market in the long run.

Agree. Once the management fees are considered, you don’t come out any better than an index fund. At least that’s the conclusion in A Random Walk Down Wall Street.

Reminds me of John Stossel throwing darts into the newspaper stock section, and doing just as well as managed funds.

In aggregate it's mathematically impossible for active management to outperform the market:

https://web.stanford.edu/~wfsharpe/art/active/active.htm

For every smart active manager that beats the index someone else is on the other side of the bet losing.

Note though that once the market is majority passive - which seems likely within the next decade - it actually is theoretically possible for active to slightly outperform passive.

That's pretty much my point.

I was reinforcing that it wasn't a matter of "evidence" it's just impossible.

If everyone indexes (they won't) and that causes the market to become opaque and inefficient (that's debatable), there will be plenty of money to be made in active investing. Once people notice that and start making money, many others will follow, and eventually the market will become so efficient that it will once again make sense to index. So it seems to be a self-solving problem, and an equilibrium.

If you're seriously interested in this, just read Matt Levine every day - it's something he talks about on nearly a weekly basis.

https://www.bloomberg.com/view/articles/2015-07-22/index-fun...

I'm guessing the tldr is that there are issues. Just read this article which is taking about potential solutions (or the lack there of).

Also been wondering how much this has been propping up the stock markets. If everyone is putting some percent of every paycheck into the stock market without even thinking about it, seems like it would have some systemic effect on prices.

Are more people currently contributing to their IRA's than cashing them out? Is there tipping point going by current population dynamics??

What exactly is the alternative? Not investing your money? The entire world runs on it. It's not going to change.

You only need to study successful rich people or use common sense to figure out that you don't become wealthy by investing to some index funds. You do that after you have sold your business and want to shield your wealth for carefree life.

Pensions (dne), social security (ha), somehow make your own business capable of supporting you into old age, work until you die.

Pensions are going to the same place...

Want to be rich? Are you rich already?

No? Then too bad.

Because "equality of opportunity" in the US is only available to those who are more equal than others.

At least for children who grow up with married parents, there's still quite a bit of income mobility.

Such children born into the bottom quintile of income, are pretty likely to end up in any quintile. The probability of ending up in each quintile from bottom to top, is 17%, 23%, 20%, 20%, 19%. Seems pretty fair to me; totally fair would be 20% chance of each.

It's a little skewed for people born into the top quintile, but not so much: 10%, 13%, 21%, 27%, 30%.

Source: https://www.brookings.edu/blog/social-mobility-memos/2014/08...

This sentiment is the driving force behind the popularity of many crypto currencies. Crypto enables class mobility where there was none before. For instance, purchasing $1,000 of Nano (XRB) at 10 cents (4 months ago) would be around $87,000 now if it didn't get stuck on bitgrail.

You can trade penny stocks in the normal market, too.

That's demonstrably false. You could make an argument that on average it has become harder to change your social class, but plenty of people start life poor or middle class and end life rich.

It's true to a first order approximation.

If there were no exceptions, then how could those born into wealth persuade themselves of their own moral superiority?

It only works because everyone does it. Usually not a good idea to follow the herd when investing. DYOR don't expect an easy dogmatic formula.