Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Jack Bogle warning on index fund investing
Old 06-01-2017, 07:59 PM   #1
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 3,819
Jack Bogle warning on index fund investing

Interesting article about Bogle and index funds. The essence of the article is that for index funds to be a good investment, we need at least some part of the market to be involved in actively managed funds. If the entire market switches to indexing, it causes the advantage of indexing to erode. And with more and more investors switching to indexing, we may be getting there.

John Bogle has a warning for index fund investors - MarketWatch
Ready is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-01-2017, 08:44 PM   #2
Moderator Emeritus
Ronstar's Avatar
 
Join Date: Aug 2007
Location: Northern Illinois
Posts: 13,703
Interesting - makes sense. Thanks for posting
Ronstar is offline   Reply With Quote
Old 06-01-2017, 09:28 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 30,468
I'm not too worried yet as we are nowhere near 75% :
Quote:
Bogle stressed that there is a long way to go before indexing reaches a level at which market stability begins to crumble. About one-quarter of U.S. stock ownership is done through indexing, he told Yahoo. According to investment researcher Morningstar, 46.7% of assets invested in U.S. stocks via exchange-traded funds or mutual funds was indexed in April, compared with 36.3% three years earlier.
Thanks for the link, it was very interesting to read.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 06-01-2017, 09:56 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 6,635
I only skimmed the article. Was there any "advice" about what one should do if we approach 75% penetration of indexing? Go to the "dark side?"

My gut tells me that the power of advertising the latest winning fund will save our bacon in the long run. Folks just can't stay away from the latest tip, the hottest ticket, the newest fund, etc. I think human nature will save all us indexers in the long run. YMMV
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 06-01-2017, 10:22 PM   #5
Full time employment: Posting here.
cooch96's Avatar
 
Join Date: May 2014
Location: Lakewood
Posts: 902
How confident is he on that 75% ratio? He can't possibly have a reliable model or empirical data, can he? Perhaps it is closer to 90% or even 95%.

I can't get myself to worry. If we ever seem to reach the ratio, I'll try to learn myself how to read those prospectuses and make my own portfolio.
__________________
Why be normal when you can be yourself?
cooch96 is offline   Reply With Quote
Old 06-01-2017, 10:38 PM   #6
Thinks s/he gets paid by the post
UnrealizedPotential's Avatar
 
Join Date: May 2014
Posts: 1,321
Well, I only have about 13% in index funds so it really isn't much of an issue for me. One thing the index funds have going for them is the low costs of the index fund itself. That right there gives the index fund a tremendous advantage and is very hard to beat in any given year, let alone over a longer time frame of say 10, 15, or 20 years or more.
__________________
Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. Charlie Munger

The first rule of compounding: Never interupt it unnecessarily. Charlie Munger
UnrealizedPotential is offline   Reply With Quote
Old 06-02-2017, 12:01 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 15,689
One of the other things that come into this is that there are now a large number of indexes....

Many years ago it was basically the S&P 500..... now look how many ETFs you can buy....
Texas Proud is offline   Reply With Quote
Old 06-02-2017, 12:10 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Mar 2017
Location: New York City
Posts: 2,838
great there goes my investment plan. im indexed to the hilt. im sure ill get crushed one day. thanks for the depressing news.
__________________
Withdrawal Rate currently zero, Pension 137 % of our spending, Wasted 5 years of my prime working extra for a safe withdrawal rate. I can live like a King for a year, or a Prince for the rest of my life. I will stay on topic, I will stay on topic, I will stay on topic
Blue Collar Guy is offline   Reply With Quote
Old 06-02-2017, 03:52 AM   #9
Moderator Emeritus
Bestwifeever's Avatar
 
Join Date: Sep 2007
Posts: 17,760
Pssst Wellesley (not an index fund)....
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
Bestwifeever is offline   Reply With Quote
Old 06-02-2017, 05:01 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 10,463
This doesn't make much sense to me. As Bogle says, as indexing increases opportunities for active trading advantages actually increase. It seems like the closer you get to instability due to indexing, the greater the opportunity and thus the more active trading. At some point the cost advantages to indexing won't beat the research advantages of traders and some sort of new equilibrium would emerge. Indexers could still capture the underlying market growth of capitalism while activists could chase alpha. It will still be a Panglossian investing world for our grandkids. I'm sticking with indexes.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Old 06-02-2017, 05:42 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 30,091
There will always be people chasing alpha, just like there will always be people who refuse to save for retirement.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 06-02-2017, 06:10 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 30,468
Quote:
Originally Posted by cooch96 View Post
How confident is he on that 75% ratio? He can't possibly have a reliable model or empirical data, can he? Perhaps it is closer to 90% or even 95%.

I can't get myself to worry. If we ever seem to reach the ratio, I'll try to learn myself how to read those prospectuses and make my own portfolio.
Yeah me too. Seems like you only need a small number of traders on the margin to affect stock prices. I don't think hedge funds are going away any time soon. And then there are the activist investors and Berkshire Hathaway.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 06-02-2017, 06:10 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 30,468
Quote:
Originally Posted by donheff View Post
This doesn't make much sense to me. As Bogle says, as indexing increases opportunities for active trading advantages actually increase. It seems like the closer you get to instability due to indexing, the greater the opportunity and thus the more active trading. At some point the cost advantages to indexing won't beat the research advantages of traders and some sort of new equilibrium would emerge. Indexers could still capture the underlying market growth of capitalism while activists could chase alpha. It will still be a Panglossian investing world for our grandkids. I'm sticking with indexes.
Yep.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 06-02-2017, 06:19 AM   #14
Thinks s/he gets paid by the post
Markola's Avatar
 
Join Date: Nov 2013
Location: Twin Cities
Posts: 2,492
The last sentence is the kicker advocating timing: "When the stock market turns down again, index fund owners will have to become their own active manager and make sure they’re well diversified, with limited exposure to risk, chaos, and catastrophe."
Markola is offline   Reply With Quote
Old 06-02-2017, 08:02 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 23,591
Quote:
Originally Posted by donheff View Post
This doesn't make much sense to me. As Bogle says, as indexing increases opportunities for active trading advantages actually increase. It seems like the closer you get to instability due to indexing, the greater the opportunity and thus the more active trading. At some point the cost advantages to indexing won't beat the research advantages of traders and some sort of new equilibrium would emerge. Indexers could still capture the underlying market growth of capitalism while activists could chase alpha. It will still be a Panglossian investing world for our grandkids. I'm sticking with indexes.
Agreed - the 'problem', if we ever get there, will be self-correcting. Active traders will jump in, and the forces will again be in balance.

Quote:
Originally Posted by pb4uski View Post
There will always be people chasing alpha, ...
Boho to the rescue!

-ERD50
ERD50 is offline   Reply With Quote
Old 06-02-2017, 08:24 AM   #16
Recycles dryer sheets
Nightcap's Avatar
 
Join Date: May 2012
Location: Brewster
Posts: 354
This disingenuous article is like those movies who clip selected words from the reviews. "HUGE waste of time, money, and TALENT. Keep away from this COLOSSAL flop."

The only way you can get to that headline from what Bogle actually said is by crossing your eyes, putting your finger in your ears, and humming real loud.
Nightcap is offline   Reply With Quote
Old 06-02-2017, 08:42 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2011
Posts: 6,472
Quote:
Originally Posted by Nightcap View Post

The only way you can get to that headline from what Bogle actually said is by crossing your eyes, putting your finger in your ears, and humming real loud.
Off topic but...

This is true of almost everything of late and one of my current major frustrations.

The click-bait, newspapers and even TV have become so competitive (or slanted) that if you only read the headlines you get an entirely different story than what is actually said.

I've seen interviews with people and then see a headline on Twitter or TV and shake my head "that's not what she/he said!!".
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 06-02-2017, 08:50 AM   #18
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,867
Is there any academic research on the performance of indexing as it becomes a larger percentage of the market.....it would be interesting to see if there is a dystopian point of inflection where everything collapses.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 06-02-2017, 08:52 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 7,076
We have (depending on when you want to start counting) 100,000 years of evolution that favored greed and optimism. (I use "greed" in a descriptive sense, not a pejorative sense.) The greedy people had the most food and were most likely to survive famines and they had the most wives, so most likely to disproportionately contribute to the gene pool. There is a fascinating genetic study showing this result for Genghis Kahn. (Could You Be Related To Genghis Khan? | IFLScience)

Today, one way this is manifest is in the success of casinos and the lottery. Everyone knows that, on average, the customers lose. Still, there are enough greedy optimists to keep a large industry healthy. Same-o for active investing. Everybody knows it is a loser's game, but there are enough greedy optimists to keep it going. Compounding this, the greed of the industry that serves them just amplifies the effect.

A second factor that is not often discussed is that passive funds don't trade very much. 5-15% per year versus 100% or more for active investors. I have seen funds at 250%(!) This means that most of the market action (aka "price discovery") is driven by active investors trading with one another. Zero sum game to be sure, but liquidity and price discovery nevertheless.

So, I'm not worried. Human nature protects me. YMMV, of course.
OldShooter is offline   Reply With Quote
Old 06-02-2017, 08:57 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
easysurfer's Avatar
 
Join Date: Jun 2008
Posts: 11,166
I'm not worried. Difficult for me to believe indexers will ever hit the 75% mark mentioned in the article. Would put all the commissioned financial planners and stock brokers out of business.

Plus, I think there always will be enough folks who think they can beat the market time and time again by active investing.
__________________
Have you ever seen a headstone with these words
"If only I had spent more time at work" ... from "Busy Man" sung by Billy Ray Cyrus
easysurfer is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
SIGN PETITION FOR Jack Bogle's Presidential Medal of Freedom Steven Other topics 5 02-20-2015 02:54 PM
"Vanguard founder Jack Bogle’s advice to fretful investors" serie1926 FIRE and Money 11 11-05-2014 10:21 AM
Jack Bogle: 'This is the most difficult time to invest' chinaco FIRE and Money 45 01-08-2011 04:30 PM

» Quick Links

 
All times are GMT -6. The time now is 01:12 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.