What Happens If Everyone Buys Index Funds?

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0:00 - What are Index Funds and How are They Priced?
3:28 - Every Buyer Needs A Seller..
4:41 - Are Index Funds Causing a Bubble?
7:15 - What Really Moves the Stock Market
10:26 - Active Managers Performance vs Passive - Why People are choosing Index Funds
12:42 - The Biggest Reason That Index Funds are NOT the problem

Опубликовано:

19 июн 2024

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Комментарии : 369

@anthonyjanes9973 29 дней назад

That will never happen, there are lots of people out there who think they can outperform the market, I was one of them once upon a time, I realised the error of my ways.

@dodiloi 29 дней назад

I overperformed with the Nasdaq etf 😂😂😂

@jakkuwolfinsomnia8058 28 дней назад

What if everyone tries to do both

@dysaster4521 28 дней назад

while you can its quite difficult, If you really look into a company you can actually make good money, just don't buy pink sheet stocks

@anthonyjanes9973 28 дней назад

@@jakkuwolfinsomnia8058 they never do

@andresgarciacastro1783 27 дней назад

@@dysaster4521 Too much work, I much rather use my time to enjoy my hobbies.

@user-do6jp1zg5r 28 дней назад

There are lots of index fund holders that are selling, ones who are rebalancing, ones that de-risking because of retirement, ones that want to diversify, and those that just want to sell to live on the proceeds ... So lots of sellers and buyers. I don't think there is going to be any issues with just sticking to index funds. Just my opinion...

@johnsdiychannel8436 28 дней назад

Agreed, it is quite likely the one who has the S&P 500 also has euro and asia etc indexes. A rebalance between these funds will cause a buys/sells to happen. Agreed, retirees are selling, they cant be holding on to the funds forever, they have to spend the money to live. Agreed, I'm not worried in the least, well may be I will diversify a bit more 👍👍

@DarkoFitCoach 27 дней назад

Correct. Retirees have to sell monthly, nee customers, ongoing customers, selling all and buying new etc etc. Plenty of vplume on any vanguard etf

@ChrisShawUK 27 дней назад

Yep .. I was a net buyer of index funds until 2019 when I stopped work at age 51. Now I'm a net seller and will be unwinding my position slowly over the next 45 years or so (if I live that long. If I don't, someone else will be selling them all the day after I can't)

@eric2394 14 дней назад

S&P is already diverse. Lot of the companies are in Asia and Europe

@kyleolson9636 14 дней назад

When a retiree sells shares in an index fund, individual stocks are not necessarily sold. That only happens if more money flows out of the index fund than into the fund. So as long as more money is moving into index funds and away from active funds, retirees invested in index funds will not be a source of sellers in the market.

@adamdalziel 16 дней назад

I agree with your analysis. If index funds started to distort the market, there would be opportunities for stock pickers to out perform the index so the market would self correct.

@MadeInJack 14 дней назад

Reading this comment spares me watching the entire video :)

@adamdalziel 14 дней назад

@@MadeInJack 😀

@CKPill 14 дней назад

Yes it will auto correct at a cost to all the 401k accounts as the value of that investment drops. The Market corrects and the average joe's retirement fund gets jacked

@adamdalziel 14 дней назад

@CKPill I personally don't think it would get so extreme that everyone has index funds because opportunities to beat the index would open up way before that so active funds would nudge the index back to where it should be. And even if index funds did significantly distort the market and there was a big correction, so long as you dollar cost average over a long timeframe, you would pick up shares at a discount which would balance out the premium you were previously paying. Just keep dollar cost averaging into a global index fund and you'll be fine.

@CKPill 13 дней назад

@adamdalziel those are personal investments which i agree. Most 401k vehicles do not offer that type of selection, which is why they suck

@nickmichie7480 28 дней назад

I'm 100% index funds. Can't be bothered with picking stocks. Happy to just set and forget :)

@ChrisShawUK 28 дней назад

Me too.

@livingart2576 27 дней назад

I have most of my portfolio in index funds but also have 20% Tesla. 20% may seem a little high for an individual stock but I’m happy with my choice.

@ChrisShawUK 27 дней назад

@@livingart2576 all depends on portfolio size I guess. If your total assets are £10k then it doesn't really matter if 20% are in one stock. You can rebalance with new contributions going forward. If you have a portfolio of 250k, it starts to become material. You'd then have to be clear that the Tesla stock is going to perform at least at as well as the index over the next couple of decades.

@andresgarciacastro1783 27 дней назад

100% this...

@LilySaintSin 24 дня назад

Same

@thelammas8283 29 дней назад

At the extreme, if the majority of people will be buying funds without evaluating them. That would open up huge valuation mistakes, which would make it possible for active managers to make a decent living again.

@TobyNewbatt 28 дней назад

Exactly this :)

@Georgggg 15 дней назад

No, thats huge mistake. If something is overvalued, you can't profit off it. Only if something is undervalued - you can buy it. Market definitely can exist in a state of overvaluation when everyone see it. Because markets can be irrational longer than most bears can stay solvent.

@Georgggg 15 дней назад

In a state when index funds get more inflows than outflows, it can exists as self-fulfilling ponzi, and sure beat others because others don't get free dumb money as exit liquidity. But imagine if some day for some external reason funds will have only negative net inflows. Then suddenly even your grandma will beat index funds, because they'll start to have negative edge to the market: they'd have to sell more and more stocks, and because of that, it'll be ultimate losing stocks by the time.

@Kimba33 15 дней назад

Really? What indicator can experts use to buy stocks that are undervalued in their opinion on that scenario? Think about it, a stock only rises if people buy it, and if the experts buy "undervalued" champions that nobody realises to buy then they're just buying dead stocks. Dumb money, i.e. blindly buying the index, inevitably leads to stock concentration. Only an event opening the eyes to these blind buyers can make them change their option, and that event is called a crash. However undervalued stocks dump even in a crash. Hence these expert purchases are meaningless.

@miguiprytoluk 13 дней назад

@@Georgggg"If something is overvalued, you can't profit off it." Hmmm, I guess you never heard about Put options?

@KirstenBayes 12 дней назад

Paid off my mortgage with index funds. Worth remembering in the UK that you can get these as tax-free ISAs up to a certain level. After a current account, then rainy day fund in a quick access deposit account, investing in index funds up to the ISA limit is a decent third account. But as they say, time in the market beats timing the market: stocks are long term things.

@DarkoFitCoach 27 дней назад

100% vanguard sp500 here buddy. Too smart to know i cant and dont want to pick out stocks and that even the best of fund managers cant do it and i know i aint peter lynch

@samstiles7053 13 дней назад

Why just America? Why not all world fund too?

@DarkoFitCoach 12 дней назад

@@samstiles7053 "just" america? Usa stock market is 60% of total world stock market. If usa goes down so will any other country on this planet

@anthonyjanes9973 11 дней назад

me neither

@justthebrttrk 8 дней назад

@@DarkoFitCoachthat's just.... not true. The global market goes through cycles and there have been many many periods where international outperforms the USA market.

@DarkoFitCoach 7 дней назад

@@justthebrttrk sure i know that. And other time like last 15yrs usa wins. Overal its about the same so i never quarrel with people about all world vs sp500. We are in index which is a win already

@isaacakers 24 дня назад

I really appreciated this video. I don't watch all your videos, just cause time. But out off all the finance channels I follow, I really appreciate when I watch yours. You have such an honest humility that isn't common in this space. I hope the world doesn't take that from you someday when you have millions of subscribers. I think your book review videos were some of my favorite. I've bought and read at least 5 that you suggested, and as you stated, were worth far more value than the tiny price tag to purchase them. I'd love to see more book reviews and recommendations in the future. Keep being you. Sincerely, A fan

@philiplythgoe7173 29 дней назад

I have been trading ETF's as well as shares. Buy different funds within the same sector off different providers, each provider will have different XD days so you can chase the divs, you will always be invested in more or less the same comps all of the time ....

@fakealias 12 дней назад

We also forget the one of the major buyers/sellers are the companies themselves with buybacks, stock comp, and dilution that can actively keep companies fairly valued.

@creatingbalancefinance 28 дней назад

Brilliant video Toby! Your editing is so good! I’ve got a lot to learn 😂 wishing you all the continued success with your channel 👍

@TobyNewbatt 28 дней назад

Thank you!!! It gets easier the more you do as you know :)

@OopsFailedArt 8 дней назад

Love this. I primarily invest in index funds but do dabble in individual stocks when I spot a very good risk. This has served me quite well. I get the sustainability of the indexes, coupled with the occasional, high probability winner that pushes me forward

@bigboldbicycle 16 дней назад

Institutional investors have the most influence over price movements, and they will never be buying index funds. Plus was you say in the video, everyone else will always dabble in picking stocks, so I agree there will always be active investors out there.

@robertobomfin3787 18 дней назад

Nice video. I would just complement it: my understanding is that as index funds grow comparatively to individual stock buyers, the market becomes more predictable because there are fewer one-to-one transactions. That means that the reward for the successful individual stock buyers will increase while the index fund return will decrease comparatively to one another. So, there is a sweet spot where both methods operate in some sort of equilibrium. For this reason, there will be always an incentive for active funds to exist.

@TobyNewbatt 18 дней назад

Perfect summary :) And you would then expect the best active managers to show us how good they really are :P

@sahilpatwardhan2008 15 дней назад

Thank you for this video, I agree with your analysis. The market will correct since active managers will find opportunities if it becomes too hot from a passive perspective.

@tweenty434 12 дней назад

A very comprehensive way of explaining. It made a lot of sense to me with your real life examples. Thanks for making this video.

@TobyNewbatt 12 дней назад

You're very welcome!

@deep303 28 дней назад

Very simple explanation of a complex sounding topic

@TobyNewbatt 28 дней назад

Thank you! Yes there's a LOT of detail you can go into here :)

@Simon-vo7gi 19 дней назад

I am invested in index and stocks. My Nvidia purchase a few years ago has more than made up for any wrong stock I picked.

@MARKCRASTO 18 дней назад

Damn. Good pick 😮

@carlyndolphin 18 дней назад

You got lucky. Longterm Nvidia is unlikely to beat the market

@Simon-vo7gi 18 дней назад

@@carlyndolphin Oh it’s way overvalued at this point. I sold some off.

@lVlegabyte День назад

I still regret needing to sell AMD when I bought a bunch at $2. But I sold everything for rent money later that year.

@persieprince9345 15 дней назад

But lately there is a rise in active management etfs For example active value is beating the index value,recently avantis and dimensional are growing aum fast and their cost is close to the passive ones

@timlodge8267 29 дней назад

If I was not into individual dividend stocks I would buy the S&P 500 either the VUAG or VUSA.

@pmason6076 29 дней назад

I hold VUAG because I'd rather the dividends went back in automatically.

@yesno9834 29 дней назад

@@pmason6076I prefer VUSA and have it set to auto-reinvest the dividends as it gives me the option to take it in the future if I wish.

@1292liam 29 дней назад

or GPSA

@DarkoFitCoach 27 дней назад

For how long of a period have you beaten the market already?

@DarkoFitCoach 27 дней назад

@@pmason6076is that such a problem to get dividend and just press 1 button to buy more with it?

@kevinu.k.7042 28 дней назад

Great video - made a lot of sense to me. Thanks :)

@TobyNewbatt 28 дней назад

Glad to hear it!

@valerienewbatt9678 28 дней назад

Very interesting, great video Toby.

@TobyNewbatt 28 дней назад

Thanks 👍

@amgonof 14 дней назад

Also worth mentioning, market makers (citadel securities and others) are constantly buying and selling these index funds to make sure their market price approximates that of its net asset value (i.e. the market price of the underlying stocks). So while index funds will probably never be exactly 1:1 the value of its NAV, it will be very close to it

@clivegrant8980 28 дней назад

Great video, and well researched. However, I think problems would arise if/when a handful of large active investors were able to manipulate the markets.

@malcolmstonebridge7933 10 дней назад

100% spot on with the comment about only seeing the successes instead of the failures.

@BillyCarsley 17 дней назад

You need to clarify: index funds are funds tracked to an index. You can buy crap index funds, but they are likely to do what they promise. The fidelity Bitcoin ETF tracks Bitcoin very well - does that mean it's a good fund? An international index fund over the past couple years is likely to be garbage. What you're saying isn't index funds, but total market. What happens if everyone buys total market? That's a very good question - doesn't the growth of a total market index fund slow to the rate of GNP?

@DrBretPalmer 17 дней назад

I do agree with what you say. However, I do do a few shares as I like the dividend income. From a UK perspective could you suggest some index funds that pay a good dividend, like a stock. I don't want to sell my holdings and do the 4% rubbish. Just buy and own and if I retire then just have another income source. I hope this makes sense. Great videos and happy for you to post, discuss etc. Regards Bret

@TobyNewbatt 17 дней назад

Thanks Bret, I to also enjoy some stocks on the side for fun :) As a thought rememeber that even a boring old global index fund will pay you a quarterly dividend if you want it - the yield might be around 2% though nothing special. If you want more...just remember that it has to come from somewhere and will hurt your long term total returns. I think a good example is having a rental property. Your rental income is like your dividend and your price appreciation is your house hopefully going up in value. However - you can't have a yield of 10% and a price appreciation of 10% as well (aside from some weird anamoly!) The total stock market returns on average per year have been around 10% for a century or more - 6-8% has been from price appreciation and around 2-4% has been dividends (but in recent times dividends have been shelved for stock buy backs). For retirement my plans so far would be to hold 2-3 years of cash for living expenses and have everything else invested in global index funds - super simple. I'll then sell what I need to top things up and adjust as needed :)

@DrBretPalmer 17 дней назад

@@TobyNewbatt Hi Toby, thank you for that. 👍

@Dr.JubairsFinance 27 дней назад

Good points Toby

@lifeofrichard 15 дней назад

It's not my job to pick which stock I should be and then sell. I'm not an expert and don't have the time to time my buy and selling. It's why ETF and Index were made for. For people who want to invest in the market but not having to but much time in which to buy and sell. It's a safe way to put your money.

@IOFLOOD 16 дней назад

At the extreme, if there were only one buyer and one seller of individual shares, a tiny amount of non-index trading volume could have a dramatic impact on the stock price. High freq trading and market makers (fancy versions of front running and other arbitrage) obscures the real liquidity and trading volume. So you could easily end up to where 99% of trades are either index flows or front running, with only 1% betting on stock valuations, and not even know it.

@BeNNzuFG 15 дней назад

If more stocks move into buy and hold index funds, there are less stocks available to move the market short term, which means the market becomes less liquid, which again means that price volatility must increase in between index buying periods.

@GregCannon7 14 дней назад

In the case that everyone's passive, then wouldn't it be impossible to outplay as an active manager since there would be no one left to cause the swings in valuation? Companies could be mispriced based on the fundamentals, but if everyone's passive then it'll just keep tracking the index.

@robertbalcezak1636 12 дней назад

It makes it easier for active managers as most of the market is blindly following each other, causing many tickers to be incorrectly valued

@juleskayak 28 дней назад

How does an index fund get rebalanced? Is it automatic based on the market cap of each company? e.g. consider the S&P 500. Or is there human adjustment of the percentages of each company in the index. (but that suggests a fund manager!) Contrast with XDWE an equal weight S&P 500 index

@ChrisShawUK 28 дней назад

It doesn't get rebalanced. It's just a mechanical process. Equal weight indexes are similar. They have mechanical rules defining the composition. An example of an "index" which is not really an index is the dow Jones. That's not an index because there's a bunch of bros who get to pick what's in it.

@88Nieznany88 14 дней назад

It doesn't need rebalancing if it's market cap weighted. Imagine there are 2 companird: A with market cap $100 and B with market cap $50. Now, let's say there is ETF created there 1 unit of ETF costs $3 and consists of $2 of stock A and $1 of stock B. If stock B goes +100%, your ETF is now worth $4, and has 50/50 split between companies A and B. Similarly, now the market cap for A and B are same at $100 - so you're still holding them in correct ratios, even though the ratios have changed.

@TimComley 29 дней назад

Index way forward but not at expense of all managed funds some excellent ones in Asia and Europe

@sattysattu 13 дней назад

Is the question not same as what happens if everyone buys the same stocks? I can see the argument though.

@utroligte 15 дней назад

well people buying index funds (most are mutual funds and etfs?)are buying into a fund/etf. From what I understand (please educate me if I'm wrong), and I'll keep to ETFs, they are just buying an ETF that someone sold. It doesn't mean the underlying ETF used that money to buy more of the index it's tracking! So it would only have an effect if an ETF issues more, or a new one is started...?

@GoldenAura32 15 часов назад

Depends on when someone bought into the ETF. Some of them during a rebalance will use cash on hand to purchase more shares then sell out additional ETF shares to bring some cash back in. It is one way how you can get a disparity between the price and the net asset value of the ETF.

@mervynman6303 17 дней назад

Excellent video Toby, liked and subscribed, will watch your other videos. I was thinking about this passive investing proliferation recently, but I do not have enough knowledge to predict consequences, so I liked your explanations. I know about investing habits of some people around me and almost all of them just buy low ER S&P or total US market ETFs or index funds these days because those are so promoted online. I know only one person who buys individual stocks. People buy much less international stock ETFs and bond funds as well today compared with 10-15 years ago. It does feel that it may create some bubble if people from around the globe just buy S&P 500 via ETFs and funds. And people are worried it will burst. But maybe it will not burst. There is some economy growth and high inflation, so the stock prices will continue to grow. I myself continue to buy US market ETFs as it worked in the past, but I did start to buy some treasuries as guaranteed 4+% for 10-20-30 years is pretty good. At least 10-15 years ago bond/treasury yields were terrible. Overall, people got much smarter with investing due to youtube, podcasts and other means of free education

@Mixolydian74 4 дня назад

Great analogy. Definitely puts things into perspective when viewing the market holistically

@benjamindorge5936 15 дней назад

Very well done, Toby!

@diytwoincollege7079 12 дней назад

It doesn’t matter what fund you’re in. It’s all the same 15 stocks. It’s really just a matter of how much they charge you.

@nomad4592 29 дней назад

Great video . I have 20% of my pension in active global fund with Baille Gifford on the off chance they pick the next Amazon like in the past 🤞🏼 Rest is passive. Global inc Small caps. Question Toby - is there any passive fund that tracks global market but more concentrated i.e global tracker of top 200 companies ? Was thinking this may provide better returns with more concentrated collection of global companies but still enough diversification as would be industry agnostic ?

@peterletts194 29 дней назад

Legal & General Global 100 Index Fund

@me-myself-i787 28 дней назад

IOO (iShares Global 100 ETF) But I'd recommend investing in IWQU or IWFQ instead. It gets better returns.

@disct1597 26 дней назад

Great video, again 👏

@ssssaa2 13 дней назад

Exactly. I would love for 99% of the market to be index funds, would make it easier and easier to pick out individual stocks that are clearly wildly misvalued.

@Skaahn 18 дней назад

I believe there is some substance in the Index Bubble story. I watched a podcast Rational Reminder, where Mike Green makes a good and scary case of Index Bubble.

@ftr841 29 дней назад

What about people who take a punt with different ETFs? So a bit of vusa, vwrl and then perhaps a ftse 100 or 250 as well? When do they go from being a passive investor to an active investor

@FirstMM 29 дней назад

Active investing is trying to maximise returns by timing the market. It could theoretically be done with a passive fund (or funds) but if I want to buy apples when they are cheap I don't buy a fruit salad!

@ChrisShawUK 28 дней назад

I have 40% of my funds in s&p and 60% in the FTSE. I'm 100% a passive investor. Passive investors still have to have a market allocation strategy. But once you have selected a market, you're just buying the whole of it.

@joshdelsignore251 7 дней назад

Excellent assessment at the end on how the individual active market will continue to thrive - the incentive of being the best money managers, or striking it rich, or get-rich quick (Trading, etc) schemes, and basically anything that tugs on the heartstrings of human greed or ego, will continue to fuel the active frenzy....

@TobyNewbatt 7 дней назад

Thank you :)

@jabberwockytdi8901 28 дней назад

Fot that to happen completely you would need a " planned stock market " with regulations that only funds could deal in shares. All funds and ETF's would have to become active at some level, if all the buyers and sellers are funds that are now the sole market participants they will decide the value of companies. The largest funds at least would have to value companies and decide what to but at what price, they may well get it even more wrong than the current market. Smaller funds could follow the herd. The alternative is the index publishing companies would become the regulated valuation experts as they could also be the ones to value the companies in their indesxes and the funds could stay index funds... either way something would break in a big and bad way.

@daisybee2245 22 дня назад

Thanks for sharing! When index funds grow to over 85k with one provider, are we only covered up to 85k? I’m with Trading 212, thanks 🙏

@TobyNewbatt 22 дня назад

I did a video on this topic recently check out my channel :)

@daisybee2245 22 дня назад

Ooh thank you, I will have a look 😊

@wussboi 16 дней назад

Good video. But for your own understanding you should also understand the mandate and constraints of people/institutions that invest monies with hedge funds or active managers. It usually is because of the large volatility of index funds. Retail usually end up taking risk that fund managers are not willing to do so.

@wussboi 16 дней назад

And it will also be good to understand the role of who is selling index funds to you: market makers

@GeorgeHyland 13 дней назад

I am gradually unwinding all my individual stock positions and going to VTI. It will take five years or so as I want to dollar cost average out and some of them pay good dividends and my cost basis is low thanks to DRIP. But, when I got to my NVDA shares last year, I held them. I am glad I did….. but there will come a time to unwind that position as well. That is the tough part, knowing when to sell.

@user-yt2rq8qn3l 12 дней назад

I agree on pretty much everything in this video except the idea that great rewards for long shot is a good way to go about anything. I know this is how it works in most of the industry but, as a society, the implied excessive capitalisation and income inequality is a threat to the system stability.

@jeremybrummel3254 7 часов назад

Well, the answer I was hoping when watching this video, if everyone bought "and held" onto the index stocks, could there be not enough for everyone? Or would they create more shares at the cost of reduction of share price?

@TobyNewbatt 7 часов назад

An ETF is set on the price set by buyers and sellers. If nobody sells then the price will go up…but there are always sellers and buyers 😎. At some point the price tempts someone to sell…and someone to buy

@oneangle 18 дней назад

Great Analysis. Well explained.

@TobyNewbatt 18 дней назад

Glad you liked it!

@scott987 17 дней назад

There are SHORT ETFs on the sell side too.

@bob1234881 29 дней назад

But if 50% of the funds are index funds. Say i share loses 10% couldn't that the mean that 10% if all shares owned by index funds then have to sell. Then value goes down etc causes a big slide. Same for increases.

@FirstMM 29 дней назад

I don't think it works like that. Just because a share price drops 10% doesn't mean that it instantly gets sold off by all the index investors. If anything, the index investor mindset of buy and hold long term reduces the impact of sell off's and market manipulation. My understanding (I may be wrong) is that if a single stock drops by 10%, and that stock happens to be e.g. Apple, 5.9% of the index is Apple, so the index drop is the allocation in the index of Apple stock, which is currently 5.9%, of the 10% drop, which would be a 0.59% drop in the index.

@me-myself-i787 28 дней назад

Funds usually only rebalance once every few months.

@ChrisShawUK 28 дней назад

It's the owners of index fund units who sell, not the fund themselves. Similarly, index funds only buy if new units are bought by investors (or dividends are received in the case of acc funds)

@joechang8696 12 дней назад

there was an observation in horse racing and the trifecta. attempts by experts to pick the winners were generally unsuccessful. however, picking the losers was less difficult?

@TheUndulyNoted 22 дня назад

There are these things called hedge funds. Many of them deeply analyse stocks and determine if they are underpriced, in which case they buy. If the market ever became hugely inefficient, people would pile in to close the inefficiency and make a fortune doing so. That’s why there will never be an index fund bubble

@rogergeyer9851 17 дней назад

In the REAL world a LOT of hedge funds BLOW UP and have to be shut down after losing a HUGE proportion of their capital. Acting like these are reliably super efficient and accurate traders is INSANITY. Buffett won a bet awhile back, betting a hedge fund couldn't outperform SPY over a decade. And that's just the broad market index of large stocks. Nothing special or pushing high growth like tech.

@kokalti 15 дней назад

There’s a bit of a misconception here because the ones that didn’t beat the market might’ve still done just fine. Maybe they were just short a half a percent. It doesn’t mean they were destitute.

@adamlakin6461 29 дней назад

Whilst I do own some passive funds, the majority of my investments are actively managed. Ultimately passive investors are reliant on active investors to ensure capital is properly allocated and thus valuations reflect company performance. Personally I choose to partake in that process. In doing so I hope to outperform, but am willing to accept the risk of under performance too (statistics don't lie!).

@ChrisShawUK 28 дней назад

Capital allocation is performed by the company boards, on behalf of investors. Good capital allocators (like Microsoft, Amazon etc) generate higher earnings which pushes prices up. Poor capital allocators (like Zoom) have no impact on earnings and prices go down. It doesn't really matter whether the underlying shareholders are active or passive.

@DarkoFitCoach 27 дней назад

Sp500 index adjusts itself and costs 0.07% which is fuckall. Zero reason to be in active managed expensive funds

@antofempire 29 дней назад

That is great food for thought actually. I think as more money flow into passive investing. The market will become less efficient. To which point that the odds of success of active investing might start to improve and the statistics for active also improves. Then more people might flow back into active investing as people see statistics improving and wants to beat the market and the market becomes efficient again and the whole cycle begins again. There should should be an equilibrium point of the ratio between active and passive

@TobyNewbatt 29 дней назад

Precisely this :) And I would love to know at what point this happens!

@antofempire 29 дней назад

Yeah. I would be curious about that too. But I guess regardless it shouldn't change our investing thesis. Just take comfort that there are always people that treat stock market as casinos, while we might mock them we do need them. Everytime I need reassurance that we will never run out of active investor I just think Gamestop 😂.

@ChrisShawUK 27 дней назад

@@antofempire yep, the stock market is just a mechanism to transfer wealth from the impatient to the patient

@AlanMitchellAustralia 17 дней назад

Great video. What would be interesting is comparing the long term share price of companies who are at sitting the margin of the S&P 500. Ie what happened when they entered the S&P500? Did their share price and PE ratio suddenly increase? What happened when they existed? Did their share price and PE ratio suddenly drop? This would help establish any causation of index fund inflation (rather than just correlation)

@xman7695 16 дней назад

I think there was something like this, just like with the government bonds that get a bad rating I think. There should be some influx of money through more potential buyers. There's the crux though that most small added companies don't get much funds from index funds (especially when they don't have all 500) so there might be no significant change. SuperMicro Computers Inc or Deckers Outdoor Corp for example should have been added in March but there's no really significant rise in their stock price.

@AlanMitchellAustralia 16 дней назад

@@xman7695 Agree that at the margin, smaller companies will only get a smaller amount of index fund demand due to their smaller market cap. But considering how popular the S&P 500 is, if a company slips out, every S&P 500 fund must then immediately sell all their shares in that company, and immediately buy lots of shares in the new company. Surely all this artificial buying and selling must accelerate the fall of existing companies and accelerate the rise of companies who replace them? Even if the absolute effect on the index is miniscule, the relative effect on the companies entering and exiting the index must be significant? Interestingly this video mentions indexes like the English Premier League. However what it doesn't point out is that in this index, the playoff final (getting promoted to the Premier League) has one of the biggest financial stakes of all games in world sport (bigger than superbowl), yet has almost no effect on the Premier League (index) itself. So huge relative gains/losses for the teams at the margin, yet no meaningful effect on the index. I therefore can't help believe that index funds operate similarly - adding artificial price and inflationary pressure beyond true intrinsic value. Thoughts?

@KirkWallace-lw4sl 12 дней назад

I think some forget that index fund managers are active buyers and sellers. Not all are actively managed, but a lot of the specialty ones are. Sure, a lot of people are buy and forget, but I think there'll always be enough people in the middle, who think "yeah, we're heading into a recession, I don't want to be invested in entertainment but do want consumer staples," even though they aren't sure what companies to buy, therein.

@hpd_hero 6 дней назад

Very interesting stats on managed portfolio vs index. What’s not mentioned there are the staggering compounding fees. I was victim of this where I invested in my retirement with Raymon & James and the money grew 4 % between 2019 and 2023. And most of it was sitting in cash with 0,1 % interest. Its shocking how many crooks there are in this world and that statistic shows it. Learn how money works, because at some point you will realise (like me) that no one cares about your money as much as you do!

@TheStalec 8 дней назад

The major factor of why the trackers have performed so well is because of the insane concentration in a few US technology names. A lot of FM’s won’t hold such a large amount in single names. What’s my point, well it was easy to outperform the index by factoring this in. A lot of countries active managers smash their index.

@gloriabeckley7464 13 дней назад

I got NVDA as large part of my portfolio. I am happy buy and hold investor.

@wtftiger666 15 дней назад

I can definite challenge you. Depend on what people invest for. In CA index fund can’t beat the house appreciation value. Fund manager will diversify. If you take the aggressive part of portfolio and compare to the index.

@Take-a-Stand 10 дней назад

Mutual funds not only charge modest management fees @~1-2%, investors also incur hidden trade fees. The fees for most Index ETF's are super low and ETF's are more tax efficient. So, why pay more in fees? I'm just saying. NOTE: The returns on ANY investment MUST be at least 5-7% because you have to beat the rate of inflation, or you loose money over time. Then there's short term, 1 year (@15% ) TAX on gains.

@danablack223 13 дней назад

Let's not forget that there are multiple "passive" index funds that get rebalanced according to fundamentals (i.e. Value, Quality stocks), so in practice there are ETFs that actually serves as counter-balance of the more traditional ETFs, such as SP500

@blairkinsman3477 13 дней назад

Really interesting video .. I do both active and passive .. and I think both will continue to exist

@whitneylevis 12 дней назад

I really appreciated this nuanced explanation of how the fears are overly simplistic

@TobyNewbatt 12 дней назад

Appreciate the support 👍

@rulebritannia4006 25 дней назад

Hi Toby, I love the content as always. What is your opinion on the invesco coinshares global blockchain ucits etf. I'm investing pretty aggressively as I believe it's the future. Appreciate any comment you have on it is not financial advice. 👍 from me

@partyk1d24 15 дней назад

We also have to remember that most our parents (and peers for that matter) don't understand securitization of bonds let alone assets. Why hedge funds are way over valued. Even the "smart" ones love a gamble

@PonderingsofIrishPresbyterian 29 дней назад

This is something I have been pondering over recently - thanks for this insight!

@TobyNewbatt 29 дней назад

Glad it was helpful!

@pmason6076 29 дней назад

How can "more people want to buy than sell" or "more people want to sell than buy" given for each trade there needs to be a buyer and a seller.

@TobyNewbatt 29 дней назад

It’s to do with the selling or buying pressure but you are right that you can only have one per each side. However think of it like this. If 5 people want to buy one house only one person will win…but they will bid up the highest price hope that makes sense 👍

@pmason6076 29 дней назад

@@TobyNewbatt Thanks Toby.

@ChrisShawUK 28 дней назад

Yep. It's the word 'want' that does all the heavy lifting. Desire drives prices up or down.

@pmason6076 28 дней назад

@@ChrisShawUK How does the Market know who "wants" it more, the buyer or the seller?? If I offer to sell you my car for £1000 and you want to buy it, how is one side's want measured more than the other? BOTH parties 'wants' to trade. It's great throwing these terms around but nobody can explain the mechanics behind it and I start thinking that they don't actually know either.

@ChrisShawUK 28 дней назад

@@pmason6076 the buyers and sellers put the prices they are prepared to pay and accept into the system. You put a range of options in. For example, if you have 1000 shares to sell, and the price is currently £5, you might offer 10 at £5.50 and see if there's any demand. If they get snapped up, you might offer the next ten at £5.60 and see what happens. Similarly for buyers. You might bid 20 shares at £4.90 and find no willing sellers. So you bid your price slowly up until you reach the limit of what you're prepared to pay. The market mechanics are very well defined inside the exchange system.

@george-rk1yv 12 дней назад

Great video. Keep it up.

@tombennett831 15 дней назад

Why not just have a fund that buys the index but throws out the stocks being recommended by active managers that underperform the index? This wouldn't require much management expense and would overperform the index by the same magnitude that the active managers underperform the index.

@TobyNewbatt 15 дней назад

Because if you do that...you become an active manager :) The point of index funds organised by market weight is that you have no idea what companies will do well in the future. Just because a company stock price does badly one year, doesn't make it a bad investment. Own everything, get the market return and you will beat most people :)

@user-hp9eg3gf6s 3 дня назад

Global Index funds provide diversification and allow investors to get the discount (risk premiums) of stocks while eliminating idiosyncratic of risks like one company getting the market share of another company. Market weighted index funds do not affect the relative prices of the stocks inside them, as long as there are enough active investors like the medallion fund etc adding information in the market there is no issue. What could be an issue if people spend too much Money on stocks active or passive makes no difference, this would reduce the equity risk premium so if in the future peaple don't want as much stocks and the Premium go up again then in this hypothetical scenario the prices would go down.

@TobyNewbatt 3 дня назад

A wonderful explanation :)

@markwilliams4312 29 дней назад

I left SJP after 12 years of investing with them. I put all my money into a Vanguard portfolio which somewhat mirrored the SJP investments and my profits soared. I have no doubt that it was the right decision.

@TobyNewbatt 29 дней назад

It’s of fees saved! Insane how they add up!

@Jskigod 29 дней назад

Yep they take 2.2% of your portfolio to manage it. Doesn’t sound much but you compound that over a long period and it’s very significant indeed. The products that the SJP adviser will ‘sell’ are on a whole pretty poor performance wise. I woke up to this after 4yrs being them.

@DarkoFitCoach 27 дней назад

2.2% is CRAZY expensive. Vanguard sp500 is 0.07. Thats 30x the difference. Plus index beats managed funds most of the time anyway

@carlyndolphin 18 дней назад

So far SJP is matching my Vanguard portfolio.

@Norfolkpaul 29 дней назад

Great video 😊

@TobyNewbatt 29 дней назад

Thanks! 😊

@steve6375 28 дней назад

But surely the fact that the share price of the top 7 (say) companies in S&P 500 continue to grow is because anyone who invests in that index fund is disproportionately investing in those top 7. So as more people invest in index ETFs, the top ones will always grow far faster than the others. Consider the case where an Index fund has one very big company (say 80% value) and all the rest make up the remaining 20% of the ETF - by investing in that ETF, most of your money goes into that one big company. Every company has corrections, etc. but that isn't the point. The point is that investing in index funds will always tend to force the share price of the top companies in those funds to do even better. In a way, actively managed funds are competing against this tide unless they also invest in the top 7. Or have I got this wrong?

@TobyNewbatt 28 дней назад

I hope I explained everything in this video if you watched it all the way through :) If mispricing happens and a stock becomes too expensive, like you say, the active market can exploit the pricing differences. Yet...time and time again they fail to perform and there is still a HUGE amount of cash that is available to active managers and pickers. I'm not 100% sure on what point you are trying to make here? Generally, the companies priced the highest are priced that way for a reason, if you feel otherwise you are welcome to actively pick stocks :) Thats the beauty of the market.

@younube2 12 дней назад

What happens if everyone buys bitcoin?

@aaronoc97 29 дней назад

Thoughts on semiconductor etf?

@me-myself-i787 28 дней назад

Too late for that

@citizenpunx 19 дней назад

Buy SMH, and no it’s not too late…you have another decade at least of outperformance

@ProSpase 22 дня назад

Index funds require an active market to determine the initial ranking order. When the market becomes inefficient from saturation by index fund investing/trading, these inefficiencies become apparent, inviting correction through more active market activity. This cycle continues as new companies emerge and some fail. A sign of an ineffective market is strong correlation in the stock prices of index constituents, which can be seen in the crypto market where prices are highly correlated. Active investors play a crucial role in maintaining market efficiency by correcting mispriced stocks, ensuring that stock prices reflect underlying values and preserving the market's overall health. The interplay between passive and active investing creates a self-regulating cycle where inefficiencies prompt corrections, ensuring the market remains dynamic and relatively efficient.

@TimComley 29 дней назад

Good show by the way

@TobyNewbatt 29 дней назад

Thanks Tim!

@TimComley 28 дней назад

It’s shocking that so many people don’t know long term benefits of investing

@mccoyji 10 дней назад

What happens when Noone sells?? Price will go up. And companies have massive buy backs. 🤔🤔🤔🤔 Me thinks, time to buy!!!!!

@caddie1a 16 дней назад

I agree that index funds are a good investment, especially when young. It was my strategy for the first 25 years of my career. But as I grow older, I think buying good dividend paying stocks is the best way to retire. When the market goes down, there is a high likelihood that my stocks will continue to pay dividends or increase their dividends. Just my opinion.

@kevingrant4491 12 дней назад

That would never happen because of the profit motive ......most investors are willing to put in the work if it gets them better returns. For some it will.

@NMn-dc5qo 15 дней назад

If everyone only bought an index fund then prices would always remain relatively the same. No success or failure would ever affect a company's share price. Crazy! You argue that decent fund managers will become apparent through their stock picking and the rest will fail. I agree, but furthermore any sane person can make a better choice of stock purchases versus index funds if index funds are totally dominant! Dominant Index funds are allowing active out-performance.

@Leo-pd8ww 12 дней назад

A physical ETF purchases and holds the actual shares...

@whatwherethere 13 дней назад

In truth, there are not that many people in the market. Individual decision-makers make up a rounding error at best of the proportion of shares traded.

@Donkeyearsa 11 дней назад

It's not true that there is no active funds that can't beat the market after deducting expenses. There are a few but they are VERY few and far between. And the ones that do the managers of the funds are very heavy invested in their own funds. Warren Buffit is an excellent example. There is another example but I don't recall what they are called but the employees are the only inverters as the fund had kicked out all of the inverters who where not actual employees of the fund. As for my self over 90% of my investments are in passive investments as I took Warren Buffit's advice. "If you don't know what you are doing just invest in a low fee S&P 500 index fund."

@joslangens8393 15 дней назад

Quick question for everyone: What do you consider better - high returns or high risk-adjusted returns? Would you rather have an average 10% return with 18% volatility, or a 7% return with 7% volatility? Personally, I think strategies like Transtrend and AQR Managed Futures/CTA's, which offer solid crisis alpha, deserve more attention in this debate. Thoughts?

@barnabusdoyle4930 26 дней назад

It’s not really the fact that everyone is invested in the same thing that people should wonder the downside of. It’s the fact that the dollar as the global reserve currency has resulted in the U.S. stock market holding 70% of the world’s investment money. The world is currently on the path of heavy dedollarization. What will happen to our investment markets.

@camerawatchuk 15 дней назад

I do 80% index and 20% active 😊 Good stuff Toby ❤

@TobyNewbatt 15 дней назад

That’s a nice balance 😎

@PassivePortfolios 9 дней назад

As long as there are some active investors to determine the fair prices of stocks, indexing (passive investing) will continue to work just fine. The chances of active investing disappearing are ZERO. It is against human psychology to invest passively so active investing will be with us forever.

@lawrencer25 29 дней назад

❤❤❤Another fabulous video ❤❤🎉

@TobyNewbatt 28 дней назад

Thanks again!

@thorstenroberts4726 12 дней назад

So you're saying there is no possibility of systemic risk in everyone buying the same stocks? Got it...

@mrhulls 10 дней назад

Seth klarman speaks about it in margin of safety. If everybody would buy index fund, the stock would be disconected to the fundamentals making huge bubbles.

@thenecessitarian 4 дня назад

Buying spy doesn't raise or influence the share price of any stocks tracked by the spy.............

@dysaster4521 28 дней назад

"picking the right stocks are like finding a needle in a haystack whereas buying an index fund is like buying the haystack" Most of my capital is in the S&P 500 but I do have a couple other investments they are PFE and LGEN, I also have a little bit of money in a gold ETC aswell