What would happen if everyone invested in index funds? (hedge fund, cash, Fidelity)

[GenPatton]

So after much research and analysis, I've come to the conclusion that investing in index funds and getting average results would be fine for me. I don't want to deal with the hassle of active investing. But what would happen if everyone started doing that? Would returns go to 0?

[mathjak107]

it would just over inflate the stock prices in the index and hense make the index over valued.

like now , nasdaq qqq is so influenced by apple and microsoft that the entire index swings with only those 2 stocks.

[CaptainNJ]

you would need an index fund of index funds

[CouponJack]

Originally Posted by GenPatton

I've come to the conclusion that investing in index funds and getting average results would be fine for me.

The biggest misconception people have about index funds is that they equate index w/AVERAGE.

That is the furthest from the truth....

[Willy702]

Money would flow to stocks because of the potential for arbitrage so I wouldn't worry about it. Average investors and most hedge funds make investment decisions, but there is a huge amount of money in the investment world which is just trying to eke out small profits here and there. If they saw they could generate some easy value by shorting an index and buying the individual stocks they would do it in an instant.

[irish_bob]

Originally Posted by GenPatton

So after much research and analysis, I've come to the conclusion that investing in index funds and getting average results would be fine for me. I don't want to deal with the hassle of active investing. But what would happen if everyone started doing that? Would returns go to 0?

if you dont mind me asking ,which index funds are you going with

[mathjak107]

Originally Posted by Willy702

Money would flow to stocks because of the potential for arbitrage so I wouldn't worry about it. Average investors and most hedge funds make investment decisions, but there is a huge amount of money in the investment world which is just trying to eke out small profits here and there. If they saw they could generate some easy value by shorting an index and buying the individual stocks they would do it in an instant.

thats exactly the reason etf's track so close to the basket of stocks they represent.

anytime the fund or the underlying stocks develop a spread arbitragers instantly do their thing driving them back together.

[mathjak107]

Originally Posted by CouponJack

The biggest misconception people have about index funds is that they equate index w/AVERAGE.

That is the furthest from the truth....

the other misconception is that individual managed funds have to beat their indexes for you to beat the index.

a portfolio consists of many funds and asset classes. what the newsletter i follow does is use various funds through their sweet spot based on the managers direction,strategy and goals .

as an example by utilizing the fidelity export and multinational fund through the period we had of a weak dollar and then switching to another fund when it looked like it bottomed both funds didnt beat the s&p 500 index individually but working together they both beat the pants off it.

the ole myth that index funds beat using manged funds most of the time is only a partial truth. managed funds used correctly in a total portfolio can beat the indexes hands down.

for 35 years a simple mix of only 25% equities,gold,long term treasuries and cash rebalanced once a year beat being 100% indexed in a total market fund by a huge amount.

indexing isnt a key to success, good portfolio design and planning is the real key and that doesnt matter if you index or not.

[acegolfer]

Originally Posted by mathjak107

indexing isnt a key to success, good portfolio design and planning is the real key and that doesnt matter if you index or not.

Perhaps, true. But most investors can't do that. It's even worse to give your money to the monkeys to actively manage your portfolio.

[mathjak107]

most investors can ,thats the sad truth. there are excellent newsletters that put together excellent portfolios.

there are books by fabulous financial minds to teach you.

most folks dont want to, but they certainly can if they wanted to . you can

do nothing more than just subscribe to a newsletter like fidelity insight or

fidelity monitor and do nothing else but check for updates every friday.

there are excellent ones devoted to vanguard or etf's.

we have gotten over 1200% in returns since 1987 spending 30 seconds a week on our portfolio itself.