It’s an interesting perspective, but I’m not sure I agree with everything said. Two of the (many) points I’ll touch on are (:
- One of the points the article made was that investing in index funds creates complacency within companies, so the companies would not see the need to be competitive with one another to drive more growth. I would disagree with that, because there are different criteria to be a part of different indexes. So i think companies would still want strive to be qualified in certain indexes that would best give them brand recognition.
- The article used past performance to predict future events - which is a no-no in the stock market. It’s true that many more people are realizing the beauty of passively managed index funds. But what happened starting March 2020 was that more money has been invested in the stock market since the pandemic - Americans invested more in the past 5-6 months than in the last 12 years. So while more money is being transferred into index funds from other investments, more new money is also being put into the stock market – I would be interested to see the ratio between the two amounts. Plus, with the new money in the stock market just within the past year, a lot of it comes from retail investors who wants to take on the hedge fund managers (e.g., Wallstreetbets and GME)…
From my opinion, index funds isn’t and won’t harm the economy - it will harm the profit of actively managed fund managers though. I believe that retail investors will drive the economy in the (far) future and not the hedge funds managers. And until nobody else buys a lottery ticket, there will still be people buying individual stocks (and not just index funds) - it’s human nature to test your luck. Index funds is just a safe diversification strategy.
Thank you for always providing a well-thought-out response!