[deanmoriarty]

What would break in your opinion? I, like many, have 99% of my net worth in diversified index funds. When I researched the topic, I came up with the two following considerations that seems to be in agreement with the general thinking of everyone who has not a very strong interest against indexing (e.g. many portfolio managers and investment advisors):

- If everybody keeps indexing, at some point doing active trading will become so profitable that there will be a partial reversion of some indexers, so in other words it’s a self correcting feedback loop like many other economical phenomenas.

- Index funds will be nearly bullet proof _if_ the capitalistic machine that powers our domestic and global economy will continue to overall thrive, with increasing population/consumption and/or increasing productivity. This one in my opinion is the real threat, considering how horribly we are treating our natural habitat these days.

[jiscariot]

I am not a financial guy, but do have concerns with indexing, given that these days it seems that we've reached "shoeshine boy"[1] levels of "just put all your money in Vanguard's VOO" sentiment--more of an inner contrarian thing than anything concrete.

It is difficult to argue with the diversification of the ETFs and I by no means avoid them, but given that most are market-cap weighted, they skew toward large stocks and self-perpetuate the growth of a handful of large cap stocks. So every $ invested in VOO, has 4.2% in APPL. I'm not sure what impact that would have other than perhaps making these large caps more volatile during a market readjustment or collapse. I also, am not sure there is a better alternative as you probably wouldn't want equal weighting between #1 and #500 on an S&P index fund.

Not a financial guy so am interested in peoples thoughts on this.

[1] http://archive.fortune.com/magazines/fortune/fortune_archive...

[deanmoriarty]

The true test will come at the next downturn, my speculation is that most of the people who buy index funds because the "shoeshine boy" told them, will panic and sell, realizing significant losses. Shortly after, more active traders will come in and reap the rewards by buying at the bottom (e.g. like Buffett did in 2009).

I believe if you continue holding (I will) you'll do fine if we don't face a catastrophe, but you certainly need to have some sort of financial discipline to see your net worth slashed by 30%+ and stay still.