[tristanj]

Passive investing funnels money into the market without accounting for business fundamentals. It simply allocates funding by looking at sector and market cap. It's the definition of dumb money.

As long as companies can make it into the index, passive investors will funnel money into buying stock of these companies, no matter how badly these companies are run.

[panarky]

Doesn't that passive process reverse at some point?

The trillions that mechanically and automatically flowed into index funds in pensions and 401k accounts must mechanically and automatically flow right back out after retirement, right?

Especially when younger generations are too poor to save for retirement and most companies don't offer pensions to younger workers any more, where will the inflows come from to offset the outflows?

[tristanj]

As long as the money supply keeps increasing, excess money has few places to go (bank deposits, stocks, real estate, and physical goods). Most of it will go into the stock market, since it's quite liquid with and has good investment returns.

Also, a significant part of the stock market is driven by foreign investment. The US has few capital controls and is an easy market for foreigners to invest in. Around 1/3rd of US stocks are owned by foreigners.

Even if the older generation sells during retirement, foreign investment will be more than enough to replace it.