I'm old and retired. I made a lot of money and life a very comfortable lifestyle all because index funds. Just put your money in each pay period and 40 years later, you retire rich. Don't try to be a rocket scientist; you aren't smart enough; just let the system work
When people sell the large weighted stocks, they presumably buy something else. So when your index fund loses value in one area, it goes up in the other. For a total market fund to increase, it’s not about picking winners. You are betting that the entire index is going to grow overall. It’s funny how people analyze this to the point of getting themselves twisted up. Will the us stock market be bigger 25 years from now than today? If yes, then it makes no difference what stocks are weighted. Your index fund will be larger by the amount of total growth in US stocks. That’s the goal of such a fund. If you are going to pick between weighted and non weighted portions of the market… then you aren’t looking for a passive index fund. 🙂
Equal weighted funds may or no perform better but the cap weighted is a better indication of the state of the economy, which is its main purpose. Because the overall US economy is a good bet many people will invest in the funds based on the index. Personally I put aside 25% of my portfolio for an index fund. I was torn between the S&P500 and the Nasdaq but in the end chose the S&P500. The rest of my portfolio is individual stocks: mostly Blue Chip dividend stocks.
I have both, and considering a third type of index fund, 'Earnings' or 'Revenue' Weighted, where its like the market index fund, but instead of looking at Share Price * outstanding shares, it looks at how much a company makes. But how a fund is managed, IMHO, an index fund will never go away, its too easy to understand and really not complex.
Another great video. Will be sharing this one with my daughters. Index funds are a great way to invest, but you do need to remain diversified, by having verious funds, including midcap and small cap. Also need to make sure if you hold individual stocks, you are not too heavily weighted in one company. As you said, AAPL is a sizable portion of the S&P, but if you also own it outside the fund, you may be too exposed to it.
Holding a cap weighted diversified fund like VTI... If Tesla, Microsoft, Apple, Amazon all disappeared tomorrow we still own the fund. Over decades others will certainly take their place.
It always feels like the opponents of the index funds are just trying to get the funds to drop in price to buy more shares. I don't blame them. It does give access to instant diversification where you're not relying on one company to move the index (though market weighted indexes are a little more susceptible to the heavier weighted companies). I'm definitely on the pros over cons side of them over the long term.
Well my future pretty much depends on index funds so needless to say I think they’re great…really leveled the playing field in that investing isn’t just for the boujee anymore. The market doesn’t discriminate & its ease of access played a large part in me believing I could get involved & do this.
This is why I do not own individual stocks in those 5 companies. With 401k and a few index funds I already am over weight in these companies. If you haven’t, go and calculate your holding of these companies. I did and found almost 20% of my overall money was in Apple at one point because almost every ETF, mutual fund, and index fund is overweight in Apple.
And if you want to overweight something from market weight why not just choose those funds. And equal weight fund of the S&P 500 will still be all large cap stocks. But you can easily buy a small cap, mid cap or value fund if you so choose. A better idea than equal weight would be to choose another index for more diversification. Like international, small cap,bonds etc...
I think owning index funds are a great way to grow your investment, no matter who are you. Like you said, they is easy to buy, tax-efficient, and grants diversification of a variety of stocks. If one is concerned with overemphasis on S&P500 stocks, you can split your investments between large-cap, mid-cap, and small-cap index funds. I think the next big thing in investing is allowing people to pick funds that offer unique fund picks like ESG or specific investment sectors. You can absolutely own those as part of your diverse portfolio. Index funds aren't going away anytime soon and there's definitely not going to be a bubble with index funds as they just track the market. All you can do is make sure you have a portfolio that fits your risk tolerance and adjust when needed.
One aspect of equally weighted funds you didn't mention is the dividend. RSP has had a higher dividend than VOO which could make up for the higher fee. (Disclaimer my investments are mostly RSP and VOO)
I like the idea of a square root of cap weighted funds. It takes the price pressure off the volatility of large companies but does still provide a larger influence on the market that the larger companies have. Equally weighted funds would have a small cap volatility signature. I'm not sure that is desired either. You can see where cap weighted fund would be subject to a billionaire organization pumping and dumping and forcing artificial volatility to make more money. The more frequently the index is rebalanced makes this worse. If the fund is only rebalanced annually, it might not be a bad problem, but if rebalanced daily, it could get really bad.
What she's talking about is why you buy mid cap and small cap funds. They also have lower fees than the equal weight funds. Perfect examples are Vanguard's VB and VO.
The Rational Reminder podcast talked about the "index bubble" and how it doesn't exist. Apparently 94% or something close to that of index trading is done INSIDE of the index fund itself, not with the market. Index funds also apparently only make up 15% of the total market? Because of this index funds aren't a bubble, or at least not yet.
Thanks for your effort Erin!! I enjoy the video. I’m big fan of index fund. I do 10% individual stocks 90% index tracking ETF. US stock market and international market.
I think index funds are a great way to get into the market. I think index funds are a great way to invest in a declining or bear market when most stocks are down. I think when the market approaches bubbles or overvaluation then it’s time to switch to picking individual companies at undervalued prices. Don’t sell out of your index funds. Just switch the DCA to individual stocks.
This is a great video. It helps me understand market weighted vs. equal weighted much better that i have up to now. I've been using only index ETS for years now when I invest in funds. I still do own a few single stocks for dividends, which I reinvest to take advantage of compounding. I think the idea that indexing is ruining business or the stock market is what managed fund purveyors are touting because they are seeing so much money going into indexes that could be coming their way. Also, I think that if you compare many of the managed portfolios to indexes with similar investment objectives, you will find great similarity. You will likely find slightly different weightings, a few deletions from the index and a few additions but in general a pretty strong correlation to an index with a similar investment objective. Finally, always remember what John Bogle taught us long ago. That 1% or 2% you pay for a managed fund/ETF is money that is going directly into the fund managers pocket and not yours. Over a 40 year investing career it amounts to a lot of money.
Thanks. Since quantitative easing is off the table for now, I'm wondering if it may be good to compare the difference in S&P 500 returns say from 2000 - 2010 compared to 2012-2022.
That's the problem nobody really knows, and yes the returns on the S&P 500 index from 2000 up until say 2009 were negative. So if you put a lump sum in a S&P 500 index fund in 2000, by 2009 you would be showing a loss for the whole period. That's a bit scarry, and a good reason to be more diversivied. I guess if you have over 30 yrs to go then it could still produce good returns.
I do like Index Funds and have about 1/4 of my portfolio invested in them. Mostly in Vanguard ETFs. I like the relative safety of indexing, but appreciate the more rapid gains and much better dividends of individual stocks. Almost half of my portfolio is in AAPL, ABBV, HD, JPM, LMT, UPS and UNH.
I don’t understand how index funds are creating a bubble. People put money in the market to invest. The only difference is now they put it in indexed funds and not individual stocks. You would hope roughly the same amount of money would be in the market and the main difference would be you have to pick several stocks yourself that would likely be in some of these indexes. I guess to me it only moves money around slightly differently. The money would still be there. Great video never thought of this before.
I always thought about why paying fees at all investing in funds, when we can mimic the results by buying the top 20 stocks in the index weighted just as they are in the fund and just contribute to them monthly one stock at a time, as now fractional shares makes it easy? Then just rebalance from time to time. We all feel so safe with the 500 but the top 20 or 30 lead the way. I believe results will vary from the index a little bit, but it's not the end of the world.
I pick my own stocks. As far as "safety" I also buy dividend stocks. I could never see myself buying index funds. I guess a couple of my ETF's might be like a kind of index...
Hi Erin, my portfolio has both mutual funds and index funds and I did not know about some of those facts about index funds. I love that I always learn something new from watching your videos😊 You said you’ve been investing since you were 17 and you still look 17. How do you not age? Have a blessed weekend and love your outtakes! P.S. when your filming, are you reading a script you prepared for your videos or are you just naturally able to say all this info by just being an amazing speaker? You definitely have a talent for public speaking 😊
Another thought is that as more people pile into index funds this will likely drive the market as a whole higher making the S&P phenomenon spread to the owners of the index fund itself. Given an efficient market index funds seem like the best way to invest for the long term.
Hi Erin I recommend listening to Rational Reminder. They have other platforms and names. Basically they are two factor/dimension fund financial advisors. In their podcast over 200 plus episodes they will really break down the right questions to ask. Hint market or evenly weighted are both sub optimal. I think they would like to connect with you. Peace.
Well I have great respect for Cameron and Benjamin, they are absolutely incredible!!! I’ve watched a number of Ben Felix’s RUclips videos as well! I love his channel and breakdowns!!! (And with all that being said - I doubt they even know I exist 😂 😂 so I doubt they would want to connect with me)
If almost all the S&P 500 is in indexfunds, and not as individual stocks, then there's a disconnection between value of the stock and what the company is really worth.
I find it hard to accept the bubble theory Erin because if the bubble pops so does all of the stocks in the index. OK, a handful will be spared but it is too hard to figure out which ones will be lucky.
Another great video! I have both market-weighted and equally-weighted index funds. Also , index funds based on different areas - tech, health, and energy - are in my portfolio. I believe that traditional market-weighted index funds put too much emphasis on large companies; therefore, their stock prices tend to be artificially high. An index fund that gave a different percentage spread (as opposed to current precentages or an equally-weighted formula) would be my preference, but I haven’t noticed any offerings like this. All in all, unless one were to make investing a full-time occupation, it is not worthwhile to do extensive research or gain an education/training regarding stocks and investing. Index funds fill that “investment requirement” nicely, and gain a decent reward on that investment, over time. Yes, individuals should educate themselves on the market as a whole, influences on the market, and take responsibility for themselves to invest in the market in order to grow their investment. However, beyond a basic understanding of the nuances of stock trading, who really NEEDS to bother with it? Hello Index Fund investing!
Question about taxation of S&P 500 Index funds. Over the exact same period, some of them have pretty large capital gains distributions (that are taxable in current year even if you don't sell) and others have pretty small capital gains distributions. Does anyone know why that is? It makes no sense to me. Some S&P 500 index fund managers are churning assets and others are not??
Super interesting topic. I would think you would want to catch more of the upward rise of the smaller companies, so an equal weight might be better over the very long run. My fear would be that in time as index funds become more prevalent market weighted funds could perpetuate the growth of companies faster than they are really performing in sales/net income. I will be interested to see what the numbers show in time.
Historically, the total value of the indexes rise over time as a whole. People who try to guess or time which stocks will outperform generally fall short of the overall index average. That is likely what the numbers will show going forward as well unless something fundamentally changes about the stock market that has not been the case for 100+ years.
Personally, I prefer equally weighted indexes, but the largest companies don't get their advantage from market weighting, they get it from government policy. Everyone should understand by now that the largest corporations exert a massive amount of pressure on government to implement policies and regulations that are favorable to them. This is where most of the advantages they enjoy come from. Massive corporations haven't given billions in political campaign contributions over the years out of charity. They do it to buy influence. Bottom line, the structure of index funds has little impact comparatively.
I understand index funds have outperformed most stock pickers. However, I still don't understand why someone would want to own the bad stocks in an index? Why not just own good companies?
Another interesting video. I think you have a great pulse on the issues of the day. The question is how will index funds perform in a protracted period of stagflation. This may require looking for value in sector funds. Valuations are way high right now.
Erin, where were you 30 years ago when I was deciding what to invest in? Just kidding. I like the way that you explain things. My only advice to people is put your money in and don't try to time the market. I am not bad off but I would have had much more if I hadn't gotten scared at different times and sold. The only time that I was right was 2008. The other times I just repurchased the same shares for a higher price.
Love your channel and when you do uplifting stories (as you did recently). That said, I agree the top weighted companies create an uneven balance. Equally weighted works against you when the majority of investors are cap valuation companies. When I scratch my head and trying to figure out what to do, I remember the warren buffet rule: above 20:1 PE, run away! If my index fund goes above 20:1 overall I choose more conservative funds with better equity value.
Here's an idea for you to research and make a video presentation on. The amount of fees people pay in their Retirement Accounts or more specifically, the percentage. How much will the Investor's Retirement Account be worth with a Low Fee of say 1% compared to a higher fee of 2%, 3% or even more over their Lifetime of investing in it. You do have a way of communicating so that it is easier to understand. This topic is a Big Deal once the truth is realized. Food for thought.
Here's a starting point possibly. I imagine after you do work you will know more, and as I said, you do make it easier to understand. I saw a video on it comparing Vanguard to other competitors in the industry. Then there is the investment companies that somebody's employer uses which could possibly charge very high fees as well. If somebody gets some type of match at work ( Ex: 50% match by the Employer for the first 5% of the Employees paycheck they contribute to their account from their job) it still may be worth it anyways for the Employee to invest in an employer's investment retirement account. There are also IRS max contributions by employees for ROTH IRAs and 401Ks. I believe once you hit 50 years old you can contribute even more as a catch up. There are also individual accounts not associated with a somebody's account they have through their employer There are key points and I'm sure I don't have it all in my head correctly. I am a beginner on all of this. It is all numbers, rules for contributions limits and straight math, but over years and years.... the difference between keeping some money vs. giving more away in even higher fees cannot be ignored. It is substantial.
For me I would rather have a diversified basket of individual stocks. It gives me $30,000 annual dividend payments plus I can trade options to goose my income. In addition, I would never invest in companies like tesla.
I agree that equally weighted S&P is better than Cap weighted S&P, but the S&P doesn't have alot of Value or Small in it. So, some could argue that equally weighing the total market would be even better.
If you want to choose to overweight value, small cap or mid cap why wouldn't you just buy one of them funds to accomplish that goal? And even get a smaller expense ratio? There have been indexes that cover those tilts for a long time and they're easily available
You know Erin, I've been listening to you for awhile now and I trust your stoic approach to money. I am my own worst enemy when it comes to saving and not spending! I'd love to hire you to be my money manager! I keep me from it! Do you do that sort of thing?
Picking individual stocks without insider (illegal) knowledge is gambling. Timing the market to sell or buy individual stocks is an impossible strategy for long term wealth building. Account fees matter even when they're a fraction of a percent. Thus market-weighted index funds are the best option for most investors to grow their money.
A company being added to the S&P 500 index won't give a company that big of a boost. That new company will be on the bottom of the index and will only have a small number of shares being bought from indexes as the index fund will only need a small number of shares from the lowest company in the S&P 500.
Index funds aren't going anywhere, aren't "over," and still return major long-term growth (ignoring any short-term market 'downturns,' which are simply opportunities to average your cost downward, buy more shares at a discount, and then make more money on the nigh-inevitable 'bounce' when the market recovers).
Would be interesting to see performance differences between "Market Share Weighted" vs. "Equal $$ Weighting ($500 MSFT, $500 INTC, $500 MED, $500 MO, etc.)" vs. "Equal Share(s) Weighting (100 shares MSFT, 100 shares INTC, 100 shares MED, 100 shares MO)." While "equal weighted" funds might be actively managed based on share price changes, an "equal share" fund wouldn't need to be since it's not "price-sensitive." Would be interested to see how equal-share-weighting performs relative to the other options (equal $$ weighting, or market weighting)...
Small note, you say "you can get started with index funds with as little as $25 or as much as $2500." Not if you're talking about the biggest funds like SPY, QQQ, IWM, etc. which all cost $100+/share, unless your brokerage allows you to buy fractional shares (like $25 worth of a $300/share fund, or whatever). Otherwise, you'd have to buy some other smaller/cheaper funds or ETFs, which may not perform at the same level due to how they're weighted. So, there's at least a little bit of a barrier to entry on some of the bigger funds. But, at least many brokerages now allow the buying of fractional shares, so it's less of an issue, to slowly buy into the bigger, more popular funds and "work your way up" to a full '1' share of the fund.
One thing you didn’t mention is that the funds control the shareholder votes. So corruption of these votes can cause problems down the road for the companies as the index funds control more and more of the shares. What are your thoughts about this?
Hi Erin, I wonder if you would weigh in on the $10k student loan forgiveness. My student loan debt was exactly $10k back in 1991, and it felt like heavy debt back then. I believe today's average is $37k, so the forgiven amount is still substantial. I went to what is now called the NYU Tandon engineering school, and the tuition in the 80s was $10k a year. My classmates complained about high tuition even then, and even held a demonstration that attracted TV news. I got 75% financial aids which cut my loan to $10k for the four years, with an 8% interest rate. It took me 10 years to pay.
I hope you mention that accountability is so important today as it has been in the past. Nothing is free in life and their will be consequences i.e. taxes going up for one thing
@@stuartdavis83 Accountability is always a good thing but I don't object to a little bit of student loan forgiveness now (and it is only a little bit, as $10k isn't nearly enough for many people). It is a "government bailout" of sort, lest there be widespread student loan defaults. Better to bail them out now then wait till the country is in full meltdown mode like in 2008-09.
Equally weighted funds have theoretical support versus market cap weighted funds thanks to the size premium, but that chart raises questions at least for the S&P. Are even the smallest S&P500 companies too large to benefit from the size premium?
3:45 small-small shares? Looks like you are influenced by or have Indian friends and their dialect is rubbing off on you? lol!!! Btw, very good video as usual. Index funds are the way to go, ask any Boglehead.
You should read up on the Grossman - Stiglitz paradox. It outlines quite well why index investing cannot create a bubble as long as active investors exist. You'd probably find it quite interesting. Essentially, passive index investing needs active investors to set prices and active investors need passive index investors to stabilize prices against excess volatility. Ben Felix covers this in great detail here: ruclips.net/video/Wv0pJh8mFk0/видео.html
I do better without these index fund investing. I only get about 5 to 7% return annually on my 401k and with real inflation being much higher I'm actually losing money. I have private stocks through my work which last year was over 20%. I also have some PM's which are manipulated by the banks but when the markets crash the banks are less able to manipulate so the PM's skyrocket when real estate crashes and that is the best time to take advantage.
Index funds is crap because your investing more money into huge megacorps everytime you buy it. Do you really want to grow these monoliths any more then they already are huge? Please think through, sometimes the returns of the investment is not worth the cost to this planet
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I'm old and retired. I made a lot of money and life a very comfortable lifestyle all because index funds. Just put your money in each pay period and 40 years later, you retire rich.
Don't try to be a rocket scientist; you aren't smart enough; just let the system work
When people sell the large weighted stocks, they presumably buy something else. So when your index fund loses value in one area, it goes up in the other. For a total market fund to increase, it’s not about picking winners. You are betting that the entire index is going to grow overall. It’s funny how people analyze this to the point of getting themselves twisted up. Will the us stock market be bigger 25 years from now than today? If yes, then it makes no difference what stocks are weighted. Your index fund will be larger by the amount of total growth in US stocks. That’s the goal of such a fund. If you are going to pick between weighted and non weighted portions of the market… then you aren’t looking for a passive index fund. 🙂
If there's a bubble it's not coming from index funds. Also, I love the outtakes!
This is why I also have a small cap etf in my portfolio
Small cap and small cap value have, historically, done very well. You need to live with the volatility, but it is worth it-
You're not a financial advisor but you sure could be one. Love your passion.
So many games in investing, stay diversified, and stay with a plan and all will be okay! Great information Erin.
Equal weighted funds may or no perform better but the cap weighted is a better indication of the state of the economy, which is its main purpose. Because the overall US economy is a good bet many people will invest in the funds based on the index. Personally I put aside 25% of my portfolio for an index fund. I was torn between the S&P500 and the Nasdaq but in the end chose the S&P500. The rest of my portfolio is individual stocks: mostly Blue Chip dividend stocks.
I have both, and considering a third type of index fund, 'Earnings' or 'Revenue' Weighted, where its like the market index fund, but instead of looking at Share Price * outstanding shares, it looks at how much a company makes. But how a fund is managed, IMHO, an index fund will never go away, its too easy to understand and really not complex.
I am glad you show the outtakes now. It sort of shows an inkling of what it takes to put together a video
Another great video. Will be sharing this one with my daughters. Index funds are a great way to invest, but you do need to remain diversified, by having verious funds, including midcap and small cap. Also need to make sure if you hold individual stocks, you are not too heavily weighted in one company. As you said, AAPL is a sizable portion of the S&P, but if you also own it outside the fund, you may be too exposed to it.
A very great point, so many people invest in the big names individually as well as the index
Just pick an index fund that contains small and mid cap. Like say the FTSE global all cap. 🤷♂️
Holding a cap weighted diversified fund like VTI... If Tesla, Microsoft, Apple, Amazon all disappeared tomorrow we still own the fund. Over decades others will certainly take their place.
It always feels like the opponents of the index funds are just trying to get the funds to drop in price to buy more shares. I don't blame them. It does give access to instant diversification where you're not relying on one company to move the index (though market weighted indexes are a little more susceptible to the heavier weighted companies). I'm definitely on the pros over cons side of them over the long term.
I just love index funds!! ❤️
I saw a huge increase in my investments, when I put funds in index funds... wow!!
I wasn’t aware that this option existed (equally weighted). Interesting and informative.
Well my future pretty much depends on index funds so needless to say I think they’re great…really leveled the playing field in that investing isn’t just for the boujee anymore. The market doesn’t discriminate & its ease of access played a large part in me believing I could get involved & do this.
I love that
This is why I do not own individual stocks in those 5 companies. With 401k and a few index funds I already am over weight in these companies. If you haven’t, go and calculate your holding of these companies. I did and found almost 20% of my overall money was in Apple at one point because almost every ETF, mutual fund, and index fund is overweight in Apple.
I wonder how many of the anti-index fund arguments and articles come from people and businesses that profit from active management.
And if you want to overweight something from market weight why not just choose those funds. And equal weight fund of the S&P 500 will still be all large cap stocks. But you can easily buy a small cap, mid cap or value fund if you so choose.
A better idea than equal weight would be to choose another index for more diversification. Like international, small cap,bonds etc...
Love that you talked about this Erin!
I think owning index funds are a great way to grow your investment, no matter who are you. Like you said, they is easy to buy, tax-efficient, and grants diversification of a variety of stocks. If one is concerned with overemphasis on S&P500 stocks, you can split your investments between large-cap, mid-cap, and small-cap index funds.
I think the next big thing in investing is allowing people to pick funds that offer unique fund picks like ESG or specific investment sectors. You can absolutely own those as part of your diverse portfolio.
Index funds aren't going away anytime soon and there's definitely not going to be a bubble with index funds as they just track the market. All you can do is make sure you have a portfolio that fits your risk tolerance and adjust when needed.
One aspect of equally weighted funds you didn't mention is the dividend. RSP has had a higher dividend than VOO which could make up for the higher fee.
(Disclaimer my investments are mostly RSP and VOO)
I like the idea of a square root of cap weighted funds. It takes the price pressure off the volatility of large companies but does still provide a larger influence on the market that the larger companies have. Equally weighted funds would have a small cap volatility signature. I'm not sure that is desired either. You can see where cap weighted fund would be subject to a billionaire organization pumping and dumping and forcing artificial volatility to make more money. The more frequently the index is rebalanced makes this worse. If the fund is only rebalanced annually, it might not be a bad problem, but if rebalanced daily, it could get really bad.
What she's talking about is why you buy mid cap and small cap funds. They also have lower fees than the equal weight funds. Perfect examples are Vanguard's VB and VO.
The Rational Reminder podcast talked about the "index bubble" and how it doesn't exist. Apparently 94% or something close to that of index trading is done INSIDE of the index fund itself, not with the market. Index funds also apparently only make up 15% of the total market? Because of this index funds aren't a bubble, or at least not yet.
Index funds are great but dividends are low. I put in 60% stocks 40% index funds
Thanks for your effort Erin!! I enjoy the video. I’m big fan of index fund. I do 10% individual stocks 90% index tracking ETF. US stock market and international market.
I think index funds are a great way to get into the market. I think index funds are a great way to invest in a declining or bear market when most stocks are down. I think when the market approaches bubbles or overvaluation then it’s time to switch to picking individual companies at undervalued prices. Don’t sell out of your index funds. Just switch the DCA to individual stocks.
This is a great video. It helps me understand market weighted vs. equal weighted much better that i have up to now. I've been using only index ETS for years now when I invest in funds. I still do own a few single stocks for dividends, which I reinvest to take advantage of compounding.
I think the idea that indexing is ruining business or the stock market is what managed fund purveyors are touting because they are seeing so much money going into indexes that could be coming their way. Also, I think that if you compare many of the managed portfolios to indexes with similar investment objectives, you will find great similarity. You will likely find slightly different weightings, a few deletions from the index and a few additions but in general a pretty strong correlation to an index with a similar investment objective. Finally, always remember what John Bogle taught us long ago. That 1% or 2% you pay for a managed fund/ETF is money that is going directly into the fund managers pocket and not yours. Over a 40 year investing career it amounts to a lot of money.
Thanks. Since quantitative easing is off the table for now, I'm wondering if it may be good to compare the difference in S&P 500 returns say from 2000 - 2010 compared to 2012-2022.
Correct. Bubble land.
That's the problem nobody really knows, and yes the returns on the S&P 500 index from 2000 up until say 2009 were negative. So if you put a lump sum in a S&P 500 index fund in 2000, by 2009 you would be showing a loss for the whole period. That's a bit scarry, and a good reason to be more diversivied. I guess if you have over 30 yrs to go then it could still produce good returns.
I do like Index Funds and have about 1/4 of my portfolio invested in them. Mostly in Vanguard ETFs. I like the relative safety of indexing, but appreciate the more rapid gains and much better dividends of individual stocks. Almost half of my portfolio is in AAPL, ABBV, HD, JPM, LMT, UPS and UNH.
Great information followed by hilarious outtakes!!
Thanks!
I don’t understand how index funds are creating a bubble. People put money in the market to invest. The only difference is now they put it in indexed funds and not individual stocks. You would hope roughly the same amount of money would be in the market and the main difference would be you have to pick several stocks yourself that would likely be in some of these indexes. I guess to me it only moves money around slightly differently. The money would still be there.
Great video never thought of this before.
I'm just here for the outtakes. The educational content is a bonus.
Hahaha
Loved this Erin!! I learned this the hard way a few years back.
I always thought about why paying fees at all investing in funds, when we can mimic the results by buying the top 20 stocks in the index weighted just as they are in the fund and just contribute to them monthly one stock at a time, as now fractional shares makes it easy? Then just rebalance from time to time. We all feel so safe with the 500 but the top 20 or 30 lead the way. I believe results will vary from the index a little bit, but it's not the end of the world.
Fair point!
I pick my own stocks. As far as "safety" I also buy dividend stocks. I could never see myself buying index funds. I guess a couple of my ETF's might be like a kind of index...
i dont see it being a bubble. All 401ks are basically etfs and mutual funds, if it is a bubble how will peoples retirement accounts be effect?
Hi Erin, my portfolio has both mutual funds and index funds and I did not know about some of those facts about index funds. I love that I always learn something new from watching your videos😊 You said you’ve been investing since you were 17 and you still look 17. How do you not age?
Have a blessed weekend and love your outtakes!
P.S. when your filming, are you reading a script you prepared for your videos or are you just naturally able to say all this info by just being an amazing speaker? You definitely have a talent for public speaking 😊
Not reading - but it sometimes takes lots of takes 😂 …and I work hard to keep this skin looking good!!
Another thought is that as more people pile into index funds this will likely drive the market as a whole higher making the S&P phenomenon spread to the owners of the index fund itself. Given an efficient market index funds seem like the best way to invest for the long term.
Hi Erin I recommend listening to Rational Reminder. They have other platforms and names. Basically they are two factor/dimension fund financial advisors. In their podcast over 200 plus episodes they will really break down the right questions to ask. Hint market or evenly weighted are both sub optimal. I think they would like to connect with you. Peace.
Well I have great respect for Cameron and Benjamin, they are absolutely incredible!!! I’ve watched a number of Ben Felix’s RUclips videos as well! I love his channel and breakdowns!!! (And with all that being said - I doubt they even know I exist 😂 😂 so I doubt they would want to connect with me)
If almost all the S&P 500 is in indexfunds, and not as individual stocks, then there's a disconnection between value of the stock and what the company is really worth.
I find it hard to accept the bubble theory Erin because if the bubble pops so does all of the stocks in the index. OK, a handful will be spared but it is too hard to figure out which ones will be lucky.
I don’t agree with it either
Another great video! I have both market-weighted and equally-weighted index funds. Also , index funds based on different areas - tech, health, and energy - are in my portfolio. I believe that traditional market-weighted index funds put too much emphasis on large companies; therefore, their stock prices tend to be artificially high. An index fund that gave a different percentage spread (as opposed to current precentages or an equally-weighted formula) would be my preference, but I haven’t noticed any offerings like this. All in all, unless one were to make investing a full-time occupation, it is not worthwhile to do extensive research or gain an education/training regarding stocks and investing. Index funds fill that “investment requirement” nicely, and gain a decent reward on that investment, over time. Yes, individuals should educate themselves on the market as a whole, influences on the market, and take responsibility for themselves to invest in the market in order to grow their investment. However, beyond a basic understanding of the nuances of stock trading, who really NEEDS to bother with it? Hello Index Fund investing!
Question about taxation of S&P 500 Index funds. Over the exact same period, some of them have pretty large capital gains distributions (that are taxable in current year even if you don't sell) and others have pretty small capital gains distributions. Does anyone know why that is? It makes no sense to me. Some S&P 500 index fund managers are churning assets and others are not??
Super interesting topic. I would think you would want to catch more of the upward rise of the smaller companies, so an equal weight might be better over the very long run. My fear would be that in time as index funds become more prevalent market weighted funds could perpetuate the growth of companies faster than they are really performing in sales/net income. I will be interested to see what the numbers show in time.
Historically, the total value of the indexes rise over time as a whole. People who try to guess or time which stocks will outperform generally fall short of the overall index average. That is likely what the numbers will show going forward as well unless something fundamentally changes about the stock market that has not been the case for 100+ years.
Love your outtakes at the end so much 🤗💖🎉😂
Enjoying and learning from your channel, Erin. Nice work. 👍
Personally, I prefer equally weighted indexes, but the largest companies don't get their advantage from market weighting, they get it from government policy. Everyone should understand by now that the largest corporations exert a massive amount of pressure on government to implement policies and regulations that are favorable to them. This is where most of the advantages they enjoy come from. Massive corporations haven't given billions in political campaign contributions over the years out of charity. They do it to buy influence. Bottom line, the structure of index funds has little impact comparatively.
I understand index funds have outperformed most stock pickers. However, I still don't understand why someone would want to own the bad stocks in an index? Why not just own good companies?
I've been a Boggle head ever since I started investing. Index funds are the way to go for me. Smaller cap funds carry a higher risk IMHOP.
Another interesting video. I think you have a great pulse on the issues of the day. The question is how will index funds perform in a protracted period of stagflation. This may require looking for value in sector funds. Valuations are way high right now.
Hi Erin. Love the time line on the Friday video! Great way to start the weekend! Thank you and enjoy your weekend.
Fridays are easier to look forward to rather than Mondays
Erin, where were you 30 years ago when I was deciding what to invest in? Just kidding. I like the way that you explain things.
My only advice to people is put your money in and don't try to time the market. I am not bad off but I would have had much more if I hadn't gotten scared at different times and sold. The only time that I was right was 2008. The other times I just repurchased the same shares for a higher price.
I do find it weird that my retirement portfolio in 2022 is similar to what it was in the late 80s.
Fantastic information…
Keep smiling and have a great weekend!!!
I keep loving those outtakes.
Thanks, have a great weekend as well!
Love your channel and when you do uplifting stories (as you did recently). That said, I agree the top weighted companies create an uneven balance. Equally weighted works against you when the majority of investors are cap valuation companies. When I scratch my head and trying to figure out what to do, I remember the warren buffet rule: above 20:1 PE, run away! If my index fund goes above 20:1 overall I choose more conservative funds with better equity value.
Here's an idea for you to research and make a video presentation on. The amount of fees people pay in their Retirement Accounts or more specifically, the percentage. How much will the Investor's Retirement Account be worth with a Low Fee of say 1% compared to a higher fee of 2%, 3% or even more over their Lifetime of investing in it. You do have a way of communicating so that it is easier to understand. This topic is a Big Deal once the truth is realized. Food for thought.
I love this idea!! 🤩 I will do it
Here's a starting point possibly. I imagine after you do work you will know more, and as I said, you do make it easier to understand.
I saw a video on it comparing Vanguard to other competitors in the industry. Then there is the investment companies that somebody's employer uses which could possibly charge very high fees as well.
If somebody gets some type of match at work
( Ex: 50% match by the Employer for the first 5% of the Employees paycheck they contribute to their account from their job) it still may be worth it anyways for the Employee to invest in an employer's investment retirement account.
There are also IRS max contributions by employees for ROTH IRAs and 401Ks. I believe once you hit 50 years old you can contribute even more as a catch up. There are also individual accounts not associated with a somebody's account they have through their employer
There are key points and I'm sure I don't have it all in my head correctly. I am a beginner on all of this.
It is all numbers, rules for contributions limits and straight math, but over years and years.... the difference between keeping some money vs. giving more away in even higher fees cannot be ignored. It is substantial.
For me I would rather have a diversified basket of individual stocks. It gives me $30,000 annual dividend payments plus I can trade options to goose my income. In addition, I would never invest in companies like tesla.
And I love investing in Tesla. That is the great thing about the stock market,you can put your money on what you believe will do well.
Great point!!
I agree that equally weighted S&P is better than Cap weighted S&P, but the S&P doesn't have alot of Value or Small in it. So, some could argue that equally weighing the total market would be even better.
If you want to choose to overweight value, small cap or mid cap why wouldn't you just buy one of them funds to accomplish that goal? And even get a smaller expense ratio? There have been indexes that cover those tilts for a long time and they're easily available
@@johngill2853 I agree and I have funds like that
You know Erin, I've been listening to you for awhile now and I trust your stoic approach to money. I am my own worst enemy when it comes to saving and not spending! I'd love to hire you to be my money manager! I keep me from it! Do you do that sort of thing?
I don’t, I’m sorry - but thank you for your kind words.
Picking individual stocks without insider (illegal) knowledge is gambling. Timing the market to sell or buy individual stocks is an impossible strategy for long term wealth building. Account fees matter even when they're a fraction of a percent. Thus market-weighted index funds are the best option for most investors to grow their money.
A company being added to the S&P 500 index won't give a company that big of a boost. That new company will be on the bottom of the index and will only have a small number of shares being bought from indexes as the index fund will only need a small number of shares from the lowest company in the S&P 500.
Hmmm yes but Tesla...
I like them both as a part of a strategy diversification investment.
What would Warren say (??) Great video. Love your topics.
How do I buy an index fund?
The longer your time horizon the smother the ride regardless of how the index is weighted .
Reversion to the mean at work.
Absolutely!
Good video. Thanks for the info.
Hope all is well with you. 🙏
NO, the FUTURES MARKET (known as the PAPER MARKET) ruined investing.
Index funds aren't going anywhere, aren't "over," and still return major long-term growth (ignoring any short-term market 'downturns,' which are simply opportunities to average your cost downward, buy more shares at a discount, and then make more money on the nigh-inevitable 'bounce' when the market recovers).
Will there be additional TYPES of index funds? Sure. There's plenty of different types or emphases of index funds or ETFs...
Would be interesting to see performance differences between "Market Share Weighted" vs. "Equal $$ Weighting ($500 MSFT, $500 INTC, $500 MED, $500 MO, etc.)" vs. "Equal Share(s) Weighting (100 shares MSFT, 100 shares INTC, 100 shares MED, 100 shares MO)."
While "equal weighted" funds might be actively managed based on share price changes, an "equal share" fund wouldn't need to be since it's not "price-sensitive." Would be interested to see how equal-share-weighting performs relative to the other options (equal $$ weighting, or market weighting)...
Small note, you say "you can get started with index funds with as little as $25 or as much as $2500." Not if you're talking about the biggest funds like SPY, QQQ, IWM, etc. which all cost $100+/share, unless your brokerage allows you to buy fractional shares (like $25 worth of a $300/share fund, or whatever). Otherwise, you'd have to buy some other smaller/cheaper funds or ETFs, which may not perform at the same level due to how they're weighted. So, there's at least a little bit of a barrier to entry on some of the bigger funds. But, at least many brokerages now allow the buying of fractional shares, so it's less of an issue, to slowly buy into the bigger, more popular funds and "work your way up" to a full '1' share of the fund.
One thing you didn’t mention is that the funds control the shareholder votes. So corruption of these votes can cause problems down the road for the companies as the index funds control more and more of the shares. What are your thoughts about this?
Hi Erin, I wonder if you would weigh in on the $10k student loan forgiveness. My student loan debt was exactly $10k back in 1991, and it felt like heavy debt back then. I believe today's average is $37k, so the forgiven amount is still substantial.
I went to what is now called the NYU Tandon engineering school, and the tuition in the 80s was $10k a year. My classmates complained about high tuition even then, and even held a demonstration that attracted TV news. I got 75% financial aids which cut my loan to $10k for the four years, with an 8% interest rate. It took me 10 years to pay.
I plan on doing a video about it 😊 but I am out of town for the next week…so it might be delayed
I hope you mention that accountability is so important today as it has been in the past. Nothing is free in life and their will be consequences i.e. taxes going up for one thing
@@stuartdavis83 Accountability is always a good thing but I don't object to a little bit of student loan forgiveness now (and it is only a little bit, as $10k isn't nearly enough for many people). It is a "government bailout" of sort, lest there be widespread student loan defaults. Better to bail them out now then wait till the country is in full meltdown mode like in 2008-09.
Equally weighted funds have theoretical support versus market cap weighted funds thanks to the size premium, but that chart raises questions at least for the S&P. Are even the smallest S&P500 companies too large to benefit from the size premium?
Curious to see what your research/thoughts are on how these issues do or don’t affect target date funds.
I like target date funds
How long does it take you (on average) to make one of these videos. Excellent job by the way.
5-8 hours between planning, filming and editing
3:45 small-small shares? Looks like you are influenced by or have Indian friends and their dialect is rubbing off on you? lol!!! Btw, very good video as usual. Index funds are the way to go, ask any Boglehead.
You should read up on the Grossman - Stiglitz paradox. It outlines quite well why index investing cannot create a bubble as long as active investors exist. You'd probably find it quite interesting. Essentially, passive index investing needs active investors to set prices and active investors need passive index investors to stabilize prices against excess volatility. Ben Felix covers this in great detail here: ruclips.net/video/Wv0pJh8mFk0/видео.html
Thanks for the link - I will watch and do the reading!! I find it so interesting!
@@ErinTalksMoney Ben Felix and The Plain Bagel did a collaboration video on this as well. ruclips.net/video/0G3sn_k4HYM/видео.html
Hey Erin, Can you explain ETF’s. And how they work thanks
I’ll do a video 😊
Who has funds at 17??..lol
Obviously the cool kids 😂
Good thing I'm shorting the index 😅
I do better without these index fund investing. I only get about 5 to 7% return annually on my 401k and with real inflation being much higher I'm actually losing money. I have private stocks through my work which last year was over 20%. I also have some PM's which are manipulated by the banks but when the markets crash the banks are less able to manipulate so the PM's skyrocket when real estate crashes and that is the best time to take advantage.
@Erin i love your show. I sometimes think you are a 🤖 . Are you a real person? I just want to proof you are not super AI machine.
Index funds is crap because your investing more money into huge megacorps everytime you buy it. Do you really want to grow these monoliths any more then they already are huge? Please think through, sometimes the returns of the investment is not worth the cost to this planet