It's a Head's Up to the Nation's Many Passive Investors

Harper's magazine takes a look at popular index funds, and hears from the doomsayers
By John Johnson,  Newser Staff
Posted May 26, 2024 6:00 AM CDT
'Passive' Investing May Not Be as Safe as You Think
   (Getty / tadamichi)

Like a lot of Americans—an increasingly growing number, in fact—Andrew Lipstein is a passive investor. Broadly speaking, this kind of investing is "a buy-and-hold strategy using index (or similar) funds to match the overall performance of the market," writes Lipstein in the new cover story at Harper's. In the writer's case, he regularly puts money in a "set-it-and-forget" portfolio and gets on with his life. He's not trying to assess the value of particular stocks and invest accordingly—the buy-low, sell-high mantra of "active" investing—and he's not paying big fees to a fund manager to do that on his behalf. After all, such fund managers have historically bad track records compared to passive, low-cost index funds. All sounds great, right? Until you consider the question posed in the story's headline: "Does the rise of index funds spell catastrophe?"

In his piece, Lipstein digs into the complicated factors involved in that question and speaks to one of the most prominent doomsayers about index funds, renowned fund manager Michael Green. One of the big concerns is the incredibly rapid rise in passive investing over the last two decades. Without active investors, passive investing could not exist—but if passive investors outnumber active investors, that can distort the true worth of the market and even result in more volatile swings, writes Lipstein. The word "bubble" is most definitely used. To be clear, Lipstein is not changing his investing strategy or encouraging readers to do the same, he tells Marketplace. He does, however, want to remind passive investors that their supposedly safe index funds are anything but. Read the full Harper's story. (Or read other longform recaps.)

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