Talk:Index fund
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I am wondering, if index funds become more and more popular, would that cause like a feedback loop scenario?
- Well, there is a well-known effect whereby whenever a stock is added to the S&P 500 index, it goes up a bit, because all of the S&P 500 index funds need to buy it.
- Also, it's been suggested that last decade's bubble was in part the result of 401(K) investors who simply make an automatic dollar-cost-averaging contribution to an index fund every month, and are therefore in effect saying "I am willing to buy stocks no matter how much they cost." Dpbsmith 01:36, 5 Jul 2004 (UTC)
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- If you mean by feedback senario where passively manage fund get the free cake due to the Actively manage fund see Efficient market hypothesis, then yes. If everyone was to go passive then thier would be an incentive for active fund manager to do research and find underprice securities thus making a profit. Just know that if everyone went to passively manage index fund then the stock market would be a crap shoot, which will never happen in a capitalistic greedy economy. Paul.Paquette (talk) 19:18, 28 December 2005 (UTC)
- No, when the market becomes less efficient, arbitrage operators, or fund managers can take advantage it, and fix the imbalance. --MegaHasher 06:48, 2 January 2006 (UTC)
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[edit] Disadvantages
There should be some valid disadvantages. Perhaps we can say that an index fund will not outperform the target index. (while pointing out that it should not under-perform the target index)
Controversial disadvantages:
- capital gains distribution - yes, but only individual stocks avoid this, and individual stocks are hard to diversify.
- intra-day pricing - current index fund definitions include ETF, and ETFs do have intra-day pricing. Beside, intra-day pricing does not matter for long term investors. --MegaHasher 03:26, 4 January 2006 (UTC)
I think it is important to add back the advantage/ disadvantages that were seen on the other entries, with some of the recent edit these issues were simply deleted due to Point of View differences. Personally the benefits outweigh any disavangates that might be seen. Paul.Paquette (talk)
- Paul: I don't understand your third point as worded. The index fund trade happens at 4pm daily, but I fail to see how it is related to lack of sector information. The sector pricing should be available from the sector ETFs should you want them. The main article should be in encyclopedia style, and it means no user names in main article, and written in clear neutral point of view. For "controversial" materials, a discussion from both sides should be included. Alternatively, controversial material may become clear with more explaination. --MegaHasher 01:19, 16 January 2006 (UTC)
[edit] New contents soon
I will have some new contents that will fix the POV issues, peacock terms, and a more encyclopedia style. --MegaHasher 21:56, 7 January 2006 (UTC)
- Looks pretty good, but I'm sorry you cut out almost all the material on Burton Malkiel's role. Dpbsmith (talk) 22:52, 7 January 2006 (UTC)
- I added Malkiel to the front of the history section. Bogle wrote about Samuelson, Ellis, and Ehrbar directly. Bogle certainly knew of Malkiel's work. I think this arrangement of paragraphs will work. --MegaHasher 03:01, 8 January 2006 (UTC)
[edit] Comments between MegaHasher & Paul.Paquette
Index funds are not very glamorous, and they lack the excitement and mystery of the active funds.
- Point of view is slightly bias in favor so I throw this out all together. Excitement being Volatility, and Mystery being uncertainty. Is not the kind of advice I would want to give a passive investor.Paul.Paquette
- OK. There are some grammar issues for later re-work. --MegaHasher 00:43, 28 January 2006 (UTC)
- Index ETFs could be used by fund managers to reduce the amount of cash held in mutual funds. - How is this useful and where is the source for this? Paul.Paquette
- Funds hold cash to meet redemptions, and this is a drag on performance. Recently some funds hold index ETFs or Vipers to sell intra-day to meet redemptions. Just look at some of Vanguard mutual funds' holdings; they are Vipers. [1] --MegaHasher 23:27, 27 January 2006 (UTC)
- That is ingenious, why hold cash, let me just liquidate this ETF without making capital gains distribution and sell back the shares the next day, lol Paul.Paquette
- ETFs can reduce capital gains distribution through "in-kind" creation and redemptions, but a change of index composition may still realize some capital gains (not in-kind). --MegaHasher 00:43, 28 January 2006 (UTC)
[edit] Capital gains distribution
Rather US-centric. What are the tax implications in other jurisdictions? Leibniz 14:09, 5 February 2006 (UTC)
- Capital gains taxes are pretty common throughout the world, and it's something most people would have to worry about, even if the percentages vary. MrVoluntarist 17:46, 12 September 2006 (UTC)
