"First Time Ever" in 40 Years of Investing History
Passive investing continues to soar in popularity – here’s what you should know
by Bob Stokes
Updated: September 19, 2019
In the past few years, Elliott Wave International has been warning subscribers about the growing popularity of passive investing.
Well, it's a troubling sign that more and more investors seem to believe that investing is easy. You know, like the rotisserie oven commercial -- "set it and forget it" -- except in this case, it's your portfolio and not a chicken that will presumably turn out just right.
Back in June 2017, our Elliott Wave Financial Forecast showed this chart and noted:
This chart shows just how popular indexing has become. Since 2010, the number of index funds jumped from 250 to more than 5000, which is more than the total of 4,333 companies listed on U.S. exchanges.
Our July 2019 Elliott Wave Theorist picked up on the theme by mentioning...
… a philosophy of index-fund investing whereby profits are presumably effortless.
So, our analysts are not surprised by this development (Money magazine, Sept. 16):
For the First Time Ever, Index Funds Have More Money Than Active Funds
Indexing just became the undisputed heavyweight champion of the stock market, and small investors should be cheering the victory.
The amount of money in passive U.S. stock mutual funds exceeded that in actively-managed holdings for the first time in August, completing a transformation that began with the invention of the index fund more than 40 years ago...
Well, EWI begs to differ that "smal investors should be cheering."
This rush into passive investing suggests that countless investors are completely complacent and are only expecting gains. Ten years of a bull market will do that to a crowd.
Most of them will be completely unprepared when a major trend change occurs -- and, as financial history teaches, they always do.
Exchange-traded funds are another offshoot of the passive investing philosophy, and here's the latest (CNBC, Sept. 17):
A new vegan-themed exchange-traded fund has hit the New York Stock Exchange, trading under the name U.S. Vegan Climate ETF (VEGN).
Of course, this is just the latest in a long list of niche ETFs -- and another sign of the popularity of passive investing.
No, passive investing will not seem so easy when the inevitable "rush for the exit" occurs in the stock market.
When will it occur? No one can know that for sure. Still, every market top and bottom has unmistakable, time-tested signs. Our analysts are keeping an eye on them right now and are sharing their insights with subscribers.
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Why You Should Avoid Aiming to "Beat the Market"
The reason is elementary: If the stock market goes down 40% and your portfolio "only" suffers a 25% loss -- you've "beaten the market" all right, but your portfolio is still way in the negative.
This is another way of saying that you must carefully investigate any track-record claim of beating the market.
Here at EWI -- our approach is to do our level-best to keep subscribers on the right side of the market.
That means identifying the main trend and alerting subscribers as to when we anticipate the trend will turn.
Learn what our team of experienced analysts are telling subscribers about the stock market's price pattern now -- zero risk for 30 days. Look below to learn more …
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Your Financial Forecast Service guides -- three of the best-known market analysts in the world:
- 1. Robert Prechter, Author of 16 market-related books, New York Times Best-Selling Author and Editor of Elliott Wave Theorist
- 2. Steven Hochberg, Editor of the Short Term Update and Co-editor of The Elliott Wave Financial Forecast
- 3. Peter Kendall, Author of The Mania Chronicles and Co-editor of The Elliott Wave Financial Forecast
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