Thread: This might be the time to turn away from index funds

Dumping money into an S&P 500 SPX, -5.18% index fund has been a good recipe for success during the bull market, but could you imagine an extended period of weakness for stocks?

If not, you have a short memory. According to research conducted by Timothy McIntosh, the author of “The Snowball Effect: Using Dividend & Interest Reinvestment to Help You Retire on Time,” there were four very long bear markets for the Dow Jones Industrial Average from 1906 through 2011, almost 70% of the time period, as measured by the Dow Jones Industrial Average DJIA, -6.30%.

“The movement toward passive is very good for active, for the long term. What the tipping point is, nobody knows. We’re not there, but the tipping point does exist,” Kaser said.

Consider the tendency of people to follow trends and fads. Then imagine headlines, 10 or 15 years from now, about money managers who have outperformed the market. It just might happen.

Agree with 2016 article.

Everyone jumped on the indexing bandwagon - great in an uptrend but not so much in a downtrend. When markets are going up, it is very, very easy to 'stay the course'. With forced liquidations / short selling by CTA's, and forced selling to raise cash, index funds have been caught in the wave. When everybody is selling the same thing, it only makes the fall worse.

After 2008 there was a shift towards actively managed accounts that fared better than the market even if it meant only losing half of what everyone else lost.

Will the trend shift away from index funds and slightly more towards actively managed? I hope so. Indexing became a popular catch phrase while "active" has just become oh so evil.

Post this on a forum that buys and holds index funds and we're going to have to call the cavalry to get you out alive.

“Many investors believe they are making the ‘safe’ choice in picking an index fund,” said Steve Deschenes, Capital Group research and development director. “The most popular index funds expose customers to the full brunt of downturns. Strong active managers can provide less volatility and a smoother ride.”

https://www.bloomberg.com/news/artic...industry-shift