It’s commonly known in the industry that passive investing keeps growing and active investing is under pressure from all sides.
First there are fees.
For a decade or more, books have been written about the impact of fees on portfolios. The late John Bogle was one of the pioneers and thought leaders here.
Second, performance reports showing passive funds beating active managers hit the investment news on occasion. And everyone nods their heads and puts their money into passive investments.
So passive investing’s popularity seems to know no bounds.
But what is the impact of (seemingly) everyone using passive indexes?
Well, everyone goes along for the passive ride, and their money grows off into the sunset right?
Sure, until the market gets a little choppy. Then bunches of happy passive investors become active investors in a panic. Selling at the wrong time creates opportunities for active investors to take advantage of. When someone loses money, someone else on the other side makes money. It’s not cruel, it’s just the circle of life in the financial ecosystem.