John Bogle

John Bogle was the inventor of the ETF, the Exchange Traded Fund. Those funds are passive investments, because they follow a basket of stocks that are part of an index. These ETF’s follow that index blindly and in such people are “passively” investing in an index.

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There is nothing wrong with that, but when is the passive investing strategy becoming to big? John Bogle had some serious questions about that just before he died. He stated that when index funds own half of the US stock market, it wouldn’t be serving the national interest.

From 34 to 56 procent

That is the growth in which index fund ETF’s have grown the last year. So most of the money flowing into the stock market goes to the index funds, mostly held by Vanguard or BlackRock. This creates overvaluation the biggest companies that keep growing because of the monthly influx of money in this ETF’s. And that amount keeps growing monthly. This makes the big bigger and creates an imbalance in the market where the top stocks get overvalued and the small and mid caps undervalued.

Eventually this will lead to a bubble bursting because of unrealistic stock valuations of the large caps…

This is a risk we really should be taking into account when we are investing, and is a reason to choose for actively traded funds.

Sincerely,

Pele23

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