NYT article on Index Investing

[plherrin]

This article http://www.nytimes.com/2015/10/11/business/mutfund/the-ease-of-index-funds-comes-with-risk.html from the NYT points out some issues with the growing popularity of Index fund based investing. I thought it would be of some interest here.

[ShoulderThingThatGoesUp]

SCHB for example simply includes the largest 2500 publicly traded companies, so it's not as subject to the risk they discuss in the article - valuing a company included in, for example, the S&P 500 higher than a nearly-identical one not included. I guess as a second-order effect it is, in the sense that a company with a higher P/E is marginally more likely to be in the largest 2500 than one with a lower P/E.

[phwadsworth]

I read that article last night and found it really interesting.  Maybe old news to others, but it was an "Aha!" moment for me.
Here's another article about how some of the goals of ETF's (lower volatility) may not be happening because of their popularity.
http://www.nytimes.com/2015/09/09/business/investment-strategies-meant-as-buffers-to-volatility-may-have-deepened-it.html

This does not change my overall investment strategy, or will it stop me from using ETFs as a whole, but it does change how I think about how individual ETFs work.

[DavidAnnArbor]

I was glad to see that the article stated that the Vanguard Total Stock Market Index would not be subject to the same problem of a Russell 2000 Index or an S&P 500 Index fund.