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Can anyone tell me at what % there pension is funded at ? I recently found that mine dipped below the 80% mark. Meaning it's time to figure out a plan in which to get it above 80% ! I for one can't believe it took this long for someone to act, as it (funding) has been back sliding for a few years. Thanks for any replies. Derf
I have a fundamental question about the concept of indexing:
If I understand the concept, an index maintains, or attempts to maintain, a passive correlation to some actively traded group of investments or securities.
Assuming that increasing numbers of investors choose indexes (passive) rather than the actual underlying securities (active), while the ratio will certainly not be 1-to-1, still there would be an ever-expanding increase in the ratio of passive to active investors. Doesn't this lead eventually to a situation where the fortunes of a greater number of investors would be determined entirely by the judgements of a fewer number of investors?
Taken to it's logical extreme, if an ever-increasing number of investors came to choose indexing, at some point you could have a ridiculous ratio of, for example, 90% passive meekly accepting the results of the remaining 10% active.
Needless to point out, the smaller the actual number of active investors the greater the opportunities for various and sundry games which would distort the actual active sampling.
If everyone owns the index, who is left to actually own the stocks?
Now obviously that's not likely to happen to that extreme, but still, is there any method of determining how far can things go in that direction before instability sets in?
Reply to @Old_Joe: Thanks for the comprehensive analysis OJ. Probably a bit off-target here, but have long been concerned that over shorter time spans indexes are subject to the same group dynamics (err... herd mentality) as other investment trends. I believe we saw that with the S&P 500 in the late 90s - when it seemed like everybody and his brother were buying the Vanguard 500 index fund. Didn't that same index suffer badly over the following decade? Of course, if you can wait 30, 40 or 50 years it should all iron out nicely. BTW: In the past John Bogle has called the S&P 500 "the wrong index" and has advocated in favor of the Wilshire 5000 as much broader.
If Calpers' anticipated time horizon is as long as I imagine it, fluctuations in an index should be less significant than for you and me. Also, seems to me the S&P 500 in some form is probably a great trading vehicle for those with the time, skills & inclination to move in and out. Don't know if this even comes close to addressing your "tail wagging the dog" theory - but thought I'd try.
Reply to @Ted: VFINX always used S&P 500 as index. There was an issue between Vanguard and S&P regarding if the license extended to the ETF shares and S&P refused to extend the license to ETF shares so for a long while Vanguard did not offer ETF shares for their mutual fund.
Yes, I was going to post there but did not. I think we will always have significant investor/trader population that will be active. Wall Street would go broke if it did not. So, they encourage trading.
Secondly, cap weighted indices are there to be representative of the domain they index. In the unrealistic case that everyone index, everyone gets their fair share with minuscule costs and Wall Street croupiers as Jack Bogle calls would go broke as the need for trading would be very little if any.
Comments
I for one can't believe it took this long for someone to act, as it (funding) has been back sliding for a few years. Thanks for any replies.
Derf
If I understand the concept, an index maintains, or attempts to maintain, a passive correlation to some actively traded group of investments or securities.
Assuming that increasing numbers of investors choose indexes (passive) rather than the actual underlying securities (active), while the ratio will certainly not be 1-to-1, still there would be an ever-expanding increase in the ratio of passive to active investors. Doesn't this lead eventually to a situation where the fortunes of a greater number of investors would be determined entirely by the judgements of a fewer number of investors?
Taken to it's logical extreme, if an ever-increasing number of investors came to choose indexing, at some point you could have a ridiculous ratio of, for example, 90% passive meekly accepting the results of the remaining 10% active.
Needless to point out, the smaller the actual number of active investors the greater the opportunities for various and sundry games which would distort the actual active sampling.
If everyone owns the index, who is left to actually own the stocks?
Now obviously that's not likely to happen to that extreme, but still, is there any method of determining how far can things go in that direction before instability sets in?
If Calpers' anticipated time horizon is as long as I imagine it, fluctuations in an index should be less significant than for you and me. Also, seems to me the S&P 500 in some form is probably a great trading vehicle for those with the time, skills & inclination to move in and out. Don't know if this even comes close to addressing your "tail wagging the dog" theory - but thought I'd try.
S&P 500 vs. Wilshire 5000: http://finance.yahoo.com/echarts?s=^GSPC+Interactive#symbol=^gspc;range=ytd;compare=^w5000;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
Regards,
Ted
http://jacksonville.com/tu-online/stories/090901/bus_7217516.html
Thanks- OJ
Yes, I was going to post there but did not. I think we will always have significant investor/trader population that will be active. Wall Street would go broke if it did not. So, they encourage trading.
Secondly, cap weighted indices are there to be representative of the domain they index. In the unrealistic case that everyone index, everyone gets their fair share with minuscule costs and Wall Street croupiers as Jack Bogle calls would go broke as the need for trading would be very little if any.