Enticing millenials to "trade" individual stocks is quite possibly the most anti- Robinhood thing I can think of. The only thing more ironic would be to encourage them to take on margin...which as it turns out is literally Robinhood's business model. 99% of users on the platform will ulimately end up participating in a direct transfer of their own wealth to a more sophisticated trader or algo (i.e. The banks and hedg…
Out of my own ignorance on the subject of "buy some index funds": what happens when 50%, 75% or 90% of the market buys index funds? How will stocks be priced properly if no one is trading them directly?
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Yes, you need somebody to listen to the news, crunch numbers, and then actively trade stocks in order to set an accurate price. But what matters here isn't the percentage, it's the absolute number of active traders, and their analysis "skill". Let's say you start with 50k professional bankers and 50k totally passive etf investors like you and me. Let's say that the passive investors buy/sell based on events that are totally uncorrelated with the market; they buy small orders of VTI every once in a while when they have a bit of extra cash, and they sell large blocks when they experience major life events like buying a house or having a kid. In other words, their effect on prices is random. Also let's assume that new passive investors are introduced into this system gradually, and that we're taking a "long term" view of everything. In this case, having another 100k, or 500k, new passive investors riding the wave of market growth doesn't change anything.
On the other hand, going back to our 50k/50k split, if you add another 100k poorly-performing analysts into the mix, e.g. uneducated consumers day-trading on emotion instead of news, they'll distort prices and create a bit of market inefficiency. Distorted prices are actually good for the above-average analysts, since they'll capture those extra pennies on their trades by more-accurately pricing stocks, but obviously bad for the below-average traders themselves--who will underperform the market--and the passive investors--who just buy/sell at market prices. You can kind of think of this situation as the etf investors paying an additional "management fee" to the good traders for their trading expertise.
So to summarize, the percentage of passive traders to total traders doesn't matter as long as the absolute number of active traders doesn't decrease, which won't happen because of the large incentives created whenever the system moves away from equilibrium.
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Now, in practice you'll never have completely passive investors. People will panic if they lose 10% of their investments overnight. Also, merely making a decision to invest in a particular index, like the S&P 500, is making an active choice to invest in Apple and McDonalds but not Tesla or thousands of other companies. So in practice a horde of passive investors buying Vanguard ETFs won't be completely neutral to the maket, but nonetheless the effect will be minor and--according to some people--perhaps even positive: http://www.businessinsider.com/passive-investing-makes-marke...