Sure, you'll pay a low fixed commission to the fund, but they're just tracking what S&P publishes.
It's not necessarily a bad idea, but it's hardly a panacea with perfect incentives.
It's also not clear that you are not their customer: the ETF you use pays a fee to S&P to track their index, so S&P definitely want people to buy funds that track their own indices. (For example, see https://eu.spindices.com/services/index-licensing/) I'm pretty sure it's in S&P's interests to publish meaningful relevant indices, the incentives seem to be aligned there.
The methodology is published, but largely defines eligibility; it isn't completely systematic. Even if it was, it'd still be liable to change (eg. changes to exclude some classes of shares from the float).
The indices S&P provides are used for a number of things, not all of which are retail ETFs tracking them. If you think benchmarks are never manipulated by some of the larger stakeholders, see what happened to Libor.
> The methodology is published, but largely defines eligibility; it isn't completely systematic. Even if it was, it'd still be liable to change (eg. changes to exclude some classes of shares from the float).
I do not understand the point you are trying to make here.
They are also trying to please a number of people who depend on the index, not all of which are retail investors buying ETFs.
Sure, but I'd argue it's the best thing available to most retail investors.
What's the alternative? Asking my mom to day trade and pick stocks to fund her retirement? Or investing in actively managed funds that charge 1-2 % fees, yet don't really outperform the market over the long term?
Index funds make it easy to get your money in the market and diversify, while keeping costs super low.
Stocks are the backbone of a retirement portfolio. With only bonds plus a dash of REITs, you’d need like 300% more momey to retire than if you were heavily weighted to equities
Who said it was? People responded to you, giving you the benefit of the doubt by assuming you actually were making some kind of point. But you're not saying they're bad... you're not saying they shouldn't be part of a retirement portfolio...
Apparently you're literally just saying "they're not a panacea"? I think everyone is in agreement here then, nothing to see here.
True. Even Warren Buffet says it's a great idea. In fact, he tells all of his rich friends to do exactly that - just park your money in index funds.
"Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades. A major reason has been fees: Many institutions pay substantial sums to consultants who, in turn, recommend high-fee managers. And that is a fool's game."
"The 21st century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners — neither he nor his 'helpers' can do that — but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal."
http://www.berkshirehathaway.com/letters/2016ltr.pdf
> without you being their customer.
> but it's hardly a panacea with perfect incentives.
Huh? The management of the fund is so stupidly simple - just put money in every stock across the S&P 500. How do their incentives change because of that?
Once your portfolio gets bigger start having a minimum investment amount of $1000 you need to start thinking about diversification.
Buying an index fund composed of 500 large U.S.-listed companies is pretty diversified. I suppose you could diversify internationally, but no need to stray from index funds if you're not managing your money full-time.
I mean it's better than picking stocks yourself, but what isn't? As long as it's equally easy to choose a good option and a less good option, why not choose the one that's better?
That's the best I've managed to suss it out anyway, If you meant something different I'd be interested to hear it!