Episode 059: Dr. William F. Sharpe, host Jon Luskin
Bogleheads On Investing Podcast
The Balance of Active and Passive Investing
The ongoing shift toward index funds is reshaping market structure, raising questions about the implications of reduced active management. While index funds lower fees for investors, they also risk diminishing the number of active managers who research and price securities. This could lead to inefficiencies in the market, as fewer people engage in the detailed analysis necessary for accurate price discovery. The dichotomy between the supposed efficiency of markets and the encouragement to invest passively underlines a fundamental tension within investment theory, suggesting that an over-reliance on index funds might ultimately harm the market’s ability to accurately reflect available information.
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