Advice on smartshares

[FIsaver]

While I agree that ETF's are a no brainer in that they are low cost and you can be well diversified. Has anyone thought about future returns? With more and more people pumping regularly into a set number of companies e.g. the S&P500, I wonder if future returns will be less than historic.

[blackcap]

While I agree that ETF's are a no brainer in that they are low cost and you can be well diversified. Has anyone thought about future returns? With more and more people pumping regularly into a set number of companies e.g. the S&P500, I wonder if future returns will be less than historic.

Interesting question. I do wonder though what this premise is based on? Not because companies are going to be making less money than in the past because you allude to more people pumping regularly eg. However if ppl were not pumping regularly into ETF's surely they would be pumping money into other funds and directly into shares themselves that are also part of the S&P 500 and thus not actually change anything? Thats my take on it but I am happy to hear other thoughts. I thought the NZ market has been distorted slightly the last 10 years with the advent of Kiwisaver (ie a lot more funds in than out in its initial stages) until someone pointed out that the amount of $ into NZ equities from Kiwisaver is not as large as I thought it might have been.

[huxley]

While I agree that ETF's are a no brainer in that they are low cost and you can be well diversified. Has anyone thought about future returns? With more and more people pumping regularly into a set number of companies e.g. the S&P500, I wonder if future returns will be less than historic.

There's a lot of interesting research from the behavioural economics field looking into this issue. Apparently you have to consider the environment you're investing into and act accordingly.

So.. currently if most of the global capital is actively managed (and you assume assets are correctly priced) you can safely free ride off the collective research through your low cost ETF.

If however you wake up in an environment where most of the global capital was invested passively you might want to start paying someone to research the market and locate opportunities.

For example a passive fund would just allocate funds based on the underlying index, so if Enron is 2% of the market 2% of the capital would be invested in Enron. Basically no one is checking to see if any of the companies are a massive fraud!