Hi Michael,
Maybe you can answer a question that has been troubling me. It has to do with stock indexes. My husband works for the US government and has federal retirement - the new one, can never remember whether it is CSRS or FERS, but he has the one that is like a 401K. (He just woke up and says it is FERS). He allocates mostly to stocks, just shifted his allocation from 70% to 80%. I recently asked what the government invests in and he said he thought it was the S&P500. You may know that "open season" for federal employees, which occurs every six months, just closed on July 31.
I have most of my investments in the S&P500, some in SPY, and some in Vanguard Index 500, primarily because I keep reading that "you can't beat the market," and that stock picking can't beat the S&P500. I am sure that you know that S&P500 funds are among the biggest.
Today I just read that one explanation for the big drop on Friday, July 31, 1998, was that it was the end of the month and the programs that manage index funds had to adjust their holdings.
Question:
Is the level of investment in index funds sufficient to distort the market? That is, once a stock makes it to the index, is its price governed more by the rise and fall of money in index funds, or more by individual action?
Thanks,
CobaltBlue |
