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<p>Just as relevant today as in the Tech Bubble of the 1990s, this issue (originally published in March 1999) is particularly enlightening in view of today's infatuation with passive and index investing. Instead of falling off a cliff, these lemmings fell into the largest bear market since the 1930s!</p>
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<p>The indexing craze… it’s sure to be remembered as a hallmark of the 1990s! What has made investing in the S&amp;P 500 so popular these days? If you buy into a recent Business Week article, “Index funds are cheap, easy–and they’re changing the way Americans invest.” A value investor might disagree, since index funds are holding a group of stocks which are at their most overvalued levels in history.  However, in a sense, they are “cheap”… you don’t have to pay a fund manager to search for attractive stocks, and<br>there are few transaction fees when the portfolio doesn’t change much from year to year. As for “easy,” that’s a different story. Our October 23, 1998 issue of the InvesTech Mutual Fund Advisor devoted considerable space to dispelling some of the myths of easy profits and safety that enthusiasts claim for these funds.</p>
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<p>The popularity of investing in a large-cap index is a phenomenon of long-running bull markets, especially in the latter stages like today. There are several reasons for this. After years of positive gains in the stock market, new investors latch on to the implied idea that making money is simple. It’s also assumed that index funds are safer than other mutual funds because many S&amp;P 500 stocks have widely recognized names. And finally, index funds are the obvious choice for novice investors who tend to be drawn in during late stage bull markets. [Just try to talk a non-investor into putting money into the stock market in the depths of a recession when bull markets are typically born!] During the longest running bull markets, like today, index funds appear attractive even to more experienced investors, simply because that’s when they outperform other funds.</p>
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<p>They may be at the height of popularity now, but index funds aren’t just a phenomenon of the 1990’s. If you were investing in 1975 you would have seen this announcement in U.S. News &amp; World Report:</p>
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<p>This report is also available to read in PDF format.&nbsp;<a href="https://ns2020-investech.investech.com/wp-content/uploads/2020/08/InvesTech-V99I04-Indexing.pdf" target="_blank" rel="noreferrer noopener">Download the PDF</a>.</p>
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