Bad for big tech = good for the world.

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... Also bad for some people with 401ks and similar retirement funds.

A lot of of families unable to hire bespoke financial advice put their savings into traditionally safer index funds like the S&P500 which have been increasingly weighted towards those companies.

Those lost trillions of dollars of value represent a lot of lo "retail" that is to say, not particularly wealthy, investors. Also a fair number of pension funds are probably similarly exposed, think teachers, nurses etc.

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Honestly the funds fault. Tech companies are bound to fuck up and fall at some point.

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Sure but that doesn't help the people who trusted their pensions would be safe.

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Jup. I hope that is a wake up call for fonds and private people to invest more in conservative/stable stocks and to check what their fonds are investing in. Of course not possible for everyone.

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That's not really how index trackers work

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I don't see a problem. Index funds are precisely there to follow over and underevaluations, so that in the end the best mix gets out, tracking long term real value.

This also means, that the ones who got to sell at the high price get to reinvest that money somewhere else, which in a broad index fund, leads to increases in another place.

However this shows again that it is fatal to think of the market price as being an indicator for a companies worth. The market price only reflects the value of the currently sold stocks. If a large amount of stocks would be pushed onto the market or pulled from it, the price naturally goes up and down. But it is impossible to buy or sell an entire company at the current market price.

The sooner we stop basing economic decisions on the idea that the market price reflects the market cap and that would reflect the actual worth of a company, the less likely we would run into stupid decisions based on bubbles.

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While I understand your point here, but a 10% drop amongst tech companies should not be a huge drop for a properly diversified 100% stock based global index fund.

A 10% drop in general is expected for index funds, that's why you should have a long time horizon. If a drop of 50% is more than you can handle then the stock allocation should be lowered from 100% and bonds increased by the same amount. S&P500 is not enough diversification, not nearly enough. Funds that track MSCI ACWI is a lot better in terms of diversification, and diversification is the ONLY free meal in investing.

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More stock diversification is the answer, not manual filtrering or a tilt towards "stable" stocks. If that does not provide a risk that is tolerable for an investor, then a lower stock allocation is the next step.

For a long time people have trusted their money in the 500 biggest US companies, but ignoring the world and ignoring smaller companies. This does not really make that much sense, but actually makes more sense if you are not an American.

Americans work in the US economy, and often invest in the US economy. Doing so makes you take on additional risk. An allocation towards the entire global stock market gives roughly 50% exposure to US stocks already.

If the US stock market takes a huge dive, then the value of your assets drop, and at the same time you have an increased risk of losing your job.

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Volatility has always been built into investing, including index funds.

If retirement is a long way away, then this is a non event. If retirement is close and your 401k was in a target date fund, you are heavily invested in bonds at this point, precisely to deal with this sort of situation.

If you are close to retirement, and heavily weighed to tech heavy indecies, then this will probably delay your retirement a few years. If you're already retired and so invested, you may have a problem.

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Oh, a 10% drop is not super concerning. It's more "what happens next." The magnificent 7 have gone through the roof in terms of valuation since 2022... should those come back to Earth abruptly, it's not just tech bros who suffer.

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If retirement is years away, this is barely going to be a blip on the radar. Outside of a full blown depression, the market will recover. Hell, even after a depression, the market will recover if given enough time.

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They'll bounce back.

agnos.is Forums

Bad for big tech = good for the world.