How to Avoid a Market Bubble, Why Index Funds Could Backfire
- Passive investing has been the dominant strategy for years as active funds lagged.
- However, there’s a major risk building as everyone plows money into index funds.
- Here’s why market observers see a bubble forming — and what could finally pop it.
For years, investors who’ve done the least have performed the best.
Despite their best efforts, fund managers broadly have consistently trailed the market. Only 30% of actively managed global funds beat their indexes in 2024, according to Bank of America.
US-based managers weren’t much better. BofA found that 36% of active large-cap mutual funds in the US exceeded their benchmarks last year, in line with the long-term average of 37%. The last time a majority of…
