Bloomberg noted last week that the Vanguard S&P 500 ETF (VOO) is now the first ETF in history with $1 trillion in assets.
The flows for this index fund have been absolutely massive and show no signs of slowing down:
This obviously isn’t the only S&P 500 ETF either.
SPY is closing in on $800 billion. IVV already has more than $800 billion. VTI is a total stock market index fund — which is not exactly the S&P 500 but close enough — with more than $660 billion.
The point being — there is A LOT of money in index ETFs and it just keeps coming in.
In the fund industry, passive is swallowing active share:
It wouldn’t shock me to see 70-80% in passive funds at some point.
However, it’s worth noting this is just in the fund industry. This is not the stock market overall.
On an aggregate basis, the ownership of passive funds and ETFs is still relatively small:
There is an interesting dichotomy going on in the stock market right now.
You have trillions of dollars in boring index funds. Every year new records are being broken for the amount of money pouring in.
But you also have an explosion in retail trading this decade. Bloomberg has a good chart on this too:
Retail investors now make up a much greater share of trading than they did in the 2010s. Look at that leap higher starting in 2020 when everyone got a stimulus check and decided to open a Robinhood account.
It’s interesting that we live in a world where both things can exist — way more money is going into passive investments at the same time far more retail traders are now speculating in the markets.
There’s a narrative for everyone.
The same is true when it comes to the distribution of wealth in this country.
AEI released a report this year that shows the middle class is shrinking in the United States over time. But the reason it’s shrinking is because more people are moving into the upper middle class:
The middle class is smaller because people are getting richer. This is good news.
In 1979, 24% of American households were lower middle class while 30% were poor or near poor. Those numbers have dropped to 16% and 19%, respectively while the upper middle class has seen its numbers swell from 10% in 1979 to 31% in the latest reading.
The upper middle class is now as big as the core middle class and nearly as large as the lower middle class and poor combined.
This is progress:
However, there is one group that has gained even more ground in this time — the rich.
In a New York Times op-ed, the authors of this study looked at the overall share of wealth going to the middle class, upper middle class and the wealthiest of households:
For instance, the share of wealth held by the middle class fell drastically, to 8 percent in 2022 from 24 percent in 1989. The share held by the upper middle class also fell, to 39 percent from 50 percent. The wealthiest families, on the other hand, got a lot wealthier. The share of wealth held by the top group — just 3 percent of families in 2022 — more than doubled, rising to 53 percent from 26 percent.
Now this is just the share of the pie. The entire pie has grown. The groups have all gotten richer. But the rich have gotten much, much richer than everyone else.
So the middle class is shrinking mainly because more households have moved into the upper middle class.
But the top 3% is so rich they’ve seen their share grow in an outsized way. The rich are now far richer.
Two things can be true are once.
More money is being invested responsibly and irresponsibly because there are more investors than ever.
We’ve seen both progress in household wealth at the same time inequality at the top is only getting worse.
Nuance is a lost art in a world filled with outrage.
Things are rarely black and white but rather a shade of gray.
Michael and I talked about $1 trillion ETFs, retail trading, wealth inequality and more on this week’s Animal Spirits video:
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Further Reading:
Young People Like Stocks
Now here’s what I’ve been reading lately:
- SpaceX vs. your index fund (Dollars & Data)
- The decision tax (A Teachable Moment)
- The many utilities of retirement (Advisor Perspectives)
- Measuring your life with money (Mr. Stingy)
- Living without a purpose (Use Your Wealth)
Books:
Podcast book tour:
