Bloomberg We noted last week that the Vanguard S&P 500 ETF (VOO) is now the first ETF in history with $1 trillion in assets.
Flows into this index fund are absolutely massive and show no signs of slowing down:
Of course, this isn’t the only S&P 500 ETF either.
SPY is approaching $800 billion. IVV currently has more than $800 billion. VTI is a total stock market index fund worth over $660 billion, which is not quite the S&P 500 but close enough.
The thing is, there is A LOT of money in index ETFs and it keeps coming.
Passive is swallowing the active share in the fund sector:
I wouldn’t be surprised to see 70-80% in passive funds at some point.
However, it is worth noting that this only applies to the fund sector. This is not the stock market in general.
In total, the ownership of passive funds and ETFs is still relatively small:
There’s an interesting dilemma going on in the stock market right now.
You have trillions of dollars of boring index funds. Every year, new records are set in the amount of money flowing.
But this decade also sees a boom in retail trade. Bloomberg There is also a nice table on this subject:
Retail investors now make up a much larger share of trading than they did in the 2010s. Look at that higher bounce starting in 2020, when everyone got a stimulus check and decided to open a Robinhood account.
It is interesting that we live in a world where both things can exist; While much more money is being spent on passive investments, at the same time many more retail traders are now speculating in the markets.
There is a narrative for everyone.
The same goes for the distribution of wealth in this country.
AEI published a report This year shows that the middle class in the United States is shrinking over time. But it’s shrinking because more people are moving into the upper middle class:
The middle class is shrinking 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. While these figures decreased to 16 percent and 19 percent respectively, in the upper middle class this figure increased from 10 percent in 1979 to 31 percent according to the latest data.
The upper middle class is now as large as the core middle class and almost as large as the lower middle class and the poor combined.
This is progress:
But there is one group that is gaining even more ground during this period: the rich.
One New York Times In the op-ed, the authors of this study looked at the overall share of wealth going to the middle class, upper middle class, and richest households:
For example, the share of wealth held by the middle class has dropped significantly from 24 percent in 1989 to 8 percent in 2022. The share held by the upper middle class also fell from 50 percent to 39 percent. On the other hand, the richest families became much richer. The share of wealth held by the top group (only 3 percent of families in 2022) more than doubled, from 26 percent to 53 percent.
Now it’s just a slice of the pie. The entire pie has grown. All of the groups became rich. But the rich have become much richer than everyone else.
So the middle class is shrinking because more households have moved into the upper middle class.
But the top 3% are so rich that they have seen their shares rise tremendously. The rich are now much richer.
Two things can only be true once.
Because there are more investors than ever before, more money is being invested responsibly and irresponsibly.
We saw progress in the wealth of both households, but also a worsening of inequality at the top.
Nuance is a lost art in a world filled with anger.
Things are rarely black and white, but rather a shade of grey.
Michael and I talk about $1 trillion ETFs, retail trading, wealth inequality, and more in this week’s Animal Spirits video:
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Further Reading:
Teens Love Stocks
Now here’s what I’ve been reading lately:
Books:
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