Gold is a single concentrated bet, not really comparable to a stock-market index, and the Nikkei shows why it's important to diversify outside of your home country. For almost everyone, "buy the global market portfolio and forget about it" is the right advice.
While I agree that this advice is better than picking stocks, something always rubs me the wrong way when it is repeated like it is an absolute fact. Like they say in the commercials, Past Performance Is No Guarantee of Future Results.
I can't say what form it will take, but I can definitely see a future where the pendulum swings back from ever more indexification.
I agree with you. I believe the biggest problem with indexification is that it encourages a generic flow of money into the market, regardless of whether the market can handle it or not. Although the market isn't just gambling, and there is real underlying value, it's not an infinite source of value to give returns to anybody buying into it. Eventually there can be too much money chasing too little corporate earnings, and the market gets overpriced.
I don't think it's unreasonable for a person with spare cash to expect to get a reliable 5% or so long term just from the inevitable progress of technology. That may not continue forever, but if it ends, the problems will be bigger than just what index fund to purchase. The world will be a very different place.
(Or the market could be, if people stop seeking to raise capital there, but that's also a very different future and hard to predict.)
Every time you buy a stock, someone sold it to you, so flow of money into the market isn't something that's easy to define in a meaningful way. And even if a lot of the invested capital is passive (maybe half of the US stock market), almost none of the trading is, and that's what determines prices.
Money flows into the market when people earn it and use it to buy stocks. Every stock purchase is matched by a stock sale, but most stock sales turn around and become new stock purchases. That's a net long term inflow of money into the stock market, from people purchasing stocks with their earnings (often, via retirement funds).
Most of the actual trading is traders trading to each other, and that shouldn't raise the market cap long term (though it does create volatility). But there is also real inflow of money into the market.
As industrialized countries age, there will be relative more people in retirement compared to people in their working years. As a result, the money being pulled out of the stock market will grow relative to the money being put into the market. That is one of the reasons that we shouldn't expect to see the same stock market returns as in the past.
I agree with your first part, but not the second. Even if there's a future where the total market has zero (or negative) return on average in the long term, it doesn't mean that it's any easier to find the temporary exceptions. And lower volatility is still good even if everything has zero expected return, so diversification still helps.
