Aren't ETFs Basically Just a Pyramid Scheme?

Has anyone noticed that ETFs are becoming the next pyramid scheme? Everywhere you see financial advisors recommending ETFs. It's crazy, people don't even do research anymore. It's sad.

People complain about people investing in random cryptocurrencies, but when I see people recommending index funds, isn't it really just this one principle "Asset Price Scarcity" being put into play. It's a self-fulfilling prophecy if you get enough people to buy into the index funds hype.

The only reason why it rises on average is because people keep pumping whatever asset it may be, but should we be doing so?

Comments

    • No life is somewhere between a mobile game and free to play with overpriced DLC hellscape.

  • +2

    Kittens are a pyramid scheme. They just want to accumulate enough number to form a pyramid stack

  • Asset prices (ie houses / shares etc) rise because smart rich people prefer to hold assets (which are deflationary) rather than cash (which is inflationary).
    ie Assets have generally risen in value whilst cash has generally gone down in value.

    Here is an example:
    In the 1980's, cash used to have a lot more value (eg You had to pay a 16% interest rate on a home loan). A nice house was worth maybe $200,000.
    Now cash has a lot less value (eg You only pay a 2% interest rate on a home loan). The same nice house will cost you $1,600,000.
    Cash has gone down to an eighth of its value, whilst in comparison a house is 8 times more valuable.

    If the value of cash goes up (ie interest rates increase), then watch the asset values start to go down.

  • No, OP you need to get informed.

  • +1

    Honestly OP does have a point.

    Asset prices are inflated, there's no doubt about that. P/E ratios are at an all time high. That is, the price of stocks are going up way faster than their earnings. Earnings is what separates stocks from speculative 'investments' like bitcoin, which are essentially pyramid schemes (you only make money if there's someone else to buy it for me, bitcoin has no 'value' or earnings unlike stocks). So in this regard, it does seem like ETFs and stocks are getting into 'pyramid scheme' territory.

    Plus the fact that interest rates are at an all time low, and retail investing is at an all time high. The amount of money in shares (and hence ETFs) has never been higher. It is far outpacing earnings, which means it's becoming more and more like an asset without regard to earnings (i.e. like bitcoin).

    • -2

      How is bitcoin different to cash though? What intrinsic value does cash really have?
      I guess banknotes do have intrinsic value in a lockdown, when there is a toilet paper shortage….

      • +2

        Everybody needs some sort of income to survive. When you earn income, most people will have to pay tax on it. And tax is paid in Australian Dollars, not in Bitcoins.

        This creates demand for Australian Dollars. Even if you believe in some weird fantasy world they are worthless, being able to pay them to ATO will keep you out of trouble - maybe even out of jail. So they have value to anybody who needs to pay taxes which is most of us.

        When it comes to Bitcoin. Well - nobody needs it. It's like fine art. It has value because other people think it's valuable.

      • +1

        Cash is backed by the government. Bitcoin is not.

        • -1

          Cash is backed by the government.

          What does that mean? Does the government give fiat more value?

          The AUD has lost 3.8% 1Y of its purchasing power in 2020/21. This will compound to more X% 2021/22.

          Value of one Australian dollar 1966-2020
          Published by Aaron O'Neill, Sep 7, 2020
          When converted to the value of one Australian dollar in 2020, goods and services that cost one dollar in 1966 would cost 13.60 dollars in 2019; meaning that one Australian dollar in 1966 was almost 14 times more than it is today. This data can be used to calculate how much goods and services from the years shown would cost today, by multiplying the price from then by the number shown in the graph. For example, an item that cost 50 Australian dollars in 1990 would theoretically cost 101.50 Australian dollars in 2020 (50 x 2.03 = 101.5).
          https://www.statista.com/statistics/1056051/value-australian...

          Hodling fiat is the gift that keeps going down to the right.

          • @rektrading:

            What does that mean?

            It means exactly what it means. You can trust the dollar as much as you can trust the government not to collapse.

            Hodling fiat is the gift that keeps going down to the right.

            No one (in their right mind) holds cash in some capacity that isn't earning interest.

        • A currency only holds value whilst the people holding that money retain their confidence in it.
          Doesn't matter if it is a crypto currency or a fiat currency.
          An example: https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

          • @zathras: Confidence in a countries currency is 100% directly tied to the confidence in the stability of that countries government. Crypto is only tied to the confidence others have in that coin. It's pure speculation.

            • @Autonomic: Crypto is not just pure speculation.
              It is not just about confidence in the coins, but also confidence in the blockchains and developers.
              Educate yourself on some of the projects, you may be surprised.
              For a start you might want to read up on XRP (Ripple) and their ODL (on-demand liquidity) solution.

              • @zathras: There are zero successful blockchain projects.

                • @Autonomic: What do you define as successful?

                  • @NoGiveJustTake: Something that is profitable and couldn't be done without blockchain technology.

                    • @Autonomic: Is Bitcoin profitable? It has increased in price a bit. Or is there some other definition of profit?

                      Isn't the whole reason for Bitcoin is to have a public ledger verified by cryptology (i.e. blockchain)?

                    • +1

                      @Autonomic: Smart contracts.

                      • @zathras: That's not a product.

                        • @Autonomic: Smart contracts are Dapps. Dapps are code used by end users to performs specific tasks or functions. They can either be classified as products (e.g hot wallets) or services (e.g DeFi).

                        • +1

                          @Autonomic: ODL is a service I mentioned before that is growing in use every month.
                          Faster and cheaper than SWIFT.

                          But it's fine if you don't see value in smart contracts and cryptocurrency. Others do.
                          If keeping all your money in government issued currency is what makes you feel safe, good luck to you.

                          • @zathras: People see value in all sorts of things. I'm open to blockchain technology but the reality is that there are zero successful applications that require it. Some might shoehorn blockchain into it, purely for the hype, but in every case it's better to use a normal database.

                            Faster and cheaper than SWIFT.

                            Wise and Revolut are two companies off the top of my head that do international money transfers without hassle or fees. They make money and don't require blockchain. They're a better replacement for SWIFT than any sort of blockchain solution.

  • +5

    Dumbest thing I've read on OzB in a while.. and thats saying a lot.

  • For someone that supposedly got a 99.95 ATAR (or UAI) and a PhD in Medicine the OP is certainly lacking a lot of common sense.
    Hope you know how to invest that $300k pa you must be earning from qualifying in Medicine.

    • The comment chain has gone full circle - it never ends!!!

    • Doctors and lawyers are most likely to fall into financial scams because it seems like they like money a lot.

      Maybe they should make a semester of finance a requirement for all uni students. But them the scam artists don't want that to happen else they can't divide and conquer by making all these taxes that target sections of the community.

  • No.

  • Thanks for the laugh OP

  • The whole stockmarket is becoming increasingly bought up by superannuation funds to the point where projections point to up to 50% of the asx will be owned by superfunds.

    The whole thing is becoming a ponzi scheme (though we're not as far gone as america is with their pitiful p/e ratios)

    • Everyone is part of the ponzi scheme whether they like it or not. (going by OP opinion)

      At some point retirees are going to have to draw down so I wouldn't be too worried about super funds owning too much. People retiring and living it rich is actually a risk for over inflated stock markets.

  • Crypto shill!

  • +1

    Wow..just wow. This must be the dumbest post in the history of OzB, congrats OP!

  • I'm not sure what an etf is, but index funds are not a pyramid scheme. cryptocurrency is not a pyramid scheme either. the only reason you can compare any of these things to a pyramid scheme is because a pyramid scheme runs solely on hype. and it does seem like hype is part of the reason and occasionally a lot of the reason why these other things take off. but its not baseless hype, there are reasons why cryptocurrency could be a good investment. and there are a lot of reasons why index funds are a safe investment.

  • +1

    dumbo

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