Is there anything wrong with using markets to store value? Must we also have government bonds to store value? If you're in a diversified US index fund, it's basically a bet that the US will continue to do well. If it doesn't, you have bigger problems than the financial.
the primary purpose of a market is supposed to be to accurately allocate productive resources and pick winners and losers. In a market constantly flush with cash where everyone just buys index funds that discriminatory function basically vanishes and you have a political commitment to always make the stonks go up even if it supports zombie firms. Which is already the case tbh.
Same with housing. Nimbyism is such a big deal in the US because rather than seeing housing as a utility that should be cheap, it's become a store of value that must always go up.
There's a growing movement to get away from index funds. This year, tech stocks have exploded. ARK Invest has vastly outperformed the S&P 500 and Nasdaq-100. Ultra-low interest rates tend to have people going for increasingly high-risk, speculative investments, such as tech companies. The bolder and more futuristic the vision, the better. Obviously, this could end badly as well, but, people are starting to pick individual stocks instead of index funds.
The problem is knowing when to enter and exit the sector-specific funds. It might beat the S&P in a trailing 12 month window, but it's unlikely to do so over a 5 or 10 year window.
It will definitely end badly. I guess it’s driven by desperation for returns. Diversification is a risk reduction strategy as old as the Bible; stock picking is not about preserving wealth or growing wealth, it’s about bootstrapping it.
There is absolutely nothing wrong with using paper markets to store value.
The problem appears when valuation are caused only by the "store of value" usage, because it has no anchor on the real world, and thus, can vary freely from 0 to infinity.
There’s nothing wrong with storing your possessions in your car; it’s just not what it was designed for and your possessions are at greater risk of theft.
Similarly, if you need a risk-free value store (e.g. because you’re very close to retirement) the market is not going to provide that for you.
