The Double Edged Sword of Passive Investing

October 2, 2025

Passive Investing Helps Keep Equity Valuations Inflated – Bloomberg

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, US, on Monday, Sept. 22, 2025. Wall Street traders left stocks hovering near all-time highs amid calls for a break after a $15 trillion rally from April lowsPhotographer: Michael Nagle/Bloomberg

In recent years, US investors have increasingly leaned into a low-fee high-return strategy to fund investment accounts called passive investing. The allure isn’t just avoiding the costs of active fund management, it’s also the fact that active managers have underperformed the market.

What many investors understand is that if you can’t beat the market, you can simply ‘buy the market.’ This change in market structure has a few consequences.

 

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