Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open.

At what point do index funds become unreliable?
The argument you are making here is similar to the problem I have with the stronger forms of the efficient market hypothesis.  That is if the market already has incorporated all of the information about the correct prices, then there's no reason to question any prices and then the prices never change.  However, the mechanism through which the market incorporates this information is via the actors buying an selling based on what they see as the market being incorrect. The most basic concept of this problem (I think) starts with the idea that every investor is passive and they simply buy the market as one basket.  So every paycheck, the index fund buys some more stock in the market in a completely static way.  This means the demand for each stock is the same.  No one is paying attention to the actual companies' performance so a poor performer's stock price never moves.  The same for the high performer.  The only thing moving prices is demand but that's always up at a more or less constant rate. This is a topic that has a lot of discussion lately in financial circles.  Here are two articles about this topic but I'm not convinced the author is completely serious hence the "worst-case scenario" title. These are interesting reads but again, take this with a grain of salt.  You should follow the links in the articles because they give a more nuanced understanding of each potential issue.  One thing that's important is that the reality is nothing like what I outline above. One of the links in these articles that is interesting is the one that talks about how we now have more indexes than stocks on the US markets.  The writer points to this as a problem in the first article, but think for a moment why that is.  There are many different types of strategies that active managers follow in how they determine what goes in a fund based on different stock metrics.  If a stocks P/E ratio drops below a critical level, for example, a number of indexes are going to sell it.  Some might buy it.  It's up to the investors (you and me) to pick which of these strategies we believe in. Another thing to consider is that active managers are losing their clients to the passive funds.  They have a vested interest in attacking passive management.