Thought experiment: do index funds become irrelevant if inflation is 0 (i.e. money supply is fixed)?
If the money supply is fixed, then index funds that follow market movements would not see the increases they see today. There is a clear correlation between money supply and stock market performance.
Will Index funds even become obsolete? Why invest in an index fund that follows the market movements if the market does not increase relative to the money supply? The opportunity cost of investing 1 money becomes much higher since the market only increases if money is allocated to the stock market from other asset classes or salaries.
Companies that pay dividends would be attractive, and speculative companies would likely not be as highly valued, compared to today. What you’re betting on is whether the up-and-coming company can obtain a larger portion of the money supply in the future.
Companies will still improve over time, by generating more and higher quality output. Some companies better than others, and money will continue to be reallocated between companies.
The index funds may still increase if money is reallocated from other asset classes such as bonds, real estate and commodities to stocks. But the stock market cannot be larger than 100% of the money supply. It stops there.
And yes, with money I mean bitcoin.
What is my thinking missing, and does someone else have detailed thoughts around this already? Book / podcast / video / other?
#asknostr
Felix
npub137…akgch
2025-03-27 19:55:25
Author Public Key
npub1372eathsmn4unk3xsw77t38zl25pdj23k8f3l7sf0spvd8ahva7syakgchPublished at
2025-03-27 19:55:25Event JSON
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"content": "Thought experiment: do index funds become irrelevant if inflation is 0 (i.e. money supply is fixed)? \r\n\r\nIf the money supply is fixed, then index funds that follow market movements would not see the increases they see today. There is a clear correlation between money supply and stock market performance. \r\n\r\nWill Index funds even become obsolete? Why invest in an index fund that follows the market movements if the market does not increase relative to the money supply? The opportunity cost of investing 1 money becomes much higher since the market only increases if money is allocated to the stock market from other asset classes or salaries. \r\n\r\nCompanies that pay dividends would be attractive, and speculative companies would likely not be as highly valued, compared to today. What you’re betting on is whether the up-and-coming company can obtain a larger portion of the money supply in the future. \r\n\r\nCompanies will still improve over time, by generating more and higher quality output. Some companies better than others, and money will continue to be reallocated between companies. \r\n\r\nThe index funds may still increase if money is reallocated from other asset classes such as bonds, real estate and commodities to stocks. But the stock market cannot be larger than 100% of the money supply. It stops there. \n\nAnd yes, with money I mean bitcoin. \r\n\r\nWhat is my thinking missing, and does someone else have detailed thoughts around this already? Book / podcast / video / other? \r\n\n#asknostr",
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