Index funds have existed for 50 years, and so have critics of indexing. Most concerns were empirical claims — predictions about market outcomes — and therefore testable over time. The following five are the principal criticisms that have not materialized in practice: Claim #1:

If too much money flowed into index funds, prices would no longer reflect fundamental information because index investors do not analyze securities.

What actually happened:

Price discovery remains robust. Active managers, arbitrageurs, hedge funds, and other informed traders continue to set prices at the margin. Index funds can only accept prices; they do not determine them.

Why it didn’t materialize:

Price discovery does not require most investors to be active — only enough need to be active to exploit mispricing. Even a relatively small share of active capital is sufficient to keep markets informationally efficient.

1/4 The use of DFA and other factor funds are too often oversold by advisers. This active strategy is pitched as a "smart" indexing strategy, but the focus is not on indexing. It's on the decorations and the candles on a cake rather than the cake itself or even the icing. 2/4 The cake is a prudent asset allocation between broad market stock and bond index funds that have rock-bottom fees. The icing is the allocation to US stock, international stock, government debt, and credit. The decoration is factor investing, and the candles are alternatives.