Since the launch of the new NISA, funds like “Orkan (eMAXIS Slim Global Equity)” and the “S&P 500” have become synonymous with mutual funds. These index funds, which offer low-cost, broadly diversified investments, have established themselves as the “gold standard” for wealth building in today’s world.
However, some are sounding a strong warning against this excessive reliance on index investing.
Why could this investment approach—which appears rational and prudent at first glance—potentially become a “risk that hinders societal growth”?
In this article, I would like to examine the structural issues inherent in index investing and reflect on the nature of investing.
1. The Hollowing Out of Investment Caused by “Disinterest” in Individual Companies
The defining feature of index investing is that it mechanically diversifies investments across a vast number of stocks—numbering in the thousands.
While this provides investors with a sense of security—the assurance that “even if one company goes bankrupt, the impact on the overall portfolio will be minimal”—it can be argued that this mechanism fosters “disinterest in individual companies.”
- Overreliance on Macroeconomic Indicators
Index investors tend to focus their attention almost exclusively on macroeconomic factors such as “interest rates,” “inflation,” and “overall market trends.” - Refusal to Share Business Risks
Investing is, by its very nature, an act of sharing a company’s business risks and providing financial support for its endeavors.
However, in index investing—which involves mechanical buying—the “meaningful dialogue” about what vision individual companies hold and what challenges they are facing is lost.
When investors stop looking at companies, the market degenerates into nothing more than a “marketplace for trading numbers.”
2. “Excessive Pressure to Return Profits” Stifles Innovation
Even more serious is the negative impact that index investors—the “dominant force”—have on corporate management.
For investors who rely on diversification, a “big bet” (investment in disruptive innovation) by a specific company can appear to be an “unnecessary risk” that disrupts the stability of their portfolio.
- Intolerance for Risk
There is growing pressure to say, “Rather than investing in ventures that might fail (such as research and development), we should allocate those funds to dividends or share buybacks.” - Incentives to Maintain the Status Quo
Managers are forced into a situation where they must prioritize shareholder returns—even at the expense of future growth—in order to maintain short-term stock prices.
If this cycle becomes entrenched, companies will lose the motivation to create new value, and innovation across society as a whole will stagnate.
3. The Irony of “Cutting Off One’s Own Throat”
The “rising stock prices” that index investors seek must, in principle, be underpinned by growth in the real economy and corporate profits.
However, as mentioned earlier, investment behavior that drains growth capital from companies and forces them to maintain the status quo ultimately hinders future economic growth.
“In a world without progress, it is impossible for stock prices to keep rising indefinitely.”
An approach that ignores corporate growth and focuses solely on chasing “indices” may ultimately lead to a “self-inflicted” outcome that undermines investors’ own future returns.
Summary: Wealth Accumulation or “Investment”?
This highlights the disconnect between the “logic of wealth accumulation—where the sole goal is to increase assets” and the “essence of investment—supporting companies and walking alongside them.”
Index investing is an excellent means of protecting individual assets, but if everyone flees to index funds and no one supports “corporate challenges” anymore, our society will lose its vitality and head down the path of decline.
Amid the major wave of the new NISA, perhaps we need to pause and ask ourselves:
“Is the money I’ve invested being used to make tomorrow’s society better?”
