 Good day, fellow investors. Since Dr. Michael Borey discussed how index funds are in a bubble and are creating a big danger comparing it to the 2008 crisis, the topic on the index fund has been really, really hot on YouTube and all the videos really reached lots of views. However, I looked at a few videos just out of curiosity. Ben Felix discussed how price is not set by index fund but by trading, which is correct on the short term, on the long term it can be discussed. And his conclusion is how you have to be underweight, large caps and overweight small caps, which isn't, again, anything spectacular or anything that really adds value. Then Stepan Graham said he spent 10 hours on research, researching whether it is a bubble or not. And his conclusion is that index funds are cheap, are the best way to invest. You can't beat the market and will get a good return out of investing in index funds. And I really want to give here a perspective that really adds value. Not from 10 hours of research but from 20 years of investing experience, practical investing experience, a PhD on the subject. So I think really I can add value to your investment returns over the long term, which is the key, not about what will happen, is it a bubble or not. Let me tell you immediately. It doesn't matter whether it is a bubble. You can know something is in a bubble only after the bubble pops. If it doesn't pop, it isn't a bubble. If it pops, it is a bubble. Very simple. So it doesn't really matter. Let's discuss some topics that really add value to your decision making when it comes to investing because that's all that matters. When you invest in either index funds or stocks, it matters how will that help you reach your financial goals in the long term and that's all that matters. So if you focus on your financial goals, if you want to focus on them, please subscribe. Click that like button for the YouTube algorithm to help support the channel. Let's start with the topics. I'll first explain the index fund bubble. Whether passive is better than active, should you stick to index funds or should you look at other options, I'll put index fund investing and under option into your investment perspective. I'll show you what to expect from various investment opportunities out there. Put it in the bubble perspective or not bubble perspective. Give you a long term outlook. What give you the free key arguments when it comes to investing, whatever you are investing in that will help you decide what is best for you in the end because that's the only thing that matters. Underweight, overweight, overvaluation, bubble, this or that doesn't mean anything. The only thing that matters is what's best for you. So let's start. So what is a bubble? When it comes to bubble, you can only say something is in a bubble after it bursts. If it doesn't burst, it isn't a bubble. In 2006, nobody was discussing the real estate bubble or just mentioned here and there. When it burst, it became a hot topic over the last 10 years because it burst. However, let's look at all transaction house price index for here in the United States. It's much, much higher than it was in 2007, peak 2008. And now, few discuss, oh, it's a bubble, it's danger, the economy will collapse because this or that, etc. So a bubble is only a bubble if it bursts. If it doesn't burst or there is no outlook that it will burst or nobody mentioned it, then it's never a bubble. And if you look at real estate prices, for example, how those exploded over the last 40, 40 years, you would say you can run around saying this is a bubble too. But it all depends on whether it will burst or not. If it doesn't, it is never a bubble. What you have to focus is on what are the fundamentals driving prices in relation to value and what will your investment returns be? So index funds are the new kings of Wall Street. So is there a new index fund bubble? More than 50% of fund-managed assets are now passively managed. And then people say, okay, passively managed, not thinking, just pushing in those large gaps are creating a bubble. We will see whether that will be a bubble or not. But what's important is whether this is something for you or not. And then we can discuss the topic of passive investing into index funds or active investment. Active investment, you control what you do or you give someone the control. Passive investment, you simply invest in index funds and the hot topic is that index funds have destroyed most of the active managers over the last 45 years. So therefore the index fund investing topic is very hot now. If we look at index fund performance versus active performance versus their benchmarks, on average, just 10% of actively managed funds outperform their index fund benchmark, outperform their index fund benchmark over the last 15 years. This is crazy. And this really says, OK, active managers, only 10% of them really add value to investing while index funds have done really, really well over the last 15 years. However, there are a few things you have to put here into perspective over the last 15 years. Since 2004, index funds really did well because it was a low in 2004. Now we are very, very high. So it was a tough thing to beat. And further, it doesn't matter what happened in the past. What matters is what will happen next. Will index fund still deliver the amazing returns they have delivered? How does that fit your portfolio? What's the risk reward and how can you manage that personally? That's the only thing that matters. To see what matters and how will that affect your life, we have to see what to expect from index fund and how index funds will affect your finances. Over the next 20 years, I would say the following. Yes, index funds delivered 11% over the last 15 years or 45 years where 1000 invested in the SEP 500 would now be 30,000 and much more with the dividends reinvested. But we are not in 1982. We are not in 2009. We are not in 2002 free. We are now in 2019 and with the SEP 500 above 3000 points. So that's the index fund you are buying. In 1982, nobody wanted to come close to index funds. 2009, nobody wanted to come close to stocks and then is the best time to buy. So we have to make a decision. How does this now, the SEP 500, fit now our investment requirements? This is a very important chart. Dividends and inflation make 99% of your investment returns over the long term. And currently, the dividend of the SEP 500 is 1.87%. When those great returns achieved by index funds were measured from 1982, usually over the last 45, 40 years, the dividend yield was 6%. So 6% put it on top of the performance and it's easy to get earnings, add earnings, put it on top of earnings and it's easy to get to 10%, 11% returns. But the dividend yield was much, much higher. And therefore we have to see, OK, what is the earnings yield of the index fund? That earnings yield was above 10%. And when it was above 10%, of course, index funds delivered long term returns of above 10% per year. But now the current earnings yield is 4.48% from the SEP 500. Other indices are similar ranges. So that's what you have to expect. Returns from fundamentals between 4% and 6% over the very long term. So that's the long term. Fundamentals will drive prices we have seen in a video from two weeks ago, how those earnings growth are very correlated to stock market returns. In the short term, there is always fear, there is always greed that drives everything. So you can always see how that will go up and down, but that's betting. Better go to the casino and invest here and bet there. Don't do the opposite, because that's very risky. So index fund 5% per year for those that invest for the long term. And that's actually a great return. Plus what Buffett always says, invest in index funds is a great strategy. If you do it on a monthly basis, if you're 20, 30, 40, 50 now and you plan to invest for the next 20, 40 years and you know that you will add on a monthly basis to an index fund, then you are begging for the index fund to crash so that your monthly addition increases your long term returns. If it doesn't crash, index funds always go up. Then again, you do good. So if you add on a monthly basis, what Buffett says, you have to invest in index funds through thick and thin, especially through thin. And the problem is that when there is a crisis, people lose their job. They don't invest 2009 crash, 2002 crash panic. They don't invest in the market to pull their funds out. And that's where they make big mistakes. Average investors over the last 20 years, indexes have done great. The S&P 500, 7, 8 percent. The average investor did 2 percent. Why? Because of fear and greed, because they sell low and they buy high and they keep doing that and most index fund investors now are keep buying high because of greed, because Morgan Stanley says the index fund, the S&P 500 will go to 3,200 by the end of this year. So let's buy high, let's buy high. But the fundamentals are the drivers of your investment return. So let's see about and we have and we have seen that the fundamentals offer you 5 percent over the long term. And when things go wrong, this is why they say it is a bubble. Let's look at what happened in the last quarter of 2018. The S&P 500 was 2,900 points. And then in less than three months, it dropped to 2,400 points when fear came into the market. Now there is again greed and markets are pushed high, higher. The Fed is printing money, lower interest rates, etc. But this is an excellent example of how fear and greed drive the markets. So that's what you have to see. And you have to be opposite. Usually it's great to do the opposite of what others do. So buy in fear, in panic and sell in greed or rebalance in greed. When it comes to rebalancing, what's next? If you look at the long term performance of index funds over the last 100 watts, 20, 40 years, you can see that there have been great periods like the last seven years with 10.4 percent returns. Prior to that, there was 12 years of zero returns for from 1999 to 2012. Then 17 years from 1982 to 1999 of 15 percent per year. Excellent returns. 17 years of zero returns prior to that. 11 years of 9 percent in the 1960s prior to that from 1929, which has the same level of fundamentals as we are now. There were 25 years of zero returns, eight years at 21 percent per year, which is crazy prior to that, again, zero percent. So that's something you have to focus on. What's next and how am I going to balance that? So when it comes to investing, you have to put this into perspective. We are now at all time highs, but what will happen over the next 20 years, 10, 20 years and how does that impact me? There are three components when it comes to investing. You want to find long term assets that give you safety, that will not go bankrupt, that will do well over the long term. The American economy will do well over the long term. The businesses will do extremely well. And then the third component is what is the investment return, the earning yield currently index fund give you 5 percent over the long term, which means that if those required returns go down, you can see 10, 20 years of zero returns before you see any positive return. If you add money on that downturn, you will do well because you will take advantage of when stocks crash and therefore if you have such an index fund strategy, put it on the automatic, just invest and forget about everything else. Forget about bubbles and you will do well. Five, six, seven, if there are more crashes, more volatility, perhaps eight percent, perhaps 10, and that's a great return. However, if you want to think differently, you have to find businesses that will be long term, that have low risk, that will not go bust and then look for superior returns. Okay, index funds give me 5 percent. Berkshire Hathaway gives me 7 percent. A company that I discussed recently in a video, Southern Copper Corporation will probably give 10 percent over the long term from the current price. So you can say, OK, I can switch from the 5 percent, go to 7 percent and then to 10 percent, but then that requires effort and you have to really be careful into picking the right businesses. Further, there's something also I want to really discuss. You can also compare index fund investing to other options. If you have a student loan at 7 percent, that's a no brainer, no risk, 7 percent return versus 5 percent from index fund with high volatility and the possibility of a 50 percent crash at any time. Then you can buy a house. If you look at mortgages are really, really cheap so you can compare it to your rent in 40 years, you have paid off the mortgage, you have a house. Now everybody says, OK, Sven, but house prices can't drop. It's a bubble. What do I do? Well, look at this chart. This is a Dutch house price index from the last 50 years. And in 77, 78, there was, let's say, a bubble that then crashed. Those who bought in 78 with lower interest rates than those in 1982, that's why what prices crashed, still made it was 378. In 1998, 20 years later, they doubled their money. 30 years later, they quadrupled their money. Those who bought in 1982 quintupled their money. But of course, you cannot bet on prices. Nobody knows whether this is a bubble or not. The index fund bubble prices go up and down. You have to buy value that will deliver over the long term. And that's the key. So you can compare to other opportunities. See, OK, house prices are going to double over the next 40 years. What's my return if I take a mortgage compared to other expenses compared to this? What's the return on the stocks that I mentioned? How does that feel fit my portfolio? And compare also to the risks and how would those risks fit you? I am old enough to remember that the S&P 500 was at 666 points in 2009 at current earnings. That was a 20 percent business return. And that was just 10 years ago. So it wasn't that long ago. And this also shows how fear and greed drive the markets. And you have to be greedy when others are fearful and be fearful when others are greedy and there are plenty of opportunities around the world where people are fearful and you can balance that, diversify and increase your long term returns or you can just bet that the S&P 500 will go higher. So the key is, OK, index fund investing, investing and compounding. If you're happy with five, seven percent here, I've started with one thousand and compounded that one thousand with five percent what index funds are offering now. And the end result in 40 years is four thousand three hundred twenty two. If you compounded seven percent, it's seven thousand six hundred twelve. If you compounded ten percent, it's seventeen thousand. And if you compounded six at fifteen percent, it's sixty six thousand. Those are big, big differences. And it's up to you whether you want to invest without thinking in index funds from now, you will get to the four thousand, which is still an amazing return. You will quadruple your money, increase your retirement. You will do pretty, pretty well and you will probably beat inflation, which is great. However, if you want more, if you want to put effort in it, you can reach 10 percent per year, seventeen thousand. You can be ready when others are fearful, when others panic, or perhaps fifteen percent that compounds by finding great businesses. And that is sixty six times your money. Index funds will give you four to seven thousand, four to seven times your money over thirty years. That's probably correct, but they can also give you fifty, sixty percent downturns in the next five, ten years, so put that into a perspective. So to conclude, you have to put these things into perspective. Look at the fundamentals of each investing opportunity you have paying down your debt, your mortgage, owning a house, renting other investment opportunities, buying land, farmland, whatever you do, investing in a business, diversifying, renting out on Airbnb. All of those things come before whether index funds are in a bubble or not. The real returns is what matters. You can diversify, look at higher returns around the world. I've given you three stocks that have already, two stocks that have already higher returns. Watch that video. See how that fits your risk reward environments, whether those businesses can over the long term lead you to better returns. Why active managers underperform? Because they are all about relative investment returns. Ben Felix say, we are overweight this, underweight this, because they think that if they are overweight something, small caps and underweight something else, that when the market reverts to the mean, they will do well. Well, they are relative investors. They don't look at the fundamentals, which is value investing, which is something Ben Graham or Ben Graham, Benjamin Graham, yes, Stefan Graham does on his real estate investments, pure value investing. And that's the key when it comes to investing. Be an absolute investor, look at the business yield, look at the business return. Don't care about bubbles, take advantage when those pop, of course. But that's it. So focus on absolute returns. What is the business yield? What is the interest rate on my loan? And not on relative, are we in a bubble? Is this better? Is that better? Will that go up? You're chasing returns, losing the focus of investing in great businesses that can deliver those great, great returns. Looking forward to your comments, please subscribe to this channel, because we are trying to focus on what really matters when it comes to investing. If you want to check everything that I do, my research, my articles, book, podcast, if you prefer listening, everything is in the link down below, also my portfolios or on my website. Thank you for watching and I'll see you in the next video.