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Netflix<\/a> cofounder and executive chair Reed Hastings<\/a> is a billionaire but admits he has trouble figuring out what to do with his money.\u00a0<\/p>\n \u201cThe few times I\u2019ve done investing, I\u2019ve lost my shirt,\u201d he said in an interview<\/a> on the Tim Ferriss Podcast<\/em>.\u00a0<\/p>\n Hastings, who has an estimated net worth around $6 billion<\/a>, chalked up his poor track record to his demeanor, which he said isn\u2019t ultimately well-suited to the world of investing. <\/p>\n \u201cI realize I\u2019m just so optimistic,\u201d Hastings said. \u201cAnybody who seems to have a good idea, I\u2019m like, \u2018Sure!\u2019\u201d<\/p>\n Hastings moved away from taking a more active hand in his investments when he realized his optimism<\/a> meant he wasn\u2019t wired<\/a> the same way the best investors are. \u201cIt\u2019s a different DNA than [what] differentially good investors have,\u201d he said.\u00a0\u00a0<\/p>\n Hastings said he\u2019s learned his lesson and now relies on funds that keep pace with the market instead of trying to beat it as well as his stake in the streamer he founded. \u201cI\u2019m a pure index-fund investor. I\u2019m Netflix plus index funds,\u201d he said.<\/p>\n According to SEC filings, Hastings owns about 3 million shares of Netflix stock valued around $1.9 billion at the time of publication.\u00a0<\/p>\n One recent notable exception has been Hastings\u2019 investment in Powder Mountain<\/a>, which Fortune<\/em> previously reported on. He bought<\/a> the ski resort after the first group of investors failed to make good<\/a> on their idea of turning it into the Burning Man of the slopes.\u00a0<\/p>\n Otherwise, Hastings seems to have a rather traditional investment strategy of relying on index funds and company-granted stock options.\u00a0<\/p>\n Index funds<\/a> are investments that track a given benchmark<\/a>, like the S&P 500 or the Dow Jones Industrial Average. They\u2019re generally considered a safe way for investors to have their investments grow at the rate the market does. As Hastings\u2019 remarks show, it can be very difficult for even the savviest person to beat the market.\u00a0<\/p>\n Investors often put their money in index funds because they have a record of outperforming actively managed funds<\/a> where an expert picks what to invest in. A study from 2022 found that out of 2,132 actively managed mutual funds, not a single one outperformed<\/a> its benchmark index. That\u2019s been a consistent trend for years now among funds. Last year marked the 14 consecutive year<\/a> the majority of actively managed large-cap stock funds, which invest in companies with high market capitalizations, performed worse than the S&P 500.\u00a0<\/p>\n That might explain why they\u2019ve become so popular<\/a> even among institutional investors this year when economic forecasts are somewhat nebulous. There\u2019s been chatter of a recession<\/a> for almost two years now, the Fed still hasn\u2019t offered firm commitments about interest rates, and who knows if the unemployment rate will remain steady.\u00a0Meanwhile, markets are rallying<\/a> at the moment, but many investors are unsure<\/a> if gains will continue, while others are convinced<\/a> they won\u2019t. <\/p>\n Despite all those unknowns, the S&P 500\u2014one of the most common benchmarks for index funds\u2014has been up 27% over the last 12 months. Much of the S&P 500\u2019s growth was powered by tech stocks, including Netflix. But there are indications it could start to broaden to other sectors<\/a>, which would bolster investors\u2019 portfolios.\u00a0\u00a0<\/p>\n The rise of index funds, first started by Vanguard<\/a> in 1975, elevated a new type of finance executive, like BlackRock<\/a> CEO Larry Fink<\/a>. BlackRock, for example, manages $4.9 trillion dollars in its index funds, making it one of the major asset managers in the world.\u00a0<\/p>\n Index funds have also started a more theoretical debate about the structures of the market. Some contend that their effectiveness is proof of concept<\/a> for \u201cmarket socialism\u201d because index funds feature common ownership of collective assets. Bloomberg opinion writer Matt Levine, who has covered index funds extensively, disputes the idea<\/a> on the grounds that just because an index fund allows its investors to have collective ownership of a company, it doesn\u2019t require they all own the same amount.\u00a0<\/p>\n Another issue at the heart of the dispute over index funds is who exactly manages them<\/a>. Supporters say that because they are passively managed without a portfolio manager or investment professional they cut out financial middlemen, reducing fees for everyday investors. Most index funds have fees, called expenses ratios that are below 1%. Still, critics say they\u2019ve concentrated power in the hands of just a few companies\u2014BlackRock and Vanguard among them. In a 2018 paper<\/a>, Harvard law professor John Coates argued that only 12 people would ultimately make all the investment decisions regarding index funds. An analyst from Morningstar acknowledged that might be the case, but it hurts middlemen not retail investors. \u201cIndexing has most substantially affected the financial-advice industry,\u201d the analyst<\/a> wrote.\u00a0<\/p>\n Regardless of what happens to the index fund industry or to his specific investments in them, Hastings can always fall back on his Netflix shares. The stock is already up 35% this year, increasing Hastings\u2019 net worth by about $496 million.<\/p>\n<\/div>\n\nIndex funds are safe investments in uncertain times<\/strong><\/h3>\n
Index funds\u2019 critics say they concentrate too much power in too few people<\/strong><\/h3>\n
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