Why the World’s Money Keeps Pouring into Index Funds — Where “Leftover Money” Goes in an Age of Consumer Saturation

I recently noticed something obvious.

I’ve already bought pretty much everything my income can buy.

I have a smartphone. I have a computer. I have enough clothes and shoes. Appliances are all covered. I don’t struggle with daily meals. UNIQLO is more than enough for looking decent, and GU is even cheaper.

Of course, it’s not that I have no desires at all. I want a yacht. I’d love to ride in a private jet. I want to live in a gorgeous house with a view, line up hobby cars and motorcycles in the garage. But I can’t reach that.

In short, everyday consumption is satisfied, but aspirational consumption is out of reach. The money floating in between has found its way to “investing.”

eMAXIS Slim All Country World Equity, known as “All Country” in Japan. Or the S&P 500. Index funds that individual investors around the world are piling into with monthly contributions.

When you stop and think about what this system is doing, it’s remarkable.

All the world’s stocks are thrown into a single bucket, and money flows in from everywhere. Japanese salarymen contribute through NISA on payday. American workers have it deducted from their paychecks via 401(k). The same mechanism operates across Europe.

It doesn’t matter whether the market is up or down. Every payday, automatically, without anyone thinking about it, buy orders keep flowing in.

Global passive investment assets have already surpassed $30 trillion, and apparently keep growing every year. The migration of money from active management (where humans pick stocks) to passive management hasn’t stopped for over 20 years.

The contents of the bucket (the world’s stocks) aren’t growing that fast, but the money flowing in keeps increasing. When there are more buyers than goods, prices go up. The system is built to go up.

Some point out that “if everyone is buying the same thing, isn’t that a bubble?” Michael Burry (the model for The Big Short) warned that “passive investing is a bubble.”

But when I think about what a bubble actually is, this feels different.

A bubble is when people intentionally pour money into something based on some kind of collective delusion. The tulip bubble was the mass delusion that tulips would keep rising forever. Crypto bubbles and real estate bubbles work the same way — people get euphoric, and when the fever breaks, it all collapses.

The flow of money into passive investing isn’t euphoria. It’s plumbing.

Payday → payroll deduction → auto-contribution settings → into the bucket. This plumbing has been laid across the entire world, and as long as inflation keeps increasing the supply of currency, the volume of water flowing through the pipes keeps growing.

Nobody is buying All Country shouting “it’s going to the moon!” It’s just automatically debited on payday. There’s no decision-making involved whatsoever. This isn’t speculation — it’s economic infrastructure.

Let me go one level deeper.

Central banks around the world keep printing currency. They set “2% inflation targets” and intentionally keep expanding the money supply. When the quantity of currency increases, each unit’s value thins out. That’s the basic mechanism of inflation.

About 20 years ago, an Hermès Birkin retailed for around $7,500. A Ferrari V8 was under $190,000. Today a Birkin is $15,000 and a Ferrari is $275,000. Everyone says “prices went up,” but the Birkin hasn’t changed. Neither has the Ferrari. What changed is the value of the currency, and the number of people who can buy them. Twenty years ago, the customer base was limited to the wealthy in the West and Japan. Now China, the Middle East, and Southeast Asia have joined. Supply hasn’t increased — Hermès deliberately limits Birkin production, Ferrari caps annual output — but the number of buyers and the amount of currency they’re holding keeps swelling.

So where does the extra currency go?

Not much goes to consumer goods. Consumer goods have physical production limits — factory capacity, raw materials, labor are all finite. Even if the currency supply doubles to 200 yen, there’s only 100 yen worth of stuff to buy.

The remaining 100 yen goes to stocks, real estate, financial assets. Consumer prices (the price of stuff) only rise 2–3% per year, yet the stock market rises 10% per year. That gap is the “leftover 100 yen.”

And index funds have become the biggest bucket that this “leftover 100 yen” flows into from around the world.

The root of this goes even deeper.

Since China emerged as “the world’s factory” in the 2000s, humanity entered — for the first time in history — an era where “the amount we can produce exceeds the amount we want to consume.”

Before that, it was the opposite. There weren’t enough goods. So printing money stimulated production, and the economy turned. Consumption pulled production, production created jobs, jobs supported consumption — that cycle worked.

Not anymore. Print money and there’s nothing left to buy. Everyone already has a smartphone. Clothes and appliances are in surplus. Chinese factories can make anything, but what they make doesn’t sell. Not because people lack money, but because consumption can’t keep up.

Yet central banks keep printing. They can’t stop — they have inflation targets to hit.

Money gets printed but there’s nowhere to spend it. Things get made but don’t sell out. As a result, everyone’s “shopping” is redirected toward investment products. It’s a distorted picture, but I think that’s the reality.

What accelerated this trend was probably digitization.

Books became Kindle — a few dollars each. Records became Spotify — unlimited listening for $10 a month. Movies became Netflix — no need to buy DVDs anymore. YouTube is free.

The consumption that once cost hundreds of thousands of yen — shelves full of books, racks of records, cabinets of DVD collections — now costs a few thousand yen per month for access to far more content than any physical collection could hold.

Things that were once physically produced for entertainment have been replaced by digital, removing all production limits and driving costs to nearly zero.

Physical goods got cheaper too. Fast fashion is more than enough to look good. Dollar stores cover daily necessities. For anyone who enjoys being resourceful, it’s possible to live well on very little.

Inflation is making “the value of money” decline on paper. But “things to spend money on” are shrinking at the same time. Having money but nothing to spend it on — that condition keeps spreading.

So what’s actually “expensive” right now?

When I think about it, there are only about three things.

Living in a developed country. Meaning taxes and social insurance premiums. In Japan, 40–50% of your income gets taken by the government. It’s the price of using developed-world infrastructure — healthcare, education, public safety, pensions — and there’s no way to economize on it. The biggest “expense” for an individual today isn’t consumption. It’s taxes. (Seriously brutal.)

Beauty and health. Your body can’t be replaced. The costs here increase with age, and this can’t be digitized. People who could buy back their youth would spare no expense.

Children’s futures. Tuition, experiences, environment. These require physical time and place, and digital can’t substitute for them either.

They’re all “things that can’t be digitized.” The last bastion of consumption is converging on “body,” “time,” “place,” and “relationships” — things that only exist in the physical world.

And all the leftover money beyond these three goes straight into the index fund bucket.

Looking at it this way, a curious landscape emerges.

Investing has become the only remaining “shopping experience” for the middle class.

Everyday consumption is satisfied. But $500 a month won’t buy a Ferrari. So people “buy All Country” or “buy the S&P 500.” They think they’re investing, but the reality might be that it’s a substitute for consumption. There’s nothing left to buy, so they buy financial products.

And this dynamic reinforces itself. Invest → stocks go up → wealth increases → “investing was the right call” → invest more. The more money that doesn’t go to consumption, the more financial asset prices rise, which further justifies investing.

The stock market was originally a place to “provide capital for corporate growth.” Now it looks like a “parking lot for surplus currency.”

This isn’t a story about business cycles. I think it’s a story about civilization changing phases entirely.

Humanity has entered a phase — unprecedented in history — where production capacity exceeds consumption desire, digitization has driven entertainment costs toward zero, fast fashion has made clothing nearly free, and there’s nowhere to spend the money being printed.

As long as this phase continues, money will keep flowing into the index fund bucket. This isn’t a bubble, a trend, or a fad. It’s simply where currency ends up in an age of consumer saturation — the system is built for it to happen.

So the act of putting a few hundred dollars from each paycheck into an index fund isn’t about “making money from investing.”

It’s a systematic defense against a systematic force called inflation.

Hold cash and inflation erodes it. Try to spend it and there’s nothing left to buy. So you convert it into ownership shares of companies worldwide, protecting your purchasing power against the decline of currency.

Not growing wealth through investing — resisting the decline of cash. That’s what I believe passive investing really is, at its core. At this rate, I wouldn’t be surprised if someone launched a fund that does nothing but automatically buy All Country for you. The underlying All Country charges 0.05% in fees. This fund would charge 0.3% for doing the exact same thing — same parking lot, but they’d call it valet parking and tack on a surcharge. It would probably sell. Everyone’s gotten too lazy to even park the car themselves.

— Kengo Kitaura / kengokitaura.com