If most people ends up investing in strictly index funds, it would end up badly foe them but I don't see it by itself causing a destabilization. Just a lot of people making sub market profits. It would take a large amount of people doing fad based investing and switching all at once cause destabilization, such as what happened during the dot com bubble and the housing bubble.
If investing decisions get slower in general, then I think it would be a good thing. The number of company decisions made only for only the next quarter rather than long term profitability would be much less if it took time for people to switch the companies they invest in rather than doing so instantly, which would in turn make a more efficient and stable market.
If investing decisions get slower in general, then I think it would be a good thing. The number of company decisions made only for only the next quarter rather than long term profitability would be much less if it took time for people to switch the companies they invest in rather than doing so instantly, which would in turn make a more efficient and stable market.