3 Reasons Not To Invest In An Index Fund
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And out of the 12 bloggers one said individual stocks and the rest effectively said an index or mutual fund. Sure, I think that an index or mutual fund is better than stuffing dollars under your mattress, or having inflation eat away at them in a savings account, but a lot of people are really missing out on the chance to build real wealth.
Up until I was investing in index funds. I only had a few thousand dollars then and what I always heard and read was to invest in them. I do agree there are certain benefits to investing in an index fund. Second, there is no work to do for the investor. You can rest assured you will own the top stocks, period. But before I delve into why I think investing in individual stocks is a much, much better way to build wealth I have to divulge that investing can be complex and is certainly controversial.
It can be scary because you can lose your shirt, your pants, your house and even singe the fur off your cat. But, if you have the time, curiosity and patience to learn you will succeed. And you will beat the index funds. Start a successful company, inherit it, or invest. So, investing was going to be my jam. We want to find and purchase shares in great companies with the potential to compound their earnings year after year.
Patient shareholders, like myself, have witnessed this firsthand. But I maintain my bullishness on stock investing over the long term. As you can see, even though I have had some of my businesses go through tough times, my portfolio is stock index funds outperform stock pickers long-term use that index advantage in short-term trading trending up.
I believe in diversification. But I believe in it across time, various economic conditions and by buying stocks at better multiples. I mainly invest in restaurant and retail stocks because they are easy to understand. And as I study them over time I become more familiar with them. I can see what affects their share price and what affects their earnings.
Why their guidance changes. I begin to see patterns. With this knowledge I am able to exploit the short term traders, selling on the news or after a weak quarter.
That means a decade. A new investor may think that diversifying across industries will protect them from ignorance. For example, if the restaurant and retail sectors falter because of high oil prices, by being invested in the energy sector it will act as a counterbalance. High oil prices means energy stocks will be higher. And you can get instant diversification with a fund.
I always thought that the mutual fund companies preached diversifying with funds as a strategy to promote what they were selling. But I think they take this too far. They are predictable and their prospects are very visible. I have no idea how to value a bio-tech company or a semiconductor manufacturer so I will never invest in one. The bulk of my portfolio is invested in these companies: All these companies are mostly easy to understand. They have great leaders at the helm.
They have visible growth prospects. With all that said, I hope you think about if index or mutual funds are the right fit for you. You can shovel cash into them and effectively outsource the management of your investing. Your portfolio will grow. But, if you have an interest in stocks and want the opportunity to crush the market over decades, I would highly suggest investing in individual stocks.
While it can be a little scary going it alone, think about signing up for a service like the Motley Fool Stock Advisor where they offer stock index funds outperform stock pickers long-term use that index advantage in short-term trading suggestions and have forums for discussion. This is a really great path for new investors. Additionally, stock index funds outperform stock pickers long-term use that index advantage in short-term trading you buy your first share read investing books.
I think one of the reasons I have had a good experience investing in individual stocks is that I am genuinely interested in investing. It takes time to learn and I will be learning about investing for the rest of my life, but I truly enjoy it. Have your money work for you with FREE access to my investing guide.
The reasons why I think investing in individual stocks is better than funds:.