Individual Stocks VS Index Funds in 2019
2019 does not bode well for Stock
Indexes and therefore, Index funds. Buying Index funds has been the
go-to investment of individual investors (and some institutional
investors) for years now. Since 2009, many have done very well with
this simple strategy which has outdone many money managers over that
time.
2019 may be different for a number of
reasons! This bull market we have enjoyed since 2009, is getting very
long in the tooth and 2019 is beginning to look like the end is in
sight.
The macro picture is a mishmash of poor
decisions and poor leadership from Central Banks and world leaders
alike. The news is dominated by trade war talks, Walls, Brexit, German
(read Euro) downturn, and Debt, beyond anything we have witnessed in the
past. Real war cannot be dismissed either as the USA and North Korea
are at a stalemate, and (nuclear armed) India and Pakistan are shooting
down each others fighter jets, to the cheers of their domestic
audiences.
With Britain on the verge of a "no deal"
Brexit, Italy may be becoming a financial basket case, German output is
inching into negative territory, and in France, the Macron government
has done nothing to right that ship.
Some believe that, Deutsche Bank may
well be the "Lehman Brothers" of the Euro zone this year as creditors
close in and a bailout partner is not in sight. The two largest
economies on the planet, USA and China are at serious odds over trade
AND both are in serious DEBT!
As the USA begins to withdraw from the
world under this administration, it owes $22 Trillion dollars and that
debt is now growing at 1.5 Trillion per year under Trump.
There are two ways to handle such a debt burden, 1: Default
2: reduce the dollar to a nickel. There
is no other way to pay down such a massive debt! (my bet is that, if it
were entirely up to Mr. Trump, he would pick door number 1)
There are now more refugees on the move
across the world than WW2 and most countries are putting up barriers to
entry. Euro zone countries from Spain to Greece are doing whatever they
can to keep out refugees, instead of welcoming them. Climate change,
inept governments and wars are the reasons for such a migration.
Witness the debacle in the USA on the
southern border as this president continues to threaten to shut down
government if he does not get his wall. This argument is a hideous
sidelight to what is truly going on in the world. This same
administration seems to admire despots while scorning democracy, whether
it is in it's own constitution or that of valuable allies.
The USA has now walked away from trade
agreements, peace treaties and most recently, a nuclear arms agreement
with Russia. None of these things bode well for markets, or indeed,
humanity, going forward, but the pied Pipers of Wall Street keep on
playing!
On a lesser, and personal financial
note, while most index funds have very low fees, they are paid annually,
and therefore, add up over time, eating into profits. As the value of
your investments go up, so do your fees. This is a built in strategy
that will eventually eat away at your gains. If these investments go
down, the fund still gets paid, every year!
Conversely, Buying individual stocks is
now usually done online for less than $10 per trade! (One time). When an
index tumbles, not all stocks are included. Some stocks actually go up
at such times.
The drawback:
Now you have to do homework! Stocks
are not index funds! They require you to do some investigating of your
own, unless, of course, you want to keep all your money in cash, gold
and silver, and buried in your back yard!