Index Funds vs Stocks - What's the Best Approach?
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- čas přidán 25. 07. 2024
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Should you invest in index funds or individual stocks? If you’re confused about this, I don’t blame you. On this episode of the Build Invest Live podcast we break down the pros and cons of investing in index funds vs individual stocks and talk through the things you need to consider to determine what makes the most sense for you.
0:00 - Index funds or stocks, why is it so confusing?
1:09 - Professionals can’t beat the market
2:27 - My personal story with index funds
3:58 - But can you actually beat the market?
5:30 - 2 simple examples of beating the market
8:02 - What does Warren Buffet say about it?
9:27 - What are your chances of success?
10:42 - Efficient Market Theory and the stock market
13:01 - These are the type of questions we need to ask ourselves
14:20 - Everyone else’s opinion doesn’t matter
*I’m not a financial advisor and my content should not be taken as financial advice. I’m simply sharing my opinion and experiences and it’s entertainment purposes only. Links above include affiliate links, which means I may receive a commission at no additional cost to you.
Cup of morning coffee poured and a new video from Matt. A good start to the day. No hyperbole, no BS.
Good morning! Sippong my coffee as well lol
Watch out for the under dollar babies WAVD Mullen could really take off
clearly I hadn't had enough - I was "sipping" not "sippong" lol
Man what a great video. I love index funds just as much as the next guy, and have the bulk of my retirement in them. But the best gains have come from individual stocks. Plus, you really learn a lot about yourself, your risk tolerances, your areas of competence, and your comfort zones when researching and investing in individual companies. And yes, Peter Lynch's books are my favorites, hands down :)
My best returns have come from buying good companies that are out of favor.
Thank you - totally agree with your comment too. That's been my experience as well!
Probably the most balanced video on the subject on YT. Couldn’t agree more. Doesn’t have to be either/or. Employing similar tactics with a base of index ETFs spiced up with a few individual stocks
Thank you. 100% agree, not sure why that's so controversial lol
Yes
Great advice and well done.
Perhaps you can do a video on which ETFs for us to consider because there are so many of them example you said try a tech ETF but there are so many of them which one should we try?
Those would be some great videos for us who do not want to go the individual stock route right now
I appreciate your show. Thank you.
Thank you for the kind words. I've been working on a growth ETF video for like 3 weeks and it's taken me forever. I'm hoping it will be released on Friday this week. I have a couple other videos you can check out - specifically one about SCHD and other dividend funds here: czcams.com/video/D0c4qIkoQHY/video.html and this one about a 2 ETF portfolio that beats the S&P here: czcams.com/video/uRAts4y1hXI/video.html . Also, if you're not sure at this point - just investing in the S&P 500 is usually my go-to advice for anyone starting out because it has historically done so well. That's how I started.
May I suggest
• Start with VOO, IVV or the Schwab and Fidelity equivalent. Get any up to 2X annual income then diversify by adding
• Growth ETF, International ETF,
REIT ETF, Small cap ETF, Dividend ETF.
• Emerging Market and Sector ETFs could also come in to play.
Ultimately how close you are to retirement determines how aggressively your overall portfolio is skewed
• if these suggestions are confusing load up on a total stock market index. Then please please read up on Core-satellite portfolio
Good luck in your journey
Thanks for this video. I really enjoy watching your content. Greetings from Bogotá Colombia.
Thank you so much, I appreciate it. It's amazing to know that someone in Bogotá is watching!
I think we cannot ignore the fact that some people cannot handle the risks of owning the stocks. Even if they have great stocks like $MSFT, they become panic when the stock drops 20% and sell it. Lots of people also do not know how to evaluate stocks and only buy whatever stocks that are the most popular. I think most people are better owning index ETF / mutual fund
Totally agree with that perspective. For most people it's the best option
I believe in both. 95% of my portfolio is in index/etf funds, that i believe will have a steady upward trend, but yes, i like to take some swings for that homerun as well with individual stocks. Like just after the covid crash, in april/may 2020, i was looking around noticing everyone was buying outdoor gear and workout equipment, so i went and read up on them,and invested heavy into dicks sporting goods, and it's done incredible for me. I think funds are easier, but individual stocks are like a reward for doing work, and due diligence paying off.
Loving these videos fam.
Appreciate that, much respect
Just started watching today! I appreciate the videos. You should do a video like the breaking bad one with ozark!
Thank you! Those are fun videos, but I haven’t watched Ozark yet!
@@mattderron whenever you have free time give it a try. The first episode talks about living below your means etc! Stay safe brother blessing 🙏🏽
@@zaybased1954 it’s been on my list forever and I just haven’t started it. Will definitely check it out
Love ur content man. Other channels are just clickbaity with crappy content
Thanks a lot, I appreciate it!
I see and appreciate how you are willing to actually learn and strive for truth. It is a special quality in a human being. I value it myself and always try to be open and challenge my worldview trough conflicting perspectives
Totally agree it's a valuable quality. Hard to do consistently but all we can do is keep trying! Thanks for the kind words, I appreciate it!
@@mattderron definitely hard because our emotions, needs and beliefs may interfere with our decision making and thinking. Trying is the best we can do and it pays off. You are welcome!
Thank you Matt for the video. I've started investing since 2021 at mid 40 not knowing anything about it. I started buying just big names without researching, like FAANG stocks. Along the way, I learned about ARK funds and started investing on speculative stocks, like PACB, CRSP, U, PLTR, and PATH, again doing just tiny bit of research. Now, the lists of stocks grew so much. I slowly started learning about stocks, reading 10-Q, reading books, like Perter Lynch's book. I haven't sold any of stocks I bought for little over 2 years, but it gets out of control. Haha. I still don't know what to do with those, but I am going to diamond-hand those stocks. Luckily, I didn't put too much on those speculative stocks, it is like less than 10% of my total portfolio. I found your channel a month ago and I check everyday to see if you have uploaded on the next video. Thanks so much for this video. It clears off one of the every-wondering issues I have had for 2 years. Keep up the great work, Matt.
Thank you for the kind words, I really appreciate it. Totally agree that it gets to be a lot of work. For people who are interested in it, it still makes sense to have a good portion in index funds that you don't have to think much about and then spend your time on the smaller number of individual stocks. Just FYI, I try to upload every Monday, Wednesday, and Friday - so you don't have to check every day! I'm been more consistent lately with it, and hopefully can continue that schedule.
@@mattderron Thank you Matt for the schedule. Lately, I've been buying SCHD and O. As I am heading into 50, I would like to be focusing on buying dividend stocks. I'm trying to accumulate SCHD as many as possible for now. I couldn't find any other ETFs better than SCHD for dividend growth ETFs. I also do own VOO and QQQ and I am considering slowly selling individuals stocks and buying ETFs that pay dividends as I get older. Thanks. Looking forward to your next videos.
U need more subs, greetings from italy
Thank you! I visited Italy when I was a teenager (my dad was in the military and we lived in Germany). One of the most amazing places I've ever visited!
Love your videos and your sincere info. It’s not impossible to beat the Market but hard. Stock picking isn’t easy. The Beauty of the index it picks winners and losers. McDonald’s had its down tones too. Top stocks today may not be doing well in the future. History shows us looking decades back.
Thank you I appreciate it!
One of the best videos I’ve seen in a while.
Thank you, I appreciate it!!
I prefer both. Big fan index funds and individual stock picking. Worth noting that S&P can do nothing for years as well, it happened in the past.
Same here. Your last point is a great one. I think most people talking about investing online have only experienced the past 15 years of basically cheap Fed money and for the most part bull market. Not guaranteed to be like that all the time
Hey Matt. I can't help but feel like you were talking to me 😂
No hard feelings here- I only wanted to critique your dividend portfolio only. Not your other holdings or about you personally. I felt it was fair to discuss on what you made public; that's all.
Hi Michael - I wasn't talking about you! This is a constant question and thing that comes up all over the place. Nothing about your question at all!
Yes you are kicking the Hornets nest. This is a BIG divide in the investing world.
😊😊😊
Personally I do both. About 25% of my portfolio is in single stocks and actively managed funds. The rest is in index.
Great video Matt.
The reason individual investors and active managers are likely to underperform is
• active trading
• chasing performance
• not holding a position long enough.
Taylor Larimore has read over 300 books on investing and comes to the conclusion about the superiority of a 3 fund portfolio.
Nevertheless; active or passive investing. Is investing. The vast majority of the population is NOT investing enough. IMO That’s the real problem.
Totally agree with that - a lot of times when people ask "what should I invest in, I have a 20-30 year time horizon" I usually just tell them to pick something that fits for them (S&P, QQQ, SCHD, whatever) but most importantly keep investing and increasing your contributions over time. That is the best way to ensure success, not picking the exact right thing at the right time.
@@mattderron YES! Agreed. Investing is a journey. And the more we learn and the longer we are invested. The better we become and the more impressive the results.
• Education (self motivated education) is a very very powerful force. Peter Lynch “invest in what you know” is so true. Invest a little bit in every product you use from the toothpaste brand, to the soap brand (even toilet paper = KimberlyClark).
Ultimately time in the market, beats trying to time the market.
Keep Teaching and I look forward to your subscribers crossing 6 figure’s
You are doing good work
Thank you for the kind words, I really appreciate it!
Another great video Matt. i am mostly in etf's (divo and schd )but i am very slowly DCA in MCD as i think it is an awesome stock. And if a slowdown is on the horizon i think many people will start to "trade down" a bit and MCD will pick up a lot of extra business. I also love how they are always looking for a competitive edge with automatization....
Nice, I love MCD even though valuation wise it looks terrible right now. But historically it’s been one of those “buy whenever it dips” stocks that just consistently performs.
it all boils down to risk tolerance of an investor. Will you be okay to be down 25% and have a paper loss of like 20k in a month??? then stock picking is good for you.
Hummm interesting. My favorite investor is Lynch not Buffet.
🙂
Just watch this again... You actually make a very compelling argument.
I think you hit the mark at 03:28 "we had a little more room to take additional risks".
Bingo!
That is what I try to convey when I say that a % of my portfolio is stock the rest is ETF.
That 5% is the " little more room to take additional risks" that I am comfortable with.
I am up 191% with META, 49% with MSFT etc "so far".
I get it that is not the type of returns from an ETF but man oh man the META roller coaster is hard to go through at times.
Cheers,
a.
I set my allocation as
95% ETF’s
5% individual stocks
The way I see it, I rather spend my time making more money actively.
Sure it’s more fun stock picking but I don’t want to have to set up alerts on my phone to tell me, this CEO left this company or this stock just dropped 20% after earnings.
I rather be more active in my life and let the ETF’s do it’s thing for 30 years.
That's a great plan that fits what works best for you. Increasing your income to invest more is likely the highest ROI activity any of us can do for sure!
Are books by Peter Lynch relevant in 2024?
100% they are. Some of the examples he uses may be out of date, but the concepts are absolutely relevant
How did you do switching from Index to picking funds. Did you beat the market?
just to be clear, I still have index funds, but I pick stocks with a portion of my portfolio. The portfolio is currently underperforming the S&P, but it's only been since December.
Beautiful presentation Matt, but I have to disagree with you.
There are countless savvy investor out there that are failing to beat the S&P, you can see it time and time again if you follow some of the CZcamsrs that are honest enough to share their stock picks (Joseph Carlson, Brian Feroli, Ali's world of stocks are just some examples that come to mind)
I'm not sure if you're actually disagreeing with me. I'm not claiming that it's easy to do by any means. But for those that you mentioned, my question would be "on what timeline"? I would imagine they are planning to hold or continue for a while obviously still believing in their portfolio. Outperformance isn't something that necessarily happens every year or at every point on the timeline. Either way though, for anyone who doesn't believe the effort is worth the risk or potential underperformance - index funds are there to do the job.
Just FYI I also share my stock picking portfolio I started in December. It's in one of my videos from last week.
@@mattderron Timeline does make a difference and weighting too.
Stock picking is actually pretty simple: buy MSFT, MCD, MA, JNJ and BRK.A in equal weights, that's it, go to sleep.
Etf are better
For me, index funds includes ETFs as well
Might be a good time to accumulate MCD; would be nice to have another solid share price decline.
You should have a marriage advice channel for men; excellent criteria advice.
Yes I do think MCD looks attractive, as do many other things after today. For me though, it's already my top weighted holding, so I'm likely not adding at this time
I'm very curious to see your outlook on the top 10 companies of the SXP500 over a long period of time like 10-25 years.
Anything in particular you’re looking for? Lot of different companies in there with different business models, strengths, and risks
The problem is the word “average returns” here. Everyone loves or want better than average but what ppl fail to understand is that the getting consistently those average returns with minimal efforts will put you in the top percentile of investors and can do wonders for building wealth.
Just to be clear i m not against picking stocks, ppl do that and will always keep doing that, may be the smarter ones will beat the market over 5/7/10 years but doing it over decades is no joke.
Here's my massive stack.
29.04% CAGR until 2021 and 22.85% CAGR after 2023 due to all the pandemic shutdowns and market hit.
$100,000
[TECH]
50% MSFT
20% AMZN (only 20% because Amazon doesn't pay dividends but it has crazy growth)
10% AAPL (only 10% because Apple splits hard, 7to1 & 4to1 in the last ten years giving me free shares)
[ETF]
20% SCHD
Nice, that's a nice trio to compliment SCHD for sure!
@@mattderron well if you look at the two biggest tech in most ETF's its almost always AAPL & MSFT. Take VGT for instance, both over 20% of the entire holdings. So I figure just cut out the middle man, stop paying management fees and add AMZN as a grower instead. This way you still get the majority of popular stocks in Tech but the security & diversity of SCHD, for a small .06% management fee on things I'm less knowledgeable about.
I will confess though, I do have some high risk, high paying, monthly dividend stocks that I use to buy more of that stack frequently. In business we call this a "loss leader".
Essentially they're sacrificial pieces, non profitable, for the sake of bolstering the main idea. However, I've been using them for nearly four years each and they've been holding up well.
That's cool, sounds like you have a good system that works for you. That's most of the battle right there IMO
@@mattderron Thanks man. That is half the battle, the other half is being able to hold on to your plan when things get rough, preparing some more investing cash for that time...cause who doesn't love a sale, then being able to constantly affirm your belief by reinvesting the dividends.
Personally I don't rebalance either, I think the split is pretty much useful where it is. I just take the dividends and split it up at the end of the month, and if I don't have enough to buy I hold it then add it on top of next months split so it doesn't throw off the percentages.
My goal isn't to beat the market, cause like you said that's fairly easy, but instead to make enough to buy all shares during each payout. Right now I'm collecting approx. $6,200 a year in dividends but three of those four are quarterly and AMZN doesn't pay div's. That's where the loss leaders come in handy, buying AMZN and buffing the others between quarters.
I stumbled onto a channel called strong man personal finance recently. It's this obnoxious "index funds only" guy trying to clown stock pickers on youtube. His favorite thing to say is "do you think X has some special insight into Y stock that no one else knows, and that's why he's investing into Y?" When I hear that, I think of Charlie Munger saying "if a mountain stands up like Everest, it doesn't take a genius to see that it's a tall mountain." Like you said, you don't have to be a genius to pick McDonald's, Apple, United Health Group, Walmart, Costco, Microsoft, etc.
100%. The new thing I saw on Twitter was someone saying "I'm a father and husband so I would never risk my family's future on ego stock picks" So basically anyone picking stocks is a bad husband and father now lol. I think those things are just for engagement though so whatever.
You hit the nail on the head of the point I was trying to make. It doesn't take inside information to pick great stocks. Some basic knowledge of how to read a financial statement and some idea of why you think they will do better than most companies is about all you need. The hard part is being willing to take the risk, stick with it when it doesn't look great, and/or know when it's time to move on. Picking the stock is the easiest part of that most times.
@@mattderron as a dad my self I do see where that Twitter dad is coming from, but if I have to worry about my family’s financial well being, I shouldn’t even be buying individual stocks in the first place.
It’s all about risk tolerance, exactly what Peter lynch talked about.
Do you have the stomach to buy a great stock and not sell if it drops 50%
Where I struggle with those type of statements is there is a difference between gambling your family's money on a random stock or Wall Street Bets type of thing vs investing in a stock for the future, even if it is just one or two. To me the "index-only" takes are just getting silly.
@kgr_alex The hard part is buying Apple before it's a mountain. Buying Apple 20 years ago is buying Apple before the iPhone. Not as easy to spot or recognize!
he also says only buy VT, nothing else.