It's A Good Time to Buy Individual Stocks Instead of Funds
We like index funds, especially as a place to put at least a portion of your retirement savings. Index funds give you a good way to earn almost the same return as the overall market, minus what are relatively low fees. And they allow you to leave decisions about which specific stocks to buy to a pro who does this full-time, instead of in their spare time.
However, in this specific bear market, you may want to put some money in a non-retirement, taxable account and buy some individual stocks. Coronavirus is going to create some clear winners and some obvious losers.
With an index fund, you are exposed to the winners and the losers. Royal Caribbean Cruises, United Airlines, American Airlines, Boeing, and Marriott will all be impacted by this current pandemic much more than other types of companies. All of them are in the S&P Index so any fund that mimics that index will include them. The Dow Jones includes Boeing as well as oil companies ExxonMobil and Chevron which are also vulnerable because of rock bottom oil prices.
Rather than putting your non-retirement money in an index fund, you may want to use bear market dips to buy a few individual stocks. You can avoid the losers and buy the stocks of companies that seem to be immune to or even benefiting from the coronavirus-related shutdowns, for example Apple, Netflix, or Amazon. Or you can pick up, at bargain prices, the stocks of companies that will be negatively impacted but not nearly as much as those reliant on the travel industry, for example Starbucks or Facebook. More risk averse investors may want to stick to the stocks of consumer staples like Proctor & Gamble or Kimberly Clark.
Disclosure: we own the stock of Amazon and Starbucks.