In a financial crisis, is it better to buy individual stocks to capitalize or invest in ETFs if you have no time to do research? - Seedly
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Asked by Anonymous

Asked on 02 Mar 2019

In a financial crisis, is it better to buy individual stocks to capitalize or invest in ETFs if you have no time to do research?

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Richard Woon Tian Jun
Richard Woon Tian Jun
Level 6. Master
Answered on 02 Mar 2019

Hi anon,

I think in a financial crisis, it is extremely difficult to find out which stocks will survive and which stocks won't. Just take a look at a bank that no one though would fall - Lehmann Brothers, which is evidence enough that in a bad enough crisis, nothing is barred from failing.

Instead of picking what exactly to buy, I suggest buying an index fund/ETF as well - takes away the need to really plan when to go in or how to allocate, everything is already done for you. All you need to do is buy and hold it till the crisis is over and the market rebounds once again.

Of course, this is based on the assumption the market can recover to previous highs. One such market that has done so consistently thus far is the S&P 500, the US market cap weighted index of the 500 largest US companies. One that has not recovered yet is the Japan Nikkei 225 Index - the value of the index has not recovered the highs of the late 1990s when the real estate bubble burst and everything came crashing down. So TLDR: no free lunch in the market, but the closest thing you can get is indexing in the right market.

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Chen Zhirong
Chen Zhirong
Level 4. Prodigy
Answered on 02 Mar 2019

Invest in ETFs if you have no time to research, regardless of crisis.

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