General question about index funds: if a market is about to go into a steep correction or even a recession, wouldn't it be more advantageous to invest in specific stable stocks, rather than an index fund that tracks the entire market?
Sure, if you are sure the market is about to go into a steep correction or even a recession. But how do you know that? Why not go even further - If you knew for sure the market was going to drop, you could make a lot of money in options. Why aren't you doing that instead?
You shouldn't be trying to time the market. Lots of people try, they tend to fail. Come up with an allocation plan, and stick to it.
And with enough people constantly trying to predict the market, inevitably some get it right. They make a lot of money, they're heralded as geniuses, and we hear about them in the news. We don't hear about everyone else who failed, or when the market-timing winners turn out to be repeat failures in subsequent years.
Put a bunch of people in a room and have them start flipping coins. If there are enough people playing the game, chances are somebody will end up tossing many heads in a row. If they keep flipping long enough, chances are they'll revert back to the mean. This is a pretty good model of market prognostication.
That's what Wall Street calls "trying to catch a falling knife". You want to wait until after recovery starts, because you have no idea how far the price is going to fall. Of course, figuring out whether it's an actual recovery vs. a pit stop on the way to the bottom, is another issue.
