Notes for Beginners · March 18, 2025

ETFs & Index funds are not for everyone. Read this if you’re a beginner…

If you’ve ever lurked in investing forums—Reddit, X, or anywhere else—you’ve probably seen this golden piece of advice for beginners: “Just buy ETFs (especially SPY ) and chill.” Sounds great, right? You diversify risk , spread your money across industries, and over the long run, index funds have historically delivered 8%-10% average annual returns . Solid. But here’s what most people conveniently forget to mention : That 8%-10% return is an average over decades , not something you get neatly delivered every year. Some years, you’ll make double-digit gains . Some years, your portfolio will bleed red . And if you need your money during a market downturn , well… tough luck. ETFs Are for the Long Haul. Period. If you’re looking for quick gains , safe exits , or money when you actually need it , ETFs might not be your best bet. These are for long-term investors —the ones willing to dig their heels in for at least 5 years . Now, if you’re wondering how to protect yourself from painful downturns? Well, that’s where actual research and financial advisors come in. Here is a real world example. Lets say you just began investing and bought a few stocks of SPY – the golden boy of ETF investors. The date is December 29, 2021 and you bought 10 stocks of SPY at $476.16 a stock. which means you had plunged $4761. But then from the next day, the market goes for a prolonged toss and ends up in a trough of sorrow for 2 years. So until Dec 28, 2023, your portfolio value would have been less than what you invested. Two years of watching your money shrink while debating: “Should I cut my losses and move on?” “Or should I hold and pray ?” It’s mentally exhausting , especially if you needed the money. The Market Finally Recovered… But Here’s the Catch Let’s say you held on, embracing the classic “time in the market beats timing the market” wisdom. By 2024, SPY bounced back . But here’s the catch: Your annual return since Dec 29, 2021 , was just 5.58% —still below the historical 8% average . So if you need the full benefit of index funds , you’d have to hold even longer . Final Thoughts: Know What You’re Getting Into ETFs aren’t some magical, stress-free money machine. They have risks too—just different risks than individual stocks. Long-term investors who don’t need their money anytime soon? ETFs can work great. People looking for quick gains or short-term access to their cash? Probably not. So before you go all in on ETFs thinking they’re foolproof, understand how they actually work—or risk learning the hard way. So, What’s the Alternative? If ETFs aren’t great for short-term gains , what should beginners consider instead? Watch out for the part 2 of this series for more. For researching ETFs and stocks, do check out https://www.stockbruh.com . It’s free ofcourse.

From The BruhCode Blog on Stockbruh. Educational content only — not financial advice.