Individual Stocks vs Index Funds

You want your portfolio to grow, but what if half your holdings are shrinking while headlines celebrate all-time highs? Felix Prehn, economist, ex-banker, and Goat Academy founder, tracks 150 industries weekly and found 64 in decline. Where is the money going, and why does your index fund hide the answer?

Individual Stocks vs Index Funds and Why Half Your Portfolio Is Losing Money

Key Takeaways

• Index funds force you to hold the losers next to the winners and drag down your returns.
• The market is not crashing. Money is rotating out of weak sectors into strong ones.
• Inflation is at 3.8%, double the Fed’s target, and hard assets are winning.
• Real wages are negative. Americans earn less after inflation, and consumer-facing stocks suffer.
• $10,000 in the climbing industry could become $60,000, while the same amount in a declining industry drops to $3,000.
• Shoe manufacturing, the publishing sector, the ad industry, and professional services are among the hardest-hit areas.
• The gap between winning and losing stocks is the widest it has ever been.

Index Funds Hold the Losers Right Next to the Winners

Micron Technology is up 523% from its lows. Nike is down 54% in the same period. If you hold an S&P 500 index fund, you carry them equally in your portfolio.

Your index fund bundles every company together, winners and losers alike. Micron pulls your returns up. Nike drags them down with equal force. The S&P 500 is up about 9% for the year, but the number masks a sharp split below the surface.

Felix Prehn monitors 150 industries every week. 55% are climbing with capital pouring in. 64 sectors are declining, with money leaving fast. More industries are falling apart than are rising, even at all-time highs.

The Market Is Rotating, Not Crashing

If the market were crashing, everything would drop. Instead, capital is moving out of certain sectors and flooding into others.

Felix compares the market to a large swimming pool with different sections. The total water stays the same, but one end gets deeper while the other drains. The S&P at all-time highs tells you the pool is full. It does not reveal which end the water is going into.

Energy stocks are up 28% for the year, the best-performing sector in the US. Healthcare is down 6%. Financials dropped 6% as well. Tech is up 16%. Materials gained 14%. Money is heading into specific places.

Inflation is at Double the target, and Hard Assets Are Winning

CPI, the official government measure for price increases, is at 3.8%. The Fed wants 2%. Energy costs are up 18%, and gas rose 28%.

When inflation runs high, hard assets and commodities win. Paper-based investments lose value. Gold is up almost 50% in the last year. Copper gained about 40%. Uranium rose 21%.

Four commodity sectors are absorbing the flow: gold, uranium, copper, and energy. Infrastructure and defense stocks ride the same wave, with returns from 200% to 2,700%.

Real Wages Are Negative, and Consumer Stocks Pay the Price

Real wages measure what people earn after inflation. The number is negative. Americans are getting poorer even if paychecks go up, because prices rise faster than pay.

Felix calls it the silent tax on the consumer. Every consumer-facing industry feels the pressure: retail, the ad sector, and apparel. Nike’s 54% decline fits the pattern.

When people have less spending power, the companies selling to them suffer. The index fund does not remove declining companies from your portfolio.

$10,000 Can Become $60,000 or $3,000

If you put $10,000 into an index fund two years ago, you have about $13,000 today. A 30% gain sounds fine on paper.

Put the same $10,000 into the climbing industry, and you could have $40,000, $50,000, or $60,000. Concentrate on the declining ones, and your $10,000 is now worth $5,000, $4,000, or $3,000.

Your broker or index fund says you are up 9%. But the number is a blend of rocket ships and sinking ships. The difference between $3,000 and $60,000 is not luck or timing. It is knowing where money flows.

Shoe Manufacturing, the Publishing Sector, and the Ad Industry Are Among the Hardest Hit

Shoe manufacturing is down 37%. Nike alone declined 54%. Professional services dropped 30%, with firms like Booz Allen falling 50%.

The publishing sector lost 43%. Reuters, one of the world’s largest information companies, fell almost 50%. Forest products are down 36%.

The ad sector lost 29%. WPP, the world’s largest advertising firm, is down two-thirds. All of the companies mentioned are in the S&P 500 or similar broad indexes. If you hold an index fund, you carry every single one.

The Gap Between Winners and Losers Is the Widest Ever

General building contractors in non-residential construction are up 330%. Electronic components gained 300%. Construction and design firms are up 200%. Semiconductors rose 170%.

At the same time, 64 industries are sinking. The spread between the top performers and the weakest sectors has never been wider.

The standard buy-and-hold strategy is the one everybody recommends. It puts your money in the winners and the losers at the same time. Wall Street calls it diversification. But the big institutions do not follow the same playbook. They trade around retail investors while collecting recurring fees from index funds.

Felix Prehn’s Tips and Insights

• 97% of professional money managers are fully invested. Almost no new capital remains to push prices higher. The direction of money matters far more than volume.
• Gold miners like Newmont (NEM) are outperforming the metal itself. When miners beat the commodity, it usually signals the trend has legs. Newmont is the largest gold miner on the planet with a market cap of over 100 billion.
• Cameco (CCJ) is the largest uranium producer in the world. The US needs about 50 million pounds of uranium per year and produces only 1 million domestically. A 98% import dependency for a national security asset.
• Freeport-McMoRan (FCX) is the closest pure-play copper company available. Bloomberg reports the copper market is swinging into a million metric ton deficit. Demand exceeds what the world can produce.
• TotalEnergies (TTE) is a 160 billion dollar diversified energy company covering oil, gas, and renewables. The energy sector is the number one performer in the S&P for the year.
• Broadcom (AVGO) supplies custom AI chips to the largest tech firms. Data centers need semiconductors, power systems, cooling, copper, and physical buildings. The spending fuels gains in companies most investors have never heard of.
• Comfort Systems (FIX) handles mechanical and electrical infrastructure for data centers and is up 500% from its lows. Celestica (CLS) does electronic manufacturing for cloud and AI hardware, up 700%.
• Rocket Lab (RKLB) is up 2,700% and operates in space launch and military technology. RTX, formerly Raytheon, is a defense blue chip up about 69%.
• MasTec (MTZ) specializes in infrastructure work for power lines and pipelines. Quanta Services handles projects for electric power, oil, and gas. Two companies invisible to most retail investors, but the backbone of every major trend.

Frequently Asked Questions

What are the key differences between index funds and individual stocks?

The debate around index funds versus stocks comes down to control. A passive index fund gives broad market exposure to hundreds of companies at once. Individual stock selection lets you invest directly in specific companies and avoid the losers. Index funds provide instant diversification and passive growth. Individual stocks offer higher return potential but require more research and monitoring. The index funds vs individual stocks choice depends on your investment goals and risk tolerance.

Why is more than half of the stock market declining even at all-time highs?

More than half of the 150 industries Felix Prehn tracks weekly are losing value. The stock market is not crashing. Money is rotating out of weak sectors and flooding into strong ones. Current market conditions show 64 industries in decline. Capital pours into energy, commodities, and infrastructure. The market average hides the split because the index blends winners and losers into one number.

How does buying individual stocks help you manage risk compared to index investing?

Index investing forces you to hold every company in the underlying index, winners and losers alike. Individual stock selection lets you avoid sectors with poor performance. You can focus on areas with growth potential instead. Active investors who track where money flows can stay out of declining industries. Sector rotation is one investment strategy separating the strong from the weak.

What is the investment risk of holding a passively managed index fund during a sector rotation?

A passively managed fund tracks a specific market index without removing declining holdings. When market conditions shift, the fund follows the rising and falling sectors equally. Nike can drop 54% while Micron rises 523%, and the index carries them side by side. Research from JP Morgan shows that around 151 S&P 500 stocks end each year at a loss. The negative return is 5% or more. The investment risk is that your returns get dragged down by losers you cannot remove.

Do actively managed funds outperform passive index funds during a rotation?

Most actively managed funds have failed to beat the market average over long periods. However, the current rotation creates a wider gap between winners and losers than ever before. Actively managed funds charge higher fees, eating into returns. The outcome depends on the manager’s ability to follow money flows, not popularity.

Can stock picking lead to long-term growth, or is it higher risk?

Stock picking carries a higher risk because one company’s price can swing dramatically. A study from Arizona State University found 58.6% of individual stocks reduced shareholder wealth from 1926 to 2022. A $10,000 position in the climbing industry could reach $60,000. The same amount in declining ones could fall to $3,000. Long-term growth depends on choosing the right asset classes and sectors. Many investors lack the time or skill to research each company individually.

What role do expense ratios play when comparing index ETFs to actively managed funds?

Index ETFs offer lower expense ratios because no manager is picking stocks. Actively managed funds charge higher fees for research and trading. Over decades, even small differences in expense ratios compound into thousands of dollars lost. Low-cost index funds save on management fees. But the savings mean little if the fund holds dozens of industries in decline.

How does investing in individual stocks support wealth creation versus a diversified approach?

A diversified approach through an index fund spreads your money across every sector. The 64 industries currently losing value are part of the package. Individual stock selection allows you to concentrate on sectors with strong capital inflows. Wealth creation over the past two years favored investors in energy, semiconductors, and infrastructure. A core-satellite strategy balances low-cost index funds with focused individual picks. The larger portion goes to index funds for stability, and a smaller portion targets specific growth opportunities.

Is a diversified portfolio still the best path to financial independence?

A diversified portfolio offers broad exposure and reduces the damage from any single company’s collapse. Index funds are easier to hold during market downturns. Index funds are generally favored for long-term goals like retirement due to steady compounding. However, financial independence requires more money working in your favor, not just protection from loss. When more than half of the industries decline, diversification means you hold every sinking ship alongside the rockets. Your financial goals and risk tolerance should determine the right approach.

What should long-term investors consider about meme stocks, speculative assets, and other factors?

Long-term investors should separate hype from fundamentals. Meme stocks and speculative assets can spike on social media attention. Stock values tend to collapse once the excitement fades. Inflation at 3.8%, negative real wages, and a 97% invested rate among money managers shape the real direction. Financial markets follow the money. Long-term investing works best when you understand where capital flows rather than chasing headlines. Past performance and future results are never guaranteed. All investing involves risk, regardless of the approach. The content here is not tax advice or personal finance guidance.

Watch the YouTube video on Individual Stocks vs Index Funds

Video published on 15th May, 2026

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The content on the website is for informational and educational purposes only. It does not constitute and should not be construed as financial or investment advice or an offer to purchase or sell securities. The content is not personalized or tailored to a specific person or group of persons, nor to their personal investment or financial needs.

You should consult a financial adviser or other investment professional authorized to provide investment advice. Investing comes with risks, including the risk of loss. Presentations of trades made by Goat Academy or its personnel are not a guarantee that any investment decision made by a student will be successful. Past performance is not a guarantee of future performance.