Many long-term investors have become accustomed to just buying index funds and exchange-traded funds (ETFs) that provide broad exposure to a mix of stocks and simply hanging on for the long haul. But this isn’t a perfect strategy. There are some serious issues with buying some of the most popular funds on the market right now. With valuations rising and Space Exploration Technologies (SPCX +1.61%), also known as SpaceX, being added to many of them, they are going to get a whole lot more expensive in the near future.

Investing in index funds and ETFs could be riskier than normal these days, and here’s why picking individual stocks may be the way to go right now.

Quicker access to IPOs could do more harm than good

SpaceX recently went public at an astronomical valuation; its market cap is around $2.1 trillion today, making it one of the most valuable stocks in the world. But it’s also unprofitable and trades at more than 100 times revenue, making it among the most egregiously priced stocks you can find right now.

The Nasdaq recently made changes that make it easier for IPOs to be added to the Nasdaq-100 index, a collection of the most valuable non-financial stocks on the exchange. SpaceX is set to be added to the index as early as July. Other IPOs, including OpenAI and Anthropic, may also follow suit when they go public in the near future.

While this may sound great for growth investors, these are also the types of companies that are likely to have high valuations, not due to their strong underlying fundamentals, but rather the hype around their businesses. This makes investing in a fund such as the Invesco QQQ Trust (QQQ 3.29%), which tracks the Nasdaq-100, a bit risky. The Nasdaq is already full of high-priced stocks, and adding SpaceX and other highly valued IPOs may make the situation worse, not better.

Today’s Change

(-3.29%) $-24.30

Current Price

$713.65

Key Data Points

Day’s Range

$712.11 – $723.61

52wk Range

$539.38 – $748.65

Volume

478.4K

Picking individual stocks may be the best option today

If you’re investing in individual stocks, you know which companies are in your portfolio. With a broad fund, however, you might get exposure to a whole bunch of stocks you don’t really want. And if the fund rebalances over time, such as the Invesco fund, it can also change. Unless you’re staying on top of such developments, you may not realize which stocks are impacting your portfolio.

By going with individual stocks, you won’t have to wonder. Investing in many types of growth stocks can be a good way to spread out your risk while still setting yourself up for long-term success. And with minimal and in some cases no commission fees, there’s no longer a high cost to deter you from owning a broad mix of stocks.

The index compiler said the country’s moves regarding enhanced disclosures, more granular investor classification and a roadmap to raise the minimum free-float requirement to 15% are a step in the right direction. Still, what matters for global investors is the consistent implementation and sustained effect of such measures in the market, it said in a Tuesday release. 

“Should sufficient progress not be evident by the time of the November 2026 MSCI index review, MSCI will consider a range of options for the appropriate treatment for the Indonesia market, potentially including a consultation on the reclassification of Indonesia from emerging markets to frontier markets,” according to the statement.

The move is likely to deepen investor unease that’s built over months after MSCI in January flagged a potential downgrade to frontier status due to investability concerns and the limited number of shares available for public trading. The warning, which had triggered a market rout, prompted authorities to introduce a series of reforms.

“The market retains emerging market status, but with a warning label attached,” said Mohit Mirpuri, a partner at SGMC Capital Pte in Singapore. “The burden is now on regulators to demonstrate credible progress over the coming months.”

Tuesday’s update, already delayed from May, followed last week’s move by the index compiler to revise Indonesia’s assessment on information flow to negative in its annual accessibility review due to limited transparency in shareholding structures, coordinated trading behavior that undermines price formation and a lack of corporate disclosure in English.

Uncertainty ahead of the review had pushed many market participants to the sidelines, with investors citing the overhang from potential outflows. Coupled with concerns over policy direction and the fallout from the Iran war, the benchmark Jakarta Composite Index had tumbled to become the world’s worst-performing major gauge this year. The gauge was up as much as 1.2% in the morning before paring to 0.6% as of 9:30 a.m. local time.

“The macro is clearly quite challenged,” said Yi Ping Liao, a fund manager at Franklin Templeton. “I still think that there are things that need to be worked out, and until then, I don’t think that there’s a very strong case to be in Indonesia.”

Regulators have introduced a series of reforms in recent months, including raising minimum float. The Indonesia Stock Exchange took the unusual step of identifying firms with high shareholder concentration—an issue that underpinned MSCI’s decision to remove some of these stocks from its indexes in May. The installation of capital markets veteran Jeffrey Hendrik as chief executive officer of the stock exchange recently has also steadied some nerves.

According to Hasan Fawzi, head of capital market supervision at the Financial Services Authority, the decision “provides momentum to continue, strengthen, and accelerate the capital market reform agenda” that’s been initiated since the start of the year. 

An ultimate call to keep Indonesia’s emerging-market status could curb foreign outflows and ease pressure on the rupiah. The currency has hit successive lows, weakening more than 6% against the US dollar this year and ranking among the worst performers in its peer group. Overseas investors have also sold $4 billion of equities, dragging the benchmark index down about 30%.

Such an outcome could also provide some relief to President Prabowo Subianto, whose populist agenda and push for tighter state control have unsettled investors. Fears of greater state intervention in commodity exports have driven funds to the sidelines, while the abrupt firing of the head of Indonesia’s nutrition agency—central to Prabowo’s free meals program—and a subsequent corruption probe have added to unease.

“I think it’s positive that MSCI acknowledged the recent reforms,” said Felix Darmawan, an analyst at PT BCA Sekuritas. “The focus now shifts from announcing policies to executing them. If implementation is convincing over the next year, the reclassification risk could gradually fade.”

Investors are now awaiting FTSE Russell’s review. The index provider said last month it would delay re-ranking Indonesia, including changes to free float and stock additions, until at least its September review to allow for further monitoring.