Investing in Stocks vs Mutual Funds
When choosing how to invest funds in a brokerage account, there are many factors to consider. First and foremost, the investor must consider the time and effort they plan to commit to their investing portfolio and strategy. Researching individual stocks can be time consuming. Investors without sufficient time to devote to managing their investments are therefore, typically better off investing in mutual funds. Researching mutual funds is generally less time consuming.
Additionally, financial experts recommend that investors diversify their portfolio among various companies, sectors, geographic regions, and market capitalization, or size. Doing so with individual stocks can require a significant amount of money. Buying just 100 shares of IBM stock can cost well over $10,000. Investing in several similar companies would add up quickly.
However, for investors with enough capital and time to commit to their investments, individual stocks can be a better investment choice. When investing in individual stocks, investors have more control over timing their buys and or sells. For example, an investor can generate capital losses at the end of the year for tax purposes, or conversely defer selling into the following year to avoid incurring a capital gain.
In addition, long-term investors in individual stocks need not worry about the drag on investment performance caused by mutual fund expenses.