The top 5 reasons to own individual stocks instead of a mutual fund
1. Less of a limit on your potential gains- While there is truly no actual limit on your gains inside a mutual fund, since many funds own such a multitude of stocks it is hard to rack up huge gains over the long haul. If you are dealing with individual stocks, since you are taking more risk you are also able to have the possibility of higher rewards.
2. Complete control over your investment portfolio- While mutual funds allow you to invest in stocks through pooled investing, owning individual stocks certainly gives you much more control over your portfolio. If you want to be the one in charge of how your personal finances are setup owning individual stocks is a huge positive.
3.No constant expenses– Mutual funds can get very expensive over the long haul, while stocks have no associated expenses other than the fees to buy and sell the stock. Mutual funds often have loads, which can take as much as 6% of your money either when you buy into the fund or sell out of the fund. All mutual funds have expenses for professional management, and while some are reasonable, some charge 2.5% or more each year. While 2.5% a year might not sound like too much, it will add up very quickly!
4. The ability to trade whenever you want- With a mutual fund you can only buy or sell the fund as of its closing NAV price each day. Individual stocks allow you to buy or sell them at any point throughout the day, and now you can even buy or sell them in after hours trading. The majority of stocks are very liquid so you generally will not have any problems getting in and out of stocks.
5. No professional management- Did you know that 80% of mutual fund managers actually do worse than the overall market averages? Why should you pay a mutual fund manager to manage your money when they are more than likely going to under perform while at the same time charging you a great deal of money in the process. If you have a solid knowledge of the stock market and are able to put some time into researching your investments, you have a very good chance of being able to outperform the average mutual fund.
Individual stocks are a great way to earn money over the long-term, but one must also keep in might that with owning stocks comes a higher risk. If you are aware of that risk and believe you are ready to beat the market and have control over your investment portfolio, then owning individual stocks sounds like a match made in heaven for you.