Make the most of it with expert tips on investing, saving, and spending for two.
Mutual funds offer diversity and are available to suit almost any investment style. You can invest passively or actively, invest in the Unites States or any other country or countries, and invest in one sector or the whole market. Why, then, would anyone bother with individual stocks? Many people assume stock-picking is best left to the experts, but they aren't always right. There are pros and cons to buying individual stocks versus mutual funds, and which approach is best depends on your own situation. Here are some of the pros and cons of doing your own stock-picking:
1) You save the cost of management fees. Even index funds do not invest your money for free. If you can find a good discount broker, it may cost you less to buy your own stocks than to have someone else manage your money.
2) You can invest in micro-cap and small cap stocks that the funds can't touch. While smaller stocks are riskier, they are also the source of most of the really big wins in the market. Most mutual funds can't invest in these shares, because they would wind up owning a controlling share in the company.
3) You can take advantage of special situations where your fund manager doesn't have a clue. If you work for a chain restaurant, for example, and you notice that a recent menu change has the customers pouring in, you have knowledge that gives you an inside edge, without violating the rules against insider trading.
4) You avoid the tax penalties often generated by mutual funds. When a large number of fund holders decide to redeem their shares, the fund is forced to sell stock to satisfy these claims. This, in turn, generates capital gains that create tax bills for all the shareholders. You, as an individual, can take your losses when they are most beneficial for tax purposes, and hold your gains as long as you like. In the meantime, those gains generate no tax bills.
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