Stocks vs. Mutual Funds

What are the advantages of buying stocks over mutual funds?

• No fund expenses or sales charges: Mutual funds have operating expenses currently averaging roughly 1.4%¹. In addition, some mutual funds (known as “load” funds) charge a fee to purchase and/or sell the fund.
• Better control over taxation: In taxable accounts, it is a major benefit for the investor to determine when to take capital gains and losses, thereby controlling if and when to pay capital gains taxes.
• Complete control over portfolio holdings: The investor selects securities for the portfolio instead of deferring to a fund manager.

What are the advantages of buying mutual funds over stocks?

• Instant diversification: Mutual funds provide instant diversification, allowing the investor with a smaller amount of money to diversify among many stocks in a cost effective manner.
• Professional management: Mutual funds provide experienced and knowledgeable money managers. This provides the investor with the peace of mind to continue investing without the worries and stress that may otherwise come with micro-managing individual common stocks.
• Exposure to areas difficult to research: For example, if an investor chooses to include small cap and/or international stocks in his investment portfolio, finding appropriate information to make investment decisions is best left to a specialist in this area.
• Ease of marketability: If an investor finds it necessary to raise a specific amount of cash by selling equities, this is easily done by selling shares of a mutual fund without incurring the commission fees that come with the sale of stocks.

What does Henssler Financial recommend?

We generally recommend that if an investor has less than $50,000 to invest in the market, mutual funds should be purchased to take advantage of the instant diversification. If more than $50,000 can be invested in the market (following our Ten Year Rule), shares of individual common stocks, in different industries, should be purchased. To be properly diversified in individual common stocks, we generally recommend that no more than 10% of your portfolio be invested in any one common stock. To be properly diversified, you should own 10 to 16 different stocks in at least six to eight sectors.

Word of Caution

Individuals are prone to trade frequently to take advantage of perceived short-term advantages, which on a long-term basis, are generally meaningless. This usually lead to lower returns. Be an investor, not a trader. For more information regarding this topic, please contact Henssler Financial at 770-429-9166, or experts@henssler.com.

¹Based on the average management fee of large cap value funds as stated in Morningstar.

Disclosures

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.