Mutual Funds vs Individual Securities

• Academic studies have concluded that a portfolio needs to include 40 to 50 different stocks, mostly from different industries, to be well-diversified within the U.S. stock markets.
• Similar exposure is required for international and emerging markets stock markets.
• Additional investment is required for domestic, international and emerging markets debt.
• Additional investment is required for commodities.
• Additional investment is required for domestic and international real estate.
• Additional investment is required to play the different market caps and styles.
• That all adds up to a very large investment requiring intensive management, and it still wouldn't be as well diversified as a portfolio of mutual funds covering all of those different asset classes.
• Trading costs and commissions incurred with an actively managed portfolio of individual securities can very easily exceed the expenses of a portfolio of no load mutual funds that is periodically rebalanced.
• Individual stocks give investors more control over the timing of the incurrance of capitals gains tax liabilities.
• Exchange traded funds (ETFs) also give investors more control over the timing of the incurrance of capitals gains tax liabilities. Thus they are usually a better option than individual stocks for those who invest in taxable accounts and are very tax-sensitive.
• Realizing that asset allocation trumps security selection, many investment advisors now concentrate on asset allocation rather than securities analysis and put their wealthy clients' money in mutual funds.

• Mutual Funds vs Individual Securities