Stocks ver­sus mu­tual funds

Houston Chronicle - - BUSINESS -

Q: I have mostly in­di­vid­ual stocks in my IRA ac­count. Is that rea­son­able, or should I stick with mu­tual funds in­stead? — T.N., Elyria, Ohio

A: It de­pends. Mu­tual funds of­fer con­ve­nience and in­stant di­ver­si­fi­ca­tion. They can also ex­pose you to in­dus­tries or re­gions you don’t know very well, such as the in­ter­na­tional arena. (If you in­vest in mu­tual funds, fa­vor those with low fees and tal­ented man­agers, or just stick with low-fee in­dex funds such as one that tracks the S&P 500.) Care­fully se­lected in­di­vid­ual stocks, mean­while, can de­liver big­ger re­turns than most mu­tual funds can, but that’s far from guar­an­teed. Plenty of stocks don’t per­form well.

For max­i­mum sim­plic­ity and mar­ket-track­ing per­for­mance, just use in­ex­pen­sive broad-mar­ket in­dex funds. If you want to try to top that per­for­mance, you might park a por­tion of your port­fo­lio in some care­fully se­lected man­aged mu­tual funds and/or in­di­vid­ual stocks. Healthy and grow­ing div­i­dend-pay­ing com­pa­nies can be pow­er­ful con­trib­u­tors to a port­fo­lio, and dy­namic small-cap com­pa­nies can come through for you, too.

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