Funds vs Individual Stocks

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Can someone give me a quick breakdown of why one would choose to purchase individual stock or funds over the other for long term investments?

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When I buy individual stocks, I'm purchasing a share of ownership in that company - because I believe it will grow in value, pay a good dividend or both. I'm buying a future income stream with today's cash.

When I buy mutual funds, which all of my retirement investing is - I'm picking fund managers, essentially, whom I trust to reliably track an index and provide a fairly predictable and stable price - increasing at a fairly predictable rate, between the time I buy and the time I need to transfer that value to an annuity, bonds or some other income producing vehicle to provide a steady income in retirement.

While similar, the goals are subtly different because of the outcome.

Unless you're really passionate about particular sectors or just want a little more say so in your portfolio, a good mutual fund, or mix of funds from Fidelity, Vanguard, Janus, whatever, is going to outperform most people's mix of stocks. It takes less time and concentration, but it surrenders control to the fund manager.

The single most important thing you can do is to commit to investing.

Pick a vehicle, pick a fund, or pick a brokerage to buy your stocks. Send money in regularly, buy regularly (so you can dollar cost average), reinvest dividends and allow time to work its magic.

Minimal exposure over 40 years in the market at large will outperform almost any "smart" focused package of investments over 20 years - that's just a fact. So, the longer you wait, the further you fall behind.

My personal recommendation for someone who may only have a 401K at work, is to start your own IRA with Fidelity and commit to something you can absolutely live with - $50 a month, $75 a month, whatever. Pick an S&P 500 fund (or a balance of funds that approximates that yield), and re-evaluate how much you're committing every 6 to 12 months - and adjust upwards as you feel more comfortable.

Don't cash out - don't worry about downturns (the market...always...goes...back...up) and adjust your allocation/distribution no more than quarterly - perhaps 6 to 12 months as well.

If you can do this for 30 to 40 years, you cannot avoid being wealthy - period.

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Im guessing most will say a good mix of purchasing individual stocks is what the big investors on here would recommend.

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I'm not exactly sure that is the the real sentiment of the board. IMO, most would say index funds, particularly ETFs, are the most logical choice for the basic investor. Super low fees and plenty of diversification.

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Stocks: Great if they are high dividend or if you plan on selling off of big news (Not long term in my mind)

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This shite is really beginning to irk me. So many people have been force-fed dividend payers in an effort to chase yield that I believe we are going to see a ton of retail investors get slammed if rates rise at any aggressive clip. This low-rate environment has led people to stop asking the right questions. There is a reason the BP Prudhoe Bay trust pays out a 12+% dividend, but people don't even ask, all they see are the checks and the profit as people inflate these stocks in their search of yield. Someone is going to be left holding the bag on these things if rates rise as quickly as they fell from mid-2007.

/rant.

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most would say index funds, particularly ETFs, are the most logical choice for the basic investor

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I am firmly in this camp.

The thing is, most people are deluding themselves when picking stocks. If you don't have a few thousand pages of notes, records of investor conference calls, industry writeups, etc. then you are probably just guessing. Unless you're running money for a fund in the hundreds of millions, the amount of work needed to know a stock isn't worth the edge you might get.

Most people don't even bother to read the 10-K though, much less do any real work trying to understand the company. They just say "Hey, the dividend yield is 9%, sign me up!" Hm, maybe there's a reason why it is so high? Might want to find out first.

There's probably not much wrong with guessing for entertainment value although you are taking more risk than you have to vs. just buying the market.

Might as well just buy ETF's and indexes in various markets and be done with it.

ETF's are funds. Exchange-Traded Funds.

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The mutual fund admiral share class is VFIAX and has an expense ratio of .05%

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Thats one fund that I own... I'm just wondering if I should keep throwing money into the Funds that I own or start buying some ETFs too.

foshizzle is exactly right.

Most of the time, when you buy an individual equity you are buying it from someone who is more informed than you are about the stock.

I deluded myself into thinking otherwise years ago and now have a vast majority of my holdings in index funds that I add to monthly. It simplifies my life tremendously.

The other problem with picking individual stocks is that you very likely will not optimize your returns by doing that. In my case, I loaded up on dividend paying stocks and I was significantly overweight large cap value -- which made me underperform the broader market last year. I didn't intend to be so defensive, but I was by virtue of my strategy.

If I had it to do over again, I'd put 80% of my holdings in some index funds that match the broader market. I'd use the remaining 20% to pay but NO MORE than that. Set a baseline portfolio and play with a small portion if you must. You'll be happier this way.

ETF's are generally passively managed meaning there is no buying/selling inside the funds portfolio.

Mutual Funds are typically actively managed meaning the managers/sell the investments inside of them whenever they want.

I'm sure you can have both but thats typically the difference. Also for funds your gonna pick up inherited cost basis of when the fund bought the individual investments vs you purcahsing an individual stock.

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It takes more time and concentration when you own individual stocks - you have to watch individual earnings reports, read 10-K, dividends, news affecting the company, news affecting the sector, technology changes, a thousand things to be a responsible shareholder.

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Yea, I thought you meant that in regards to individual stocks

Eta:

Also, what funds are you/this board contributing to? I'd like to see what's out there and start contributing to more than just the two that I'm currently throwing money at.

So if I'm purchasing and sitting for 20+yrs, just pick vanguard funds and let it ride?

No reason to pick the vanguard ETF's unless I am going to watch and try to make moves on them based on market swings and the likes?

Correct in thinking?