Boy do I love my job. I travel around the country giving free seminars and I get to meet very sharp individuals who are looking for new ways to grow their wealth. And every time I check my inbox, I see a flurry of insightful questions and ideas from my newsletter subscribers. These questions and feedback about the market keep me on my toes, so I like to share them in this daily blog from time-to-time.
Take this question I received from a member of the Family Trust. It hits at the heart of how investing preferences differ from person-to-person and how what may work for one may not be appropriate for another. Here’s the question:
What’s the advantage of buying stocks versus mutual funds?
This is an excellent question. I imagine that every analyst and wealth manager has a different perspective on this, but here is my take.
Personally, I favor investing in stocks right now. For one, it’s much more exciting hand-selecting stocks than simply buying into a fixed basket.
It’s like going to the produce section of a grocery store. On the one hand, you could choose to buy the pre-selected bag of apples and oranges. The main advantage is that the work is already done for you. You know that the fruit will be decent overall, but there will be bruised and misshapen pieces mixed in with the fresh pieces. And the pre-selected bag usually costs more.
Or you could take the time to hand pick your fruit from the bin. This way takes a little more time—and an eye for the ripest goods—but you end up with precisely the right mix of apples and oranges. And you can check out knowing that some real thought went into what you just bought—and that you got a good deal in the process.
In the same way, buying mutual funds takes the guesswork out of investing, but the tradeoff is less control over your portfolio and more fees. On the other hand, stock picking requires a little more legwork up front, but it allows you to zero in on the best profit opportunities at the time.
I’m actually in the mutual funds business, so I’m not anti-mutual fund at all. If handing your money over to the professionals helps you sleep better at night, I absolutely respect that.
However, if you enjoy handpicking your stocks, now is a great time to do so. As I’ve covered in the past few days, we’re on the cusp of third-quarter earnings season, and as always strong earnings announcements are going to drive a select few stocks higher. If you want to take advantage of the impending flight to quality, you can use Portfolio Grader—my stock screening tool—as your guide.