Stocks versus mutual funds

[Anonymous]

How much money do you invest before buying individual stocks versus mutual funds? Our investment advisor told us he wants to have us invest 500k before buying stocks because of the higher risk. This seems like a high threshold to me but I am no expert. Curious as to advice or experiences of others-thanks!

[Anonymous]

Really no need ever to buy individual stocks, unless you want to take a flyer (i.e., gamble with your savings). I think your investment advisor sounds smart.

[Anonymous]

+1- the conventional wisdom is that index funds are best, and that money you put in individual stocks is essentially like gambling or fun money- i.e. money you're perfectly comfortable losing.

[Anonymous]

Anonymous wrote:+1- the conventional wisdom is that index funds are best, and that money you put in individual stocks is essentially like gambling or fun money- i.e. money you're perfectly comfortable losing.

What's wrong with creating your own mutual fund by selecting 25 to 30 stocks to invest in? How is that not diversified?

[Anonymous]

I don't think there is anything wrong with creating your own diversified portfolio, so long as it's actually diversified among industry sectors, small and large cap, international domestic, etc. No management fees that way! And it's more fun to watch a handful of stocks. At Wharton, they said you could achieve adequate diversification with five stocks. Many folks say a larger number. 25-30 should be plenty.

[Anonymous]

Anonymous wrote:

Anonymous wrote:+1- the conventional wisdom is that index funds are best, and that money you put in individual stocks is essentially like gambling or fun money- i.e. money you're perfectly comfortable losing.

What's wrong with creating your own mutual fund by selecting 25 to 30 stocks to invest in? How is that not diversified?

A lot of people believe that mutual funds are also pointless and don't really beat an index either.

[Anonymous]

Are you going to choose the companies randomly are you going to research companies? If you are going to choose at randomly, it makes more sense to buy an index fund which would have a lower variance than choosing a handful of stocks at random. On the other hand, researching companies is alot of work, and if you believe in efficient market theory, then there really isn't anything to be gained by research since you have thousands of Wall Street professionals doing the same thing as you except they are better at it. In either case, an index fund is a better choice.

Maybe your advisor thinks you should invest in a hedge fund when you reach 500k net worth?

[Anonymous]

Anonymous wrote:

Anonymous wrote:+1- the conventional wisdom is that index funds are best, and that money you put in individual stocks is essentially like gambling or fun money- i.e. money you're perfectly comfortable losing.

What's wrong with creating your own mutual fund by selecting 25 to 30 stocks to invest in? How is that not diversified?

you are virtually guaranteed to underperform the market over the long term. better to just invest in an index fund with vanguard (they seem to have the lowest fees around) and let it ride. no stress, no time wasted.

[Anonymous]

buy vangard index funds and you're set.

[Anonymous]

I understand that Vanguard has the lowest fees, but does it really make sense to put all your eggs in the Vanguard basket? What happens if Vanguard goes belly up?

[Anonymous]

Anonymous wrote:Are you going to choose the companies randomly are you going to research companies? If you are going to choose at randomly, it makes more sense to buy an index fund which would have a lower variance than choosing a handful of stocks at random. On the other hand, researching companies is alot of work, and if you believe in efficient market theory, then there really isn't anything to be gained by research since you have thousands of Wall Street professionals doing the same thing as you except they are better at it. In either case, an index fund is a better choice.

Maybe your advisor thinks you should invest in a hedge fund when you reach 500k net worth?

Yes, I'm going to be investing in hedge funds and subprime mortgages.

[Anonymous]

Anonymous wrote:I understand that Vanguard has the lowest fees, but does it really make sense to put all your eggs in the Vanguard basket? What happens if Vanguard goes belly up?

then diversify into other funds/types.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I understand that Vanguard has the lowest fees, but does it really make sense to put all your eggs in the Vanguard basket? What happens if Vanguard goes belly up?

then diversify into other funds/types.

Such as? Everyone on here just buys Vanguard, apparently.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I understand that Vanguard has the lowest fees, but does it really make sense to put all your eggs in the Vanguard basket? What happens if Vanguard goes belly up?

then diversify into other funds/types.

Such as? Everyone on here just buys Vanguard, apparently.

Such as other funds (e.g. fidelity) or non stock funds (e.g. muni bond funds).

[Anonymous]

Anonymous wrote:I understand that Vanguard has the lowest fees, but does it really make sense to put all your eggs in the Vanguard basket? What happens if Vanguard goes belly up?

Mutual funds are not like brokerages or banks-- they have keep all your money in an account. Actually they have to keep your funds in an account at a third party bank. If Vanguard goes belly up it will distribute the funds out to people.