Ask Terry Questions Individuals stocks or mutual funds?

Individuals stocks or mutual funds?

By Terry Savage on April 20, 2013 | Investments

Hi Terry,
My question is do you think it is smarter and less risky to invest in mutual funds than individual stocks? I want to try and pay the lowest fees possible and have less risk but still have growth. I am currently with a brokerage firm(individual stocks) and paying high fees and my portfolio is not growing rapidly at all. I may be looking into Vanguard. I would need to look into tax consequences as well. What is your opinion? Thank you.

SAVAGE SAYS: For most people who do not want to spend their time researching and trading stocks, a mutual fund is an excellent answer. And Vanguard offers the lowest cost mutual funds in the industry, so that’s a good place to start. Plus, they will advise you about which of their funds are most appropriate for your situation and goals. And you can keep adding money to your funds on a regular basis, through an automatic investment plan.

The next question is how to “title” your fund accounts. Are you going to open an IRA, where the money will be growing tax-deferred. Should it be a “traditional” IRA, where you get a deduction for your contributions (IRA investments can only be made if you have earned income — not income from other investments or retirement.)? And if it is going to be an IRA, maybe it should be a ROTH IRA, where you don’t get a deduction but future withdrawals in retirement come out tax free, including any gains from growth.

It is easy to talk to the representatives at Vanguard, or any other major mutual fund company, and they will help you work through these issues and set up an account. And remember:? Time IS money. So don’t procrastinate!



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