1 Answer

The goal of a portfolio is to achieve diversification in order to keep the volatility down.  Typically you'd need at least 16-18 stocks to get to a comparable confidence interval to a diversified mutual fund.  You expect to outperform the market on the upside and hope to do the same or better when the market is down.

The answer? It really depends.  If the size of the portfolio is essential in making this determination.  Once you figure out that you can get to the desired level of diversification with individual stocks, you now have to assess the fees charged.  Individual stocks can be quite costly when you buy only a few shares.  For example, if the flat fee is $50 per trade, buying 100 shares of Apple Computer at $380 will make the fee less significant than buying 3 shares of Apple Computer at the same price but paying the same fee of $50.  Note: you have to buy at least 16-18 stocks in your portfolio.  Personally I prefer 32-35 stocks in my portfolio.  Once you pay for the fee to buy stocks, there are no more fees to be paid to the brokerage house.  This is very suitable for portfolio the size of $100,000 or more.

You can invest in mutual funds for as little as $500 to $2000.  This is great for a small portfolio since little capital is require to initiate a trade.  You get a mutual fund manager that pro-actively adjust the portfolio for you throughout the year.  No load does not mean no fees.  It merely means it doesn't cost any initial fees to get in.  Nonetheless, typical annual internal fees run from 2.5 - 3.5% and are chargeable as long as you own the fund.

Bigger accounts - buy individual stocks but require periodic adjustment to the portfolio by self.

Smaller accounts - buy mutual funds with a pro-active manager overseaing the portfolio.