Mutual funds allow reinvested dividends - you can still do that.
When you buy "Vanguard Total Stock Market", you're buying a slice of ~3500 companies at once. If any one or two companies fail, you'll be fine. If someone buys stock in 5 companies, one company failure could mean a -20% loss. That's called "single company risk", and is a good reason to diversify by buying mutual funds. Especially index funds.