The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: dnmccoy on March 16, 2020, 12:38:51 PM
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As someone just getting started, is there any advantage to investing in single stocks vs mutual funds? I have my portfolio setup similar to the 3 fund portfolio idea proposed by Jack Bogle, but I keep hearing people talking about dividends they get and reinvest.
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Not generally unless you're wanting to vote on how the company is governed. Mutual funds allow you to own a broad array of companies so it doesn't affect you much if any one doesn't do well. You do lose a little of your returns in mutual funds to management of the fund, though, so you need to pay attention to the expense ratio.
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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.