Should I Invest in Stocks or in a Stock Mutual Fund?

Most investors should use funds rather than individual stocks.

Smart stock investing takes time and intensive research. It also requires a significant outlay of cash to build a well-diversified portfolio. An alternative, which is to hold a highly concentrated position in a handful of stocks, gives you a shot at huge gains (imagine if you bought Apple in 2002 for $7 a share) but also risks catastrophic losses (imagine you owned stock in Enron or Lehman Brothers, at any price.) A mutual fund automatically spreads your bets among dozens or even hundreds of stocks.

That said, stock investing is intriguing and even fun for many people. If you want to wade into the market on your own, you can use funds as the core of your portfolio and set aside a smaller dedicated account for your own picks.