Advantages of investing in mutual funds vs. individual stocks?

I've recently started work in my first career type job and have more money now and am keen to start investing money long-term for later in life.

Right now within my portfolio I have my money divided amongst a few different mutual funds. But I was wondering one thing about this. The mutual funds are no-load but charge a managment fee of around 1.5-2.5% anually which is just calculated against the value of the shares of the fund.

Correct me if I am wrong on this - but these days you are able to buy and sell stocks for almost nothing online without the larger broker fees you would have had to in years past. So - with the mutual funds I am having to pay for its managment.

Would it not be better to say take a list of the major holdings in the mutual fund and just divide the same investment amongst shares in those companies? I still have diversified holdings but do not have to pay a percentage for a fund's management? Or is there some other advantage I am missing?

Thank you

Well I guess that's the idea, but I've also read that in the past, most actively managed mutual funds have not performed significantly better than more basic index funds. This is why I wonder if I ought to steer more towards those or a diversified base of corporate stocks themselves?

Don't you know that 80% of mutual funds under perform the market? It's only my opinion but those who invest in mutual funds are simply lazy speculators who can't or don't know how to do their own analysis.

The fund's managers are likely to be better pickers of stocks than you are. There are many good ways to do your own stock picking; there are lots of newsletters, or you could just buy the stocks in the DJIA. (There are mutual funds that do just that, if you don't want to take the trouble to do it yourself.)

Well when you are buying a fund, you might be buying into 100 companies.

If you wanted to buy shares in these 100 companies individually, it would cost you a fortune, because you have to buy 100 shares minimum typically. You can't buy 1 share :) Now also, online brokerage fees are not free. They are very pricey for a small trader.

I have seen a very good and usefull dicussion forum on stock market- www.onlimoney.com where you can disuss stock market and commodities.

The big advantage of mutual funds is professional management and diversification for reduction of risk. That said, 1.5%-2.5% E.R.s are higher than average costs for mutual funds. There are many excellent no-load funds available with E.R.s well under 1.0%. Check Vanguard or T. Rowe Price in particular.

You CAN buy stocks 1 or 2 shares at a time, but even with small trade commisions, this is cost ineffective.

And there is nothing wrong with owning some individual stocks and some mutual fund(s) shares.

I believe it is true that most domestic stock mutual funds underperform a good index fund like for the S&P 500. But the key take-away point here is, DON'T buy the average mutual fund; DO buy the above average mutual fund.

If you spend the time and effort to search out and pick one of the relatively few superior funds, you will be richly rewarded. You might buy or borrow Jim Cramer's new book where he picks several of the best mutual funds. You may not want to blindly go with his picks, but he probably has detailed reasons on why he has made these picks.

I would say that any expense ratio above 1.8% is very costly & I would expect fantastic returns or dump it within a year. I have one fund that costs 1.2% ER, but it does have unbelievably high returns. My others have ER's between 0.2% and 0.7%.

One of the virtues of a great mutual fund is having the professional manager making the tough choices for you. The average investor WILL panic from time to time & do damage to their portfolio.

What might motivate you to add some individual stocks to your portfolio of mutual funds? I seek out high dividend, high div. growth, and at least moderately high earnings growth in a stock. Then automatically reinvest the divs. into more shares with a DRIP. If done within an IRA, the divs. don't generate tax fees, and will be more cost effective than a high div. fund. Also, fund investors jumping in and out of the fund can damage your returns a little, even if you buy and hold.

When buying individual stocks you are exposed to the single event risk causing one of your stock picks to plummet. So I'd strongly recommend that you stick with stable, lower risk stocks.

" long-term for later in life".... I hope that means at least some of the portfolio is in IRA accounts. That's number one.
Number two is : are you going to watch the portfolio every day...bad news comes fast sometimes...that's why you pay the manager..to buy and sell daily, weekly, etc...looking for signs, triggers, momentum, etc.
Number three...if you think you can select individual stocks, you should be able to select funds that will consistently beat average index returns.
Don't dump everything and think you're going to be a " market beater"...Get into a couple of good funds returning double digit gains ( so you won't sweat the 1.3% fee)...then take a portion of your portfolio, buy one or two things that you think are " sure winners"...and wait six months.
How'd you do? Do whatever seems right from then on.
Good luck.

The correct answer is yes and no..
Advantages of funds
Theorectically, the managers have more resources available and can investigate many different stocks to make appropriate choices.

Secondly by buying in larger volumes they can save on commissions as percentage of cost. This can mean difference between profit and loss

By choosing the stocks that are shown in annual report you might be buying just as they are preparing to sell.

A stock can move several percentage points in a day. You might have made the right choice but your order might not be filled. A large block of shares might be easier to move between institutions.

Disadvantages of mutual funds

If your fund has done a number of trades in a year, you could end up paying taxes on gains you never saw.

The management fees might more than offset savings elsewhere

Some mutual funds are so big that they cannot buy as much of a stock or industry as they might wish.

Astute managers can move to other funds and leave a mediocre team behind

Answer perhaps ETF (exchange traded funds ) with low MER's might work for you.