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Stocks vs. funds.

Q I'm an investor of modest means. Still, I feel I have to be aggressive when it comes to my investment strategy because my retirement years are not too far down the road. I do have a portfolio of mutual funds. However, is it wise to own stocks of individual companies even if those stocks are within my mutual funds?

--Sol Lowman Jr. Nashville

A The issue you raised has been of concern to many investors. Whether you should diversify into individual stocks from your mutual fund portfolio depends on your financial goals, risk tolerance level, and the amount of money that you have to invest. We thought that this matter was so important that we devoted an article on this issue (see "Decisions, Decisions" in our November 2000 issue). In researching the performance of individual stocks versus mutual funds, we found that in the recent market more than 300 individual stocks have had returns of 200% or more, while in most cases, funds offer consistent returns with only one fund showing a 20-fold return. But before you pick that individual stock, you have to be able to stomach the volatility that comes with less diversification and concentrated risk. It will also depend on the sector that you select. Typically, a technology stock will be far more volatile than a defensive stock in, say, the pharmaceutical or household products industries. Another factor: The fund that you select may provide you with the offerings that you want and only hold a small percentage of shares in an individual stock that you like. However, when it comes to the development of your mutual fund portfolio, you should try to avoid duplication of holdings
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Publication:Black Enterprise
Article Type:Brief Article
Geographic Code:1USA
Date:Jan 1, 2001
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