Bill’s Blog

Today over on Queercents, I explore the differences between investing in index funds, actively managed funds, or individual stocks. Here’s an excerpt:

Any finance professional will tell you that if you want to grow your wealth, your asset allocation needs to include stocks. The reason is simple - stocks have the highest potential return. In the many articles on how to invest for your retirement, a common recommendation is to get stock market exposure through a low-cost index fund. There are good reasons for that, but buying actively managed funds or individual stocks are also valid approaches, with different benefits and drawbacks. I want to discuss some of those here. I’m not a financial advisor, but this is my take based on what I’ve read and my own investing experience.

Before we get into that, I should point out that we’re only talking about the stock portion of a portfolio here. The concept of asset allocation - how much to invest in stocks versus bonds versus anything else - is a topic for another article. Similarly, I’m ignoring targeted maturity funds, since they take care of asset allocation for you. I’m also ignoring exchange-traded funds (ETFs), which can be a good alternative to index funds.

Read the rest of the post here.