Stocks Vs. Mutual Funds for Brokerage Accounts
Brokerage accounts are one of the most flexible means for investing in securities. An investor can hold cash, fixed-income bonds, certificates of deposit, stocks (and options), mutual funds, unit investment trusts and many other investments within his account. Individual stocks and mutual funds are two common holdings.
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Availability
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Except in rare cases, brokerage accounts can hold mutual funds with wide-ranging objectives. Those exceptions would be when the brokerage firm does not have a selling agreement with the fund distributor. Almost any stock can be held unless --in some cases--it is a foreign or highly illiquid stock.
Mutual Funds
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Mutual funds are popular holdings in brokerage accounts because they offer extensive immediate diversification and professional management. With limited amounts of money, an investor can have one single investment represent potentially hundreds of securities.
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Individual Stocks
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If an investor has enough capital, he can own many stocks individually. This requires more attentive selection and screening, as well as ongoing review and analysis by the investor and/or his account representative.
Volatility
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A portfolio of individual stocks can be more volatile than a diversified mutual fund. However, a well chosen group of stocks can still be beneficial if several industry groups are represented.
Flexibility
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While mutual funds can only be transacted after the close of the market, stocks can be bought or sold any time during market hours. Additionally, stocks can be sold short and many are "optionable" -- that is, they have call and put options which can be traded as a means of enhancing return or transferring risk.
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