I'm not one of those people who believes that investing has to be an "either/or" proposition.

Either you own stocks or bonds.

Either you own funds or stocks.

However, I do believe that, all things equal, individual stocks are better investments for do-it-yourself investors.

One reason I like stocks better than funds is that stocks are more tax friendly. With stocks, you decide when to incur a tax liability. You can defer paying capital-gains taxes on your stock investments by not selling. You don't have that control over your taxes with mutual funds. Indeed, the fund manager determines your tax liability.

This point is hitting home this year in a big way. Indeed, many mutual funds sold stocks in 2000 and realized gains. Those gains have to be distributed to shareholders. What is particularly galling, however, is that even fund investors who are sitting with a paper loss in the fund are still on the pan to pay taxes on these realized gains.

The other reason I like individual stocks better than funds is that stocks, on average, are lower-cost investments. All mutual funds have annual expenses, and these expenses can consume 1.5% or more of your assets each year. With stocks, you don't have these annual management expenses.

Of course, that doesn't mean that you should never own funds. Mutual funds can be an important tool for diversifying a portfolio, especially in such areas as bonds and international investments.

However, if someone held a gun to my head and said I could only invest in stocks or funds, I'd choose stocks.

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