by Bob Trowbridge

Created on: January 27, 2008

Fortunately for today's investor, the choice between mutual funds and stocks is one that you don't have to make. In the search for diversification in one's overall investment strategy, stocks, mutual funds, bonds, certificates of deposit, money market accounts, and even savings accounts can help balance risk and returns for the individual investor.

If I were forced to choose between stocks and mutual funds, however, I would have to go with stocks. I will admit, at the outset, that buying and selling stocks is much more time and energy intensive. With a little time and effort, you can choose one or two mutual funds and pretty much forget them.

Stocks, in general, require much more investigation and involve higher risks and promise higher rewards. They involve more daily involvement because changes in individual stocks will affect your portfolio much more immediately than changes in stocks in a mutual fund.

By creating your own portfolio of stocks, you are essentially building and running your own mutual fund. You can create much more diversity than that found in most mutual funds. You are responsible for your choices, for your successes and failures. You will determine the level of risk and the level of potential gain.

I'm choosing stocks because it is necessary that we make a much higher percentage return these days because of inflation and the destruction of the dollar. The inflation numbers coming out of the current administration are basically false. Inflation is much higher than we are told, possibly as high as 10%. If you are making 10% with your mutual funds, you are just breaking even (not counting the incredible shrinking dollar).

Investors must aim for returns that are much higher than 10% to account for inflation, the falling dollar, and taxes. It is possible to get such returns in mutual funds but less likely than with individual stocks. Now that the Feds are dropping the interest rates again, getting decent returns in other vehicles will be impossible.

Do you have to be an expert to make money in the stock market? First of all, the experts don't always make money in the stock market and the current housing market fiasco demonstrates that very well. If not for foreign rescues, some of our biggest banks would be in danger of going belly up because of stupid investment strategies. Some may still go belly up in spite of foreign intervention or government intervention. In the end, we will probably pay for their mistakes.

It is said that investors swing back

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