Choosing stocks or mutual funds?

Ask NJMoneyHelp

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Q. I have about $500,000 in IRAs, and they’re in index funds. I’m 42, and I’m wondering if it’s smarter for me to be in individual stocks. How can I decide?
— Investor

A. Switching from mutual funds to individual stocks will be a big change in terms of how much time you spend monitoring your portfolio.

The beauty of a mutual fund is that a professional money manager keeps tabs on all the individual stocks within the portfolio. If you buy individual stocks instead, you’ll have to act as the money manager.

Do you have that kind of time?

First, though, you should determine your objective. Are you looking for higher return or less risk?

“Holding a only a few stocks could increase your return potential, but also increases risk with all your eggs in one basket,” said Alan Curley, a certified financial planner with Sequoia Financial Strategies in Mountain Lakes.

Then you need to consider your stock selection process.

Curley asks: Will you mimic some of the index fund positions — and which ones? Or will you use another selection process such as fundamentals — analyzing company financials — or technical — analyzing price trends — or will you just take a guess — the old-school dart board method?

“You then must be prepared to monitor the positions,” he said. “Even `passive’ index funds are adjusted from time to time.”

Next you’ll have to look at the costs, both in potential transaction expenses and the value of your own personal time, Curley said. Your return should compensate you for the additional effort.

“Compare this to cost/benefit of the index fund, which has broad diversification, economies of scale and very low expenses,” he said.

Good luck making your decision.

Email your questions to moc.p1513546530leHye1513546530noMJN1513546530@ksA1513546530.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.