Originally Posted by mikeler
What do you guys think of buying index funds versus trying to pick individual winners in the stock market? I know there are fees with index funs but it seems like a much less risky way to invest.
Index funds can be extremely low fee as compared to many managed funds. Individual winners (at least in my eyes) is more of a short term investment. Making any long term (significant) investment goes directly against diversifying your portfolio (putting all your eggs in a basket).
Realistically, if you're making bets on individual stocks, you're going to be buying/selling on a short term basis. There's going to be taxes on this income vs. being able to hold a stock for >1 year (http://taxes.about.com/od/capitalgai...GainsTax_2.htm
). You're going to get penalized, just in a different way.
Index funds IMHO are completely fine if you're looking to hold long term, but if I were going very long term, I'd just buy into a target/retirement date fund. The fees (depending on which/where you invest) can be low, and the fund is managed for you. You don't have to worry about diversification/reallocation as you get older, and the fund starts out more aggressive, and gradually moves towards more stable investments nearer the end/goal date. For anyone overwhelmed with the sheer amounts of options, this is an easy one to just dump money into and forget until it's time to take it out. Kind of out of the scope of the initial question, though.