When it comes to saving for retirement, investors have several choices with regards as to how they decide to invest their capital. They can choose to put their retirement money into an index or mutual fund or pick individual stocks. Advocates of both types often of investment styles will tell you that their strategy is the best. I feel that each investor must decide for themselves which type of investments philosophy will work for them.

If an investor doesn’t have the time or inclination to research individual stocks, then placing one’s money into an index fund is likely a good idea.  Picking individual stocks takes time and patience.  Investors who find that the daily market fluctuations of individual stocks turn their stomach, an index fund, such as the S&P 500 ETF (SPY) or Vanguard 500 Index Fund (VFINX), will probably save them time and money.

If, however, the investor is willing to commit the time and patience needed to become a successful investor, picking individual stocks can lead to above-market gains. This article will explore several reasons why in the battle between index funds and individual stocks, I prefer investing in individual securities.  

Greater Investment Options

When it comes to index funds, your options are limited. Each broker usually offers their own S&P 500 index fund. Fidelity and others also offer their own funds on different sectors of the economy, like technology or industrials.  Many of these funds often overlap what they hold. While the funds might have different names, they can have very similar holdings. For example, if you buy a fund focused on technology it doesn’t matter if you buy through Fidelity or Vanguard, you are probably going to end up owning Microsoft (MSFT) and Facebook (FB).

By picking individual stocks you have nearly unlimited options. You can literally buy shares of a publicly traded company, even those in other countries.  Want to own a railroad, but prefer those that operate in Canada as opposed to the U.S.? Fill out a purchase order, hit the buy button and you’ll have shares of Canadian National (CNI) in your portfolio. Want to own a small or mid-cap stock in the energy sector? Instead of buying a fund that holds every stock in this sector, buy an individual company that you like. After researching healthcare names, if you think that Pfizer’s (PFE) pharmaceutical pipeline offers more potential for growth than Bristol-Myers (BMY), add PFE to your portfolio.