Various studies have proved that Buy and hold strategy almost always beats the Buy –sell-buy-sell strategy. We will assume that we will use the buy-hold strategy for both mutual funds as well as the stocks. Mutual funds are usually bought from your stock advisor. Mutual funds also have other expenses of managing the fund. It is a called a management fee. This will vary between 0.5% to 2.0% depending on the size of the fund. This is also called MER. Mutual fund managers are professionals and need to show results. They will trade and incur brokerage. Trading commissions are usually not shown as part of MER. In some cases there are trailer commissions too when you want to sell off your holdings. Last but not the least, past performance is never a true indicator of future performance.
Stocks as an investment would be relatively cheaper to acquire. If you identify the right stock that has a history of stability and history of paying dividends, you could look for an opportunity for direct investing, thereby avoiding brokerage. Sign up for a dividend reinvestment plan and the company reinvests the dividends in stocks of the company. It could be either at a very low cost or no-cost.
Everything else remaining the same, a mutual fund would have to earn 5% more on your money just to be on par with a dividend paying company. But you have to select a good stock that you want to hang on to for a long term.
If you are still sold on mutual funds, try an index fund. They are based on the premise that the market will provide long term results that no manager can deliver over a long term. The active manager starts the marathon at such a severe disadvantage makes it difficult to add value on a consistent basis over the index. The expenses are usually lower than an actively managed fund.
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