In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool analysts Jason Moser and Brendan Mathews take a question from a reader who writes: "I've been slowly adding individual stocks to port, but I'm still heavily weighted in 401k mutual funds. Should I continue to buy stocks in order to diversify my portfolio?"
Jason and Brendan both believe that diversification is an important part of a successful investing strategy, and owning mutual funds makes sense for most investors. However, mutual funds aren't always the most optimal choice due to higher frictional costs owing to high turnover and load fees. Investing in individual stocks is a great option for investors with the time and inclination to follow them. For other investors, an index fund or perhaps an ETF tracking the S&P 500 can offer broad market exposure at a low cost.
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