When you talk to investors about the costs that affect their investing the most, you'll hear a lot about broker commissions. Yet in the long run, another type of fee can cost you thousands of dollars -- giving you plenty of incentive to take the next step in your stock market education, and start buying individual stocks on your own.

Mutual funds have huge advantages for beginning investors. When you're first beginning to invest, a good mutual fund gives you several benefits. You can start with a diversified portfolio, even if you only have a few hundred dollars to invest. You can read your fund manager's annual reports and shareholder letters to get insight on your fund's approach to successful investing. And over time, you can add to your investment nearly effortlessly, simply buying new shares whenever you have extra cash to put to work in the market.

But once your portfolio gets big enough, mutual funds start getting much more significant. And during tough times, you need to think twice before you pay thousands of dollars in mutual fund fees -- because whether the market rises or falls, you're losing that money year in and year out.

$1,100 pays a lot of commissions
In contrast to mutual funds, brokers are notorious for their fees. The top complaint: You can't do anything without paying something. Each time you buy a stock, there's a commission. Buy five stocks, pay five commissions. Need to sell one? Pay another commission. Meanwhile, most mutual fund purchases and sales are absolutely free.

But there's definitely a price you pay for mutual funds -- and the more you own, the more you pay. As of mid-2008, households owned about $10.1 trillion worth of mutual funds, closed-end funds, exchange-traded funds, and unit investment trusts, according to the Investment Company Institute. With an estimated 93.2 million investors owning at least one type of fund, of whom 92 million own mutual fund shares, the math works out to about $110,000 in fund assets for the average investor. The vast majority of these assets are mutual funds.

With an average expense ratio for stock mutual funds of about 1.02%, the typical investor pays more than $1,100 per year just to cover the expense ratio. And remember, expense ratios don't even include the transaction costs that funds incur to trade stock holdings -- which some analysts estimate can add as much as 2% more in costs annually.

Do-it-yourself investing
Instead, by taking charge of investing your own large portfolio, you can save a bundle. For example, say you own $100,000 in the Oakmark Select I Fund (OAKLX). Because the fund owns just 20 different stocks, you could instead just buy them all in a brokerage account. And because the fund has a relatively low turnover ratio of 26%, you wouldn't have to make lots of transactions to track the fund's changing holdings.

In addition, by owning each stock individually, you'd open up some options you don't have as a fund shareholder. Take a closer look at some of the fund's top 10 holdings:

Stock

Share of Fund Holdings

5-Year Annualized Return

H&R Block (NYSE:HRB)

9.07%

(4.8%)

Yum! Brands (NYSE:YUM)

7.29%

11.7%

Schering-Plough (NYSE:SGP)

6.34%

1.4%

Capital One Financial (NYSE:COF)

5.10%

(30.5%)

Intel (NASDAQ:INTC)

4.95%

(13.2%)

Bristol-Myers Squibb (NYSE:BMY)

4.86%

(1.5%)

Time Warner (NYSE:TWX)

4.76%

(14%)

Source: Morningstar, Yahoo! Finance. Holdings as of Dec. 31, 2008. Returns as of Feb. 18, 2009.

As a fund shareholder, when it comes to buying and selling, you're at the mercy of the fund. Among other areas, that makes a big difference in taxes. If the fund chooses to sell its long-term winners, you'll pay capital gains tax -- even if the fund loses money overall.

But if you own the shares yourself, you call the shots. Instead of selling shares like Yum! Brands where you have gains, you can choose to liquidate losers to harvest tax-loss benefits -- or simply stay put.

More importantly, as you gain experience, you'll feel more comfortable putting your own spin on a fund manager's picks. For example, if you like value manager Bill Miller but think it's still way too early to buy financial stocks, you can instead just focus on his other picks. Eventually, you can take off the training wheels and research your own stock ideas, rather than relying on those of fund managers.

Take control now
When you consider how much you're paying for a big fund portfolio, commission costs seem like a drop in the bucket. Given how much flexibility a brokerage account of your own adds to your investing, finding the right broker really pays off.

More on investing in tough times:

Learn how you can pick the right broker to make the most of your investing prowess.

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Fool contributor Dan Caplinger still uses some mutual funds, but he prefers to own his own stocks. He doesn't own shares of the companies mentioned in this article. Intel is a Motley Fool Inside Value recommendation. The Fool owns shares and covered calls of Intel. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy keeps you a winner.