Individual shares or funds: should you pick your own stocks

In short:

1. Holding individual shares concentrates risk on a few companies, where a fund spreads it across hundreds.
2. Active management charges far higher annual fees than an index fund, and those fees are certain while outperformance is not.
3. Direct holding takes time: reading accounts, following results, making switching decisions.
4. The two combine: an index core, plus a satellite pocket of individual holdings if you have the time and the appetite.

What you are actually buying

Directly, you hold stakes in specific companies, chosen by you. Every buy and sell decision is yours, and the outcome depends on the quality of your choices.

In a fund, you delegate that selection to a manager (active management) or to a mechanical rule replicating an index (index management). You have only one decision left, which fund to hold.

The four differences that matter

Concentration is the real issue

A portfolio of ten shares is not diversified. If one of them halves, the effect on the whole is immediate and large. A broad index absorbs the same event without it showing. That is not a matter of skill, it is arithmetic.

Fees are certain, performance is not

This is the strongest argument for index funds. An active fund’s fees are paid every year whatever the result. Outperformance has to be achieved, then repeated. Over the long run, the fee gap weighs mechanically.

How to combine them

The most common setup among experienced retail investors looks like this:

• An index core carrying most of the capital, in one or two broad ETFs.
• A satellite pocket of individual holdings, capped in proportion, for personal convictions.

That structure has a practical merit: it lets you act on a few convictions without putting the portfolio’s overall trajectory at stake.

Frequently asked questions

Should you buy individual shares or use a fund?

An index fund suits the vast majority of savers: it spreads risk across hundreds of companies, costs little and requires no monitoring. Buying individual shares concentrates risk on a few lines and demands analysis time. The most common combination pairs a majority index core with a small pocket of individual holdings.

Is an active fund worth its fees?

That is the weak point of active management: fees are charged every year with certainty, while outperformance has to be achieved and then repeated. Over long periods that fee gap weighs mechanically on the net outcome, which explains the growing weight of index management.

How many shares do you need to be diversified?

Many more than people assume. A ten-line portfolio remains highly concentrated: a fall in one of them shows immediately across the whole. That is exactly what a broad index solves in a single line, by spreading exposure across hundreds or thousands of companies.