Why is it so important to avoid buying single stocks and invest in mutual funds instead?

Vivaan

Member
I’ve heard financial experts recommend diversification. Why is it so important to avoid buying single stocks and invest in mutual funds instead? What are the risks and benefits involved?
 
It’s not strictly “important” to avoid single stocks, but mutual funds (or index funds) are often recommended because they reduce risk through diversification. Instead of relying on one company’s performance, your money is spread across many stocks, so losses in one are balanced by gains in others.
 
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