Newspaper article THE JOURNAL RECORD

Net Puts Pressure on Funds

Newspaper article THE JOURNAL RECORD

Net Puts Pressure on Funds

Article excerpt

NEW YORK -- As much as the Internet has done to promote the growth of mutual fund investing, it also threatens to lure investors away from funds with some potent new competition.

The first wave of this challenge is visible now with the rapid rise of electronic trading services operating on the World Wide Web, which allow investors to buy and sell individual stocks more easily and cheaply than ever before. And that could be just the beginning.

One writer at a New York research organization recently raised the intriguing suggestion that businesses on the Web could make available all the services and benefits now provided by funds at lower cost and without some of the tax headaches that often arise for fund investors. This could get interesting. For the last 10 or 20 years, the funds, with the appealing combination of diversification, convenience and professional management they offer, haven't faced much competition from any other type of financial services firm. E-trading has attracted a great deal of attention in recent months. More broadly, in a stock market climate favoring only a few dozen blue chips and high-technology companies, the idea of investing directly in individual stocks appears to be enjoying a new vogue. "Could individual stocks be luring money away from mutual funds? While it's too early to call this a trend, fund flows haven't been as strong as they should be so far in 1999," analyst Henry McVey at Wall Street's Morgan Stanley Dean Witter observed in a recent report. "Marginal investors appear to have decided not to plow their discretionary dollars into retail mutual funds; rather, they seem to be buying individual securities." As financial advisers have been quick to point out, buying stocks directly can pose problems for most individual investors. For one thing, if you give up the diversification that comes with a mutual- fund portfolio, you may expose yourself to dramatically increased risk without improving your potential rewards very much. If you venture onto the Web to trade stocks frequently, rather than buying and holding for the long term, you are abandoning a fairly simple mission for a much more complicated and difficult one. …

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