Have you ever dreamed of finding the next GE, Microsoft or Google? Some aggressive investors choose individual stocks instead of funds, hand picking one or more individual companies that they believe have the potential to grow.
Investors might search for new or unknown companies in the hopes of finding the next big thing before everyone else does, or they might look for bargains: established companies trading at a low stock price because of a slow market or other temporary factor. Another tactic is to seek out growth stocks: companies with the potential to increase their sales by at least 15 percent in the course of a year, regardless of their current stock price [source: Domash].
Investing in individual stocks means more risk and less predictable returns than investing in a mutual fund. If you are savvy enough -- or just plain lucky enough -- to find a sleeper stock before it takes off, the potential returns are exponential. But unlike mutual funds, if your individual stock pick tanks, the money you invest goes along with it.