This post is the fourth in a five-part series outlining the primary benefits of the Couch Potato strategy.
Anyone who has invested in both mutual funds and individual stocks knows there’s a world of difference in how they are traded.
You can determine a stock’s current price almost instantaneously. If you place a market order to buy a popular stock, chances are your trade will be executed in seconds, extremely close to the quoted price. And if you’re adamant about receiving a particular price, you can place a limit order, which specifies the maximum you’ll pay when buying, or the minimum you’ll accept when selling. You can do this any time the markets are open.
Mutual funds are far less flexible. Funds calculate their net asset value (NAV) just once daily, after the market closes, and then carry out trade orders made during that day. So even if you place an order to buy or sell at 10 in the morning, the trade will be executed based on the price set at end of that trading day. If you’re moving a large sum, a market drop of even 1% or 2% can cost you a significant chunk of money.