How about stocks, individual stocks? Short answer: maybe. Long answer; individual stocks can do quite well, assuming you are good at picking stocks. I would only recommend this if you have enough money to invest that you can diversify your holdings enough to eliminate as much risk as possible. In other words, if you have enough money that you can invest a meaningful amount in, say, 30+ stocks, go for it. Or, if you already have a well-diversified and balanced portfolio invested in mutual funds, and want to try picking a few stocks with a small amount of your total portfolio (say, 10%). Otherwise, it's just too risky. Imagine that you've invested all your money in 5 companies, and one goes bankrupt - you've just lost 20% of your savings. Ouch. On the other hand, if you've invested in 30+ companies and two of them go broke, you've only lost a bit less than 7% of your savings (assuming you invested an equal amount in each company). Or, if you only invested 10% of your savings in individual stocks, and half of them go bankrupt, you've only lost 5% of your savings. All in all, individual stocks can do just fine, as long as you make sure you're well-diversified, know a lot about the companies you've picked, and make sure that your savings can handle it if one or two of your picks ends up being a dud.
That being said, for the common mortal who doesn't have that much money to invest, nor time to thoroughly research each company, I would still suggest the approach I recommend to pretty much everybody: passive index investing in low-cost mutual funds or exchange-traded funds (ETFs). I'll touch upon those in another post.
