The personal attributes complicate the analysis. If the investor has a small number of working years until retirement, then the stock portfolio and variable annuity would not be favored because the return on investment could not compound enough to offset the larger transaction costs in the early years of both investment vehicles. The other personal attributes are probably the most important factors in choosing between either direct ownership of common stock or mutual funds and variable annuities. Direct ownership of stock means that the investor must show a willingness to devote a certain amount of time and effort to do independent research on potential investments and have the emotional stability and patience to ignore any short-term difficulties that individual companies are having in the stock portfolio. Some suggestions follow.
Investors can further diversify by gradually purchasing the different stocks over time.
This procedure is commonly known as dollar-cost averaging. Let the government share in the losses. Second, while no one should set a rule that a stock should never be sold, it should be done with great reluctance and clear indicators that it is no longer an outstanding company. If an individual starts buying and selling stocks too often, he or she loses the edge over mutual fund and variable annuity investors by incurring additional transaction costs and taxes. Over time an investor should gain an additional edge by investing in low-yield dividend stocks and stocks in unpopular industries.