I don’t see buying individual stocks as a form of diversification – after all, you could always buy a small-cap index fund (though maybe not a microcap index fund). (And incidentally, the best securities for diversification have low “Betas” – certain emerging market funds might qualify in this regard.)
Personally though – and this really is IMHO – I think buying, say, 5 individual stocks is ok as a supplement. On average, they will do about average as a group (!), and one or two of them will give you bragging rights. (Just don’t mention the trailing ones – until they have a good year!)
Still, it’s more fun (and maybe more lucrative) if you have an investment theory to back up the chit-chat. My tastes would run towards, “Investment fundamentals”, “Looking forward” and “Studying the 10-Ks”. I’d stay away from “Technical Analysis” as it tends to encourage you to churn your portfolio.
You might want to visit the Motley Fool (www.fool.com) – they have decent investment tutorials and really are geared for the small investor.
You seem to be getting IRA, 401K and mutual funds mixed up…
You can invest in almost anything with an IRA: you can buy commodities, you can buy stocks and options through a broker - you can even buy real estate with an IRA. There are brokerages that will help you set this up, and I’m sure you can put your DRIPs in too. There is nothing requiring you to invest in a mutual fund with an IRA.
With a 401k you are limited to the funds your employer has chosen, and there’s not much you can do about that - hopefully your employer has included no-load index funds.
As for the rest of your investments, are you even bothering with mutual funds when you have a choice? Why not invest in an ETF (Exchange Traded Fund) which is traded like a stock, but has no management fees because it reflects a basket of stocks? Some examples are SPY, (Standard and Poor’s) QQQQ (Nasdaq) USO (oil) DIA (Dow Jones) - and many more.
It seems the primary problem is that you want to actively trade and experiment, but your brokerage fees are ridiculous. The last time I looked, I paid .01 per share for regular stocks ($1.00 minimum) So 100 shares of any stock are going to cost me $1.00. 500 shares cost me $5.00 and there are discounts for larger trades. I use a large online brokerage called interactivebrokers, (I’m not promoting them, I hope I’m not breaking any rules by posting that ) but there are others out there with reasonable fees.
If the firm where you hold your stock allows the purchase of partial shares, then you should be able to enroll your shares in the DRIP program regardless of how many shares.
Many firms will not allow you to purchase fractional shares. Thus, you would have to own enough shares of a stock to purchase at least one whole additional share given the amount of the firm’s dividend and the current market price of the stock. For example if you hold 100 shares of a stock which pays a .30 quarterly dividend which is trading at $30.00 per share then you could purchase one additional share. Any additional amount would be paid in cash in lieu of fractional shares.