[Retric]

Because of minimizing risk, and minimizing transaction fees.

If you buy 100 stocks and 10 of them go to 0 you are out 10%. However, if the other 90 stocks are up more than 15% then you have gained a little money.

But, if you buy 100 different stocks by hand then you pay 100 different transaction fees and have to keep track of them independently for tax etc.

[jonas21]

I'm pretty sure you still need to pay taxes on the dividends even if you're reinvesting them.

[Retric]

Sorry, your right.

There are tax advantages, but it's more complex than simply not paying short term capital gains on dividends.

[tedunangst]

If it's an IRA, there's no tax unless withdrawing.