Why would you invest in a mutual fund instead of investing in its top holdings (see details)?

Because the way to invest is not to stick a chunk of money into one thing, be it a fund or a stock, but to make smaller investments at regular intervals. Bi-weekly, monthly.....and that is what mutual funds (and ETFs) are designed for. You CAN invest smaller amounts at regular intervals into the, say, 10 biggest stocks a fund holds, but it will be both a major PITA and far more expensive for you. You will be buying fractional shares in most cases and the transaction fees will KILL you. It is an incredibly inefficient way to invest. Mutual funds allow you to buy fractional shares in those stocks without any fees. You will just be buying fractional shares in whatever else that fund holds.

It's incredibly difficult for an individual investor to beat the stock market. It's even more difficult for an individual investor to beat the market by mimicking what an active fund manager is doing, even if just skimming at the top. Most fund managers lose to the market as well, so you are just increasing your chances of losing. Even if you were lucky enough to find a fund manager who outperforms for a long period of time, you're always going to lag behind them because updates on fund holdings are not constantly being made available to investors while the stock prices are going up (and down) every second.

If free is your biggest concern, just dollar cost average into FZROX. I can just about guarantee it will beat your performance if you hold individual stocks, whatever strategy you have.

Dave Ramsey suggest Mutual Funds

Because the investor doesn't have to be tracking the company's business operations "all the time".

The fund manager and other fund employees are gathering information about the companies in their fund constantly. They track when new products will be released, when patents are ending, they track their competitors activities, etc.

- They don't just sit back and listen to what the market analysts have to say about a company.

Most mutual fund investors don't want to be so hands on.

Some people do exactly that. The difference is the fund may lower a position within it or alter the balance if a company is underperforming, and you wouldnt be doing that. I prefer to just buy stocks and reinvest the dividends always, but I can see why many prefer mutual funds or index funds.

It's not as diversified (even though I do see your point).

Investments and allocations within the fund change over time but the prospectus is only published periodically. You are not notified of changes when they actually occur.

For small investors, the commissions on individual stock purchases may be cost prohibitive especially if one is making a purchase with every paycheck.

Mutual funds make things very easy for people with automatic purchase plans, fractions of shares, dividend/cap gain reinvestment and tax reporting.

Let's say you bought 30k worth of stock in ten companies over three years and you made two purchases per month and now you want to sell 30k worth of stock to buy a car. Figuring out the capital gain on 72 different purchase transactions...pain in the butt come tax time.

Your suggested method of investing would work better for someone who has a large chunk of money to plunk in and who isn't going to add to it with every paycheck.

yeah i know what you mean