With so many options out there for the individual investor. It is sometimes difficult to determine what investments are right for you. The key to having a long-term, stable and profitable portfolio is to diversify your investments. For many investors, the process of diversification include
Should You Investing in Mutual Funds or Stocks
Mutual funds are open-end funds that are not listed for trading on a stock exchange. Mutual funds will sell their own new shares to investors. Capitalization is not fixed and normally shares are issued as people want them.
1. Mutual funds have great characteristics for investors
Mutual funds are professionally managed. The mutual funds employ professional managers to operate all investing. These professional managers bring with them many years of experience. They are experts in selecting and evaluating investments for the fund. The managers make all of the buying decisions and selling decisions that relieve individual investors.
2. Mutual Funds Are Diversified
Another advantage of mutual funds is that most of their portfolios are highly diversified. This means that the mutual fund is invested in a wide variety of stocks. The advantage of diversification is that if a few stocks drop in price the entire fund won be dramatically affected. The advantage of diversifying through mutual funds is that the funds can reach a wider diversification.
3. There are thousands of mutual funds to choose from
Depending on your preferences, you can choose to invest with a mutual fund that covers the whole market. There are even mutual funds available that invest only in foreign markets. Mutual funds can be very convenient for the investor since the fund does all the record keeping. Your mutual fund will provide you with all the forms you need to file your taxes. Additionally, many may offer perks such as the ability to write checks against the money market fund.
4. Stocks Have Greater Returns (Potentially)
On the other hand, purchasing individual stocks has attractive features as well. After the brokerage fee is paid, there is no ongoing fee associate with owning individual stocks. This is in contrast to mutual funds that charge a participation fee. Mutual fund fees can totally negate the mutual fund return that you are expecting.
With investing in individual stocks, an investor has the ability to be very flexible with their investing and move with the market. Mutual funds are very stable but this also keeps them slow. Individual stock investments can be traded quickly if need be and purchased just as quickly. If the investor finds an undervalued stock.
5. More Control
With individual stock investing, an investor has a greater level of control over their investments. Although brokerage firms are involved there is the opportunity to be more hands-on with the stock purchases. This level of involvement is impossible with mutual funds. Many investors like to know exactly where their money is going and this can be hard with a mutual fund that holds shares in 50.
Investing in individual stocks allows the investor to have a larger relationship with the company they are investing in. This can create a sense of comfort for the investor because they know where their money is being used. They can track the activities of the company. They have invested in and feel like a true part of that company.
6. The Verdict
Investing a mixture of mutual funds and individual stocks seems to the best method for a majority of investors. Those who do not want to take the time to research their stocks and would rather let an expert handle things are more comfortable with mutual funds. On the other end of the color, those who want a greater level of participation with their investments will find individual stock investing attractive. As part of a long-term diversification strategy. It may be best to look into both in the ratio that you are comfortable with.