Mutual funds or stocks? You decide.


A question for the ages, are stocks or mutual funds a better investment?

Comparing mutual funds with stocks may seem a little strange, but in fact, it is one of the best ways to make a proper decision that will secure your financial future. Differences between the two will be discussed below.  This will help you decide which investment type is more suitable for your particular needs.  After all, your finances are as unique as you are.

The answer when it comes to investing for the ordinary everyday individual; you just cannot beat mutual funds.   Mutual funds are cheaper, less risky and seemingly more diversified.

Generally speaking, stocks carry huge fees for buying, selling, and transferring that significantly lower profits and are more applicable to those who can buy considerable amounts of stock to make it a worthwhile transaction.  Sometimes these fees serve only to deter the trading of stocks, rather than encouraging the buying of it.

Huge trading companies offer hefty discounts for big spenders making the stock market trading game seem even more exclusive.  They are making it easier for those who already have a great deal invested and for those who can afford to invest.  It is not a great place to be when you are the new guy on the block.  Like anything in life, it would take time, patience and a lot of work to get your own market going in the stocks, but it can be done.

For those of us who don’t have massive fortunes available to invest and need to take small steps (such as $100 a month) towards their financial and investment goals, mutual goals is the much better option.   Start early in life, grow it over time.

Mutual funds are less risky because they are not generally invested in one sector, industry, or company. This diversity helps considerably because if one of the stocks should fail, the proceeds from the other stocks and bonds purchased will help mitigate the loss, making it less noticeable.  The loss incurred is also spread over a huge number of funds owned by a large group of people.  If a slight overall loss is experienced and spread over a large spectrum, the result will be much less noticeable than if the stock is purchased solely by you.  The fact that the  mutual  funds are already diversified to a large degree, helps protect it from huge fluctuations in the market.

There is an old adage that says; ” Do not put all of your eggs in one basket.”  Mutual funds do just that.

Finally one last thing to consider about mutual funds, they are much easier to use and/or trade than stocks.  Easy to purchase,  mutual funds can be obtained from your local bank, online, and through many online trading companies, as well as, through many company 401 (k) plans.

In other words,mutual fund traders go out of their way to make themselves accessible.

As you can see, there are a lot of differences between stocks and mutual funds.  For small investors,  mutual funds are often the best route to take because mutual funds are less risky and will give you significant growth over a period of time.  If you want to make a lot of money quickly, however,you will have to consider stocks.  Stocks can literally make you rich overnight.

The scariest part of stocks is the risk factor. As fast as you can become rich, your stocks can plummet and you may become poor overnight.  It can literally be a rags to riches type of game.  If you have enough money to invest, that you are not worried about losing, then by all means take a chance.  Stocks are challenging and can make you a lot of money if you do it properly. Be wise, only invest in stocks with money that you can afford to lose.

My personal choice is to invest in both.  As an example;  I have 500$ to invest today.  I will invest 75% of it into mutual funds and 25% of it into stocks.  If the stocks fail, I can at least make a small growth in the mutual fund portion of the money and have only lost 25% that I need to make back.

If the stock does not fail, I will re-invest only the profit.  If I can, I take back my principal and invest it in a guaranteed return on principle investment like a bond or bank account with a high interest rate.  I have and never will lose anything because I am only using my profits to invest.  It takes money to make money and if you never try to invest your money, it will never increase in value.  Is it worth the risk?  That is for you to decide.

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