Understanding mutual funds vs stocks and the benefits of each will help increase your basic investment knowledge, while better preparing you to make an informed decision on which investment is right for you. So what do they have in common? You might be thinking “They both have to do with owning a company, right?”. A better question to ask is, “what is the better about one than the other?”
Both of these investments are meant to make you money, and which one is better depends on what you are looking for.
Do you enjoy researching and following the ups and downs of the market?
You may find yourself leaning towards investing in stocks. When you invest in stocks, you are investing in just one company at a time.
You decide which companies you’re going to buy. You decide when you’re going to buy them. You decide how many shares you are going to buy.
When investing directly in stocks, you are in control. The problem is, you may feel inexperienced and unsure about your choices. Maybe if you’ve been investing longer you would have known not to put $1,000 into that company that lost you so much?
When investing in stocks, that is not the way to look at it. Yes, researching and knowing a little bit about the company, both in the past and present, might help and is completely necessary, but you have just as much of a chance to gain a lot from an investment as an experienced investor. Besides, everyone starts somewhere, and it’s best to learn from your own mistakes.
Do you want to invest but worry about the risks?
When you invest in mutual funds, you are investing in several companies at once. A money manager of the mutual fund you chose is deciding which companies to buy, when to buy them, and how many shares.
It’s important to remember that just because you are investing in a mutual fund doesn’t mean there is no possible way you could lose money. There are risks just as when you invest in stocks directly yourself.
There is less effort on your end with mutual funds, but there are other perks, too. You are able to obtain a large amount of diversification that you may not have been able to get with only your money. You’re pooling all your money with other investors and the money manager is able to stretch your money farther.
Either way, you’re making money
And either way, you could lose money. However you choose to invest, stocks, mutual funds, bonds, etc. just remember the risks you are taking. In one instance, you may be doing more work yourself, but in either instance, you are not guaranteed anything.