The Difference Between Stocks and Mutual Funds
February 17th, 2010 at 3:08 pm Posted by
If you are thinking of investing money in stocks you need to consider whether mutual funds or actual individual stocks would be better for you. A lot can depend on your level of knowledge and the amount of time you have to spend on thinking about your investments.
A mutual fund is a fund that is managed by a specific person within a company. It allows people to invest in a wider variety of shares than they may be able to otherwise. Thus it is usually quite good for people with lesser amounts of money to invest because they can spread it further and spread the risk at the same time.
However some people don’t like the hands off approach that mutual funds offer. For some this is ideal and indeed it can be one of the reasons why some people choose it. But for others it is not ideal because they do not have the same amount of control over it they would have if they invested in individual stocks themselves.
If you opt for stocks rather than mutual funds you get to decide if and when you want to sell them. You can also choose the specific stocks you would like to invest in, whereas you may not get this degree of choice with a mutual fund. You can probably select a certain type of mutual fund to invest in – such as those that only invest in ethical companies for example. But beyond this it is up to the manager of that fund to make the decisions, and you just have to go with them.
Certainly if you want 100% control then investing in individual stocks is the best route to go. You do need to be prepared to research the market though, in order to stand the best chance of making some money in both the short and the long term. You need to substitute the knowledge of the mutual fund manager for your own knowledge, if you will, so that you can decide where your money should go.
As you can see there are significant differences between the two types of investment. This isn’t to say that one is significantly better than the other though. It just depends on what type of investment is right for you. If you like to be in control stick with the individual stocks and make your own decisions. If you want some help, mutual funds will be best.
