Investment Options: Mutual Funds vs Online Stocks

Whether you’re an on-the-go professional or stay at home parent, you should always be looking for smart ways to invest your income. We’ve listed some important things you should consider when deciding to invest in stocks or mutual funds.

Cost

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You’ll find that fees vary between stocks and mutual funds. When buying or selling a stock, brokers will charge you. That means that selecting your own stocks results in less cost to you. Mutual funds, on the other hand, charge annual management fees. You may be charged when you buy or sell the fund, but others don’t charge you anything if you hold for a set length of time. Bear in mind that all funds charge annual management fees. And unlike stocks, some funds require a minimum investment. 

Ownership

While stocks are a form of direct investment, mutual funds are an indirect investment. An investor buying stocks is also offered an ownership stake in a company. On the flip side, mutual funds only secure fractional ownership of a basket of assets. Though investing in a company’s stock will grant an investor ownership stake, it will also make that investor more susceptible to risk.

Risk

Although the risk is increased, owning individual stocks gives an investor more control in buying, selling and portfolio management. A portfolio of mutual funds reduces the risk for an investor but it’s still crucial to be aware of you’re key investments as the market and portfolio managers can change. While striking out on your own to secure great stocks can be exhilarating, for new investors it can seem daunting. Luckily, there is a lot of great information on online stock trading for beginners available.

Diversity

Unlike stocks, mutual funds can be made up of an immense variety of stocks which eliminates the guesswork of investing. Mutual funds are meant to beat the market through an assortment of stocks managed by a professional; however, buying individual stocks allows investors a sense of connection to a specific industry or brand that can’t be achieved when investing in a mutual fund.

Research

Another important aspect to consider is how much time you want to spend on research. As you’d expect, a lot of research is needed to build a diversified portfolio. Mutual funds don’t require as much research because a manager takes care of that, but you should still research the past performance of the mutual funds. When investing in stocks, research must be done on individual companies. You’ll need to pick a variety of companies and investigating these can prove to be too time-consuming for most people. You also have to stay on top of the economy’s performance and see how it affects your investments. 

If you want more control and are excited to play an active role in your investment, than stocks may be the best option for you. If not, then you may be more interested in mutual funds. Reviewing the differences between stocks and mutual funds will help you discover the best investment strategy for your income.