Stocks and mutual funds are two different types of investment vehicles out there for you to choice from. There are some good parts and bad parts to each of these investment vehicles.
But before we get into that let’s look at what exactly they are? Stocks are very easy to understand. A stock is basically a percentage of the company. By investing into stocks you are investing into individual companies and profit as those companies grow.
Mutual Funds work a little differently. How do funds work? When you invest into a mutual fund your money gets combined with everyone els who invested in that fund. The fund is then invested into a variety of stocks, bonds, or anything else that that specific fund invest into.
Everyone who invested into it makes or loses money based on how well their diversified portfolio does.
So, which is better, stocks versus mutual funds? Well the truth is, it depends.
If you like the idea of picking your own investments and wouldn’t mind all the learning and work that can come from managing your portfolio yourself then picking individual stocks can be very powerful. By doing this you can get to the point where you greatly beat the average mutual fund’s return.
The flip side is also true it is much easier to lose money by investing into individual stocks then by investing into mutual funds. It takes some time and effort to stay on top of your investment portfolio.
If you don’t like the idea of managing your portfolio yourself and would rather hand it over to someone else then it might be a good idea to invest into funds. This allows you to get into a relatively safe investment that is likely to go up over time.
A simple rule of thumb to look for is if you want higher returns and want to manage your account yourself look at investing into stocks. If you want safer returns and don’t want to manage your account yourself look into mutual funds.
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