Mutual Funds Compared to Stocks
Since mutual funds usually comprises of bonds, stocks or both of them, few people see it a bit odd to compare mutual funds to stocks. However, it is important to make comparison between the two when you want to trade in either of them. Here, we will talk about some of the key differences so as to assist you in making the decision on which investment to take.
Many people invest on mutual funds rather than stocks, since stocks are quite expensive to trade in thus deterring any earnings to be made from trading. Consequently, this thwarts stocks trading rather than encouraging it. Large companies give discounts to those who invest big in stocks trading thus hindering new guys from making a name in the stock market. In contrast, mutual funds are much cheaper to invest on as they don’t require massive fortunes for anyone to be a success.
Stocks are much more risky than mutual funds. This is because of several reasons. Firstly, mutual funds are not normally invested in a single segment, company or industry. So there is no risk of loss if one stock happens to fail as others may make your loss less conspicuous. Also, in mutual funds the loss is shared by a large set of individuals such that the loss is much less conspicuous than if you buy stocks yourself as you experience the loss alone. Lastly, the fact that there is a diversification of funds protects people from huge instability in the market as those experienced in the stock market such that a lot people were affected.
In mutual fund, there is a sense of sharing as a community such that even risks are shared to reduce individual loss. But, for you to share a loss you must buy into the same mutual fund. This is a great thing as it makes a large group of individual share risks than if they were purchasing their own stocks. Unlike stocks, each mutual fund has a fund manager who ensures that the fund makes some profits. In the stock market the individuals who will be concerned with how your stock is performing are the people who you pay to be concerned with such things like stockbroker, accountant or financial advisor.
Mutual funds are also easier to trade as compared to stocks. They require fewer fees to trade. They are also accessible as you can buy them from online trading companies or your own local bank. What is really necessary to do before buying any mutual fund is study its history and performance and also the fund manager for that matter.
It is clear that there are many differences between mutual funds and stocks. Mutual funds offer the best choice for small investors as they require fewer fees, pose less risk and allow investors a steady recovery in time of losses.
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