There are some who would make the case that a portfolio of carefully selected baseball cards held for the long term have proven a better investment than either stocks or mutual funds, however I wouldnt bet my retirement on whats in a shoebox in your attic.
For many investors, it is not a question of either individual stocks or mutual funds. They use both to meet different financial goals. Youll need to find your comfort zone and make your on decisions.
Here are some properties of both mutual funds and individual stocks to help you decide.
Mutual FundsMutual funds offer at least four characteristics that many investors find attractive:
- Professional Management
Many mutual funds are highly diversified in their investments, meaning they own a number of stocks so that if one or a few turn out to be bad decisions they wont dramatically affect the whole fund. They may also invest in a number of different industries and different sized companies, depending on the fund. It is difficult for individual investors to diversify to this extent.
There are literally thousands of mutual funds to choose from on the market. You can find funds that cover the whole market or funds that are very narrow in their focus and everything in between. Some funds focus on particular industries, while others may look at foreign markets.
Mutual funds are very convenient. They do most of the record keeping for you and provide you with the forms needed to file your taxes. In addition, many offer services such as check writing against a money market fund and other bells and whistles.
For more information, visit Abouts Mutual Fund site.
Individual StocksIndividual stocks also have some characteristics that investors find attractive:
- No Fees
- Greater Upside Potential
- Hands-on Investing
Individual stocks have a greater upside potential than most mutual funds. The diversification that is supposed to keep mutual funds from falling too far also holds them down. You trade some risk for a greater potential reward.
Many investors like to know where their money is going and that can be difficult with a mutual fund that invests in a 100 companies. Investing in individual stocks gives you the opportunity to get to know the company and feel comfortable about where your money is going.
Room for BothMutual funds are great vehicles for funding retirement plans and youll find them in your 401(k) or other retirement plan at work. They also work for the investor that simply doesnt have the time or energy to consider individual stocks.
However, if you are ready to invest at least part of your portfolio in individual stocks, youve come to the right place. Read on.
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How Would You Survive a Financial Disaster?
Should I Talk to Children About Money, Stock Market Woes?
Back to: Introduction to Investing in Stocks