Mutual Funds vs. Stocks: Which One Is The Best Choice For You?

You have many options available for investing your money and from them mutual funds and stocks are amongst the most popular… but which one should you choose?

This article will take care of sharing the advantages and disadvantages of each one, so you can see which one is better suited for you, and therefore, take the correct decision!

Mutual Funds: What’s Great About Them?

Buying mutual funds offers multiple benefits that are worth taking into account, let’s check them all right now!

Stress-Free (Almost):

Your money is pooled with other investors, and a portfolio manager manages your investment. Therefore, you will not have to take hard or stressful decisions, because a professional will take care of everything.

If you just want to invest your money and see it grow while remain as stress-less as possible, then mutual funds may be the perfect choice for you.

Depending on the transparency, you will be able to check out what strategy the portfolio manager will use, along with diversification and other important factors.

More Affordable:

Unlike other investments where you have to place more money, you can buy mutual funds for very cheap. Even though it differs from plan to plan and the institution where you buy it from, as a general rule they are very affordable, so that’s another remarkable advantage.

Less Risk:

Another great advantage is that they are less risky. As a professional portfolio manager manages them, you can take worry out of your head and be sure that your investment is on good hands.

Moreover, the ‘built-in’ diversification reduces the risk because if a company in a specific industry does not do well, then positive results in other industries will compensate such loss.

Although, if you want to attain higher returns of your investment, then you can opt for riskier yet more-profitable mutual funds.

The Disadvantages:

Mutual funds are not very tax efficient, because in a non-IRA account you will be subject to paying taxes in the form of capital gain distributions.

Even though a portfolio manager will take care of administering your investment, investors still have the chance to participate, and therefore, commit mistakes that will affect you directly.

Finally, there are certain extra costs you need to keep into account, like fees the bank or financial institution may bill you for every transaction you do.

Stocks: Why Are They a Good Investment?

A Better ROI:

If you are aiming for riches, then you need to consider stocks. They are riskier than mutual funds, but the profit margins are much better, because you can profit from good opportunities, but if you do not invest well, then you will suffer the consequences.

Investing In stocks is better suited for people with some degree of experience, and furthermore, willing to do their due diligence before investing.

Moreover, you will have a better ROI because you will not have to pay management fees other than the initial sum of money necessary for the investment.

Easy To Buy And Sell:

Even though mutual funds have an excellent liquidity, they do not compare to stocks, because you are limited to one transaction per day, whereas you can sell and buy stocks whenever you want.

That is the beauty of investing in stocks: you get the freedom to buy and sell at the time you want from any place of the world as long as you can connect to the internet.

Disadvantages:

You can earn more money over time, but the risk of losing your entire investment is much higher as well, especially if you venture yourself into this without doing a due diligence and investigation on the stocks you want to invest in.

Doing proper investigation requires plenty of time, of course providing you want to do it well. Doing it on a rush will never pay off, because you will not have a clear idea of what you are investing in.

Finally, if you are very emotional, then you could take bad decisions and ruin your investment. This is something that happens very often amongst beginner traders, so if you cannot stand an emotional roller coaster, then this may not be for you.

Final Words:

Now you have the advantages and disadvantages for each kind of investment. Analyze them, and finally, decide which one is your favorite.