Are mutual funds or stocks better? It all depends on your trading style. What do you want to accomplish in your investments? There are many different ways to invest in the market. You can day trade, swing trade or invest. You can do just one or all three. There are many possibilities in trading. As a new trader, it’s up to you to decide how you want to make money.
How much reward do you want? How much risk are you willing to take? The higher the reward the higher the risk. Are you willing to do research on companies?
Stock training is necessary. It takes study, practice and discipline. As we learn about funds and stocks, you can decide which is the best fit for you (try our stock picks service for free).
The stock market is a battle of bulls and bears. Buyers and sellers constantly fight to take control of the market and traders trade greed and fear. This, of course, poses risk to traders.
As an investor it’s up to you to decide how hands on you want to be with your money as well as the risks you’re willing to take. You have some options; mutual funds or stocks.
You may decide a more hands on approach isn’t for you. Funds allow you to take a step back while still making money. Then there are stocks.
Basics of Mutual Funds
Should you trade mutual funds or stocks? Funds are managed professionally that pools money from many investors to purchase securities. Places such as Vanguard can set you up in with a mutual fund. There’s diversification in mutual funds that can be attractive to traders and investors alike.
There are many different sectors within funds such as tech, retail, energy, commodities and financials. There are a large number of stocks in a mutual fund but it’s usually only a small percentage.
As a result, that is both a strength and a weakness. If a sector is hot however, the move may increase the fund only a little because other sectors and stocks aren’t quite so hot. Though, a crash is cushioned by other stocks in the portfolio. Growth in funds are limited but so is risk.
These portfolios are run by a fund manager. When making a purchase, you give a dollar amount you want to spend instead of how many stocks you want to own. The fund manager than makes the purchase based on the day’s closing price.
Funds don’t fluctuate during the day. You’re given the closing price each day so you don’t see the moves it made during trading hours.
Time and Fees
In mutual funds or stocks, the mutual fund strategy is long term. The growth is slow but steady. Dividends are put into the fund. You can use these as income or reinvest them. By reinvesting dividends you can get around the capital gains tax.
Because a mutual funds can take years to grow, it’s smart to keep investing into it.
Take advantage of dollar cost averaging. This strategy minimizes risk because it reduces the difference between the first investment and the current market value over a long period of time.
Each fund is going to have fees to pay. You will have a fund managers fee, front end load on first purchase and back end load on sale. The fees for these type of funds is complex. Once you commit to the purchase, it’s a binding contract and you’re responsible for any extra fees.
Mutual Funds or Stocks
Trading stocks gives you as the investor much more control over profit potential, the kinds of sectors and stocks you want to invest in as well as the time frame you want. If you’re not into the lower returns of a mutual fund, stocks are for you.
There are many different strategies you can employ be it penny stock trading strategies, swing trading techniques or trading options for a living. You’re in charge. You buy and sell through a broker.
Trading stocks is a lot more risky but also much more rewarding. For example, if you place a $1,500 trade, you could close that whole investment. You can also increase it exponentially.
Risk management is key in trading stocks. You can set a stop loss. This, in turn, limits your loses. You need to know what candlestick patterns are along with technical analysis.
There are many tools out there for you t o successfully trade stocks. It’s emotional but rewarding if done right (bookmark our stocks lists page which is updated daily).
Are Stocks and Mutual Funds the Same Thing?
- Stocks and mutual funds are not the same thing. They do have some similarities though. Some mutual funds are made up of stocks but are typically mixed with several different types of asset classes.
It’s Your Choice to Choose Mutual Funds or Stocks
Mutual funds or stocks is all up to you. Are you willing to take more risk for more reward? Do you want someone else managing a portfolio for you? There is no right or wrong answer. What you chose is what you’re the most comfortable with.