Stock Trading Or Mutual
Fund Trading - Which One Is Right For You?
By Carl
G. Robertts
A mutual fund is comprised of a wide variety
of stocks that are handled for all the investors that are buying
into the fund. This type of fund gives an investor the liberty
to hold a diverse portfolio without the hassle of investing a
great amount of money.
Some may wonder why it is advantageous to hold
a diversified portfolio. One reason is that it will offer the
investor protection from a market that could suffer a loss from
one individual stock. When a portfolio contains 20 different types
of stocks, the affect of one stock loss is less than if the buyer
lost a significant amount for just one stock.
It is always a great choice to have a diversified
investment strategy. If an investor doesn't have a lot of
wealth to invest, they often do not have the ability to have a
wide variety of stocks. A mutual fund will help a small investor
to enjoy the advantages of a diversified stock without a lot of
money.
Mutual funds can also contain investments, besides stocks. They
can consist of many types of holdings including money market instruments
and bonds. A mutual fund is a company that allows investors to
buy shares from them. The shares can be bought from that fund
or by brokers who are buying for someone else for the fund. A
share is redeemed when a buyer decides to sell his share back
to the fund.
Investment professionals handle these funds and make decisions
about what securities will take priority in that fund. The investor
should know that non-managed funds are also an option. These are
primarily compared to indexes, like the Dow Jones Industrial Average.
A fund will copy it's holdings based on that index. If the Dow
Jones rises at a rate of 5%, the mutual fund will also rise by
that number. The non-managed funds have a good success rate and
will often outperform funds that are managed.
Mutual funds do have disadvantages. Fees will occur to the investor
regardless of how well the fund is doing. The individual who is
investing also has no impact on any securities that are in the
fund. Unlike stocks, mutual funds' value is not known at an exact
value.
Investors who have little to put into the stock market should
consider a mutual fund. They provide the security of a diversified
portfolio and usually have a decent success rate. However, these
funds can lose their value in the short term. Investors who are
only investing short term should choose a bond that sets a rate
of return. Bond funds target higher yields for more for profit,
but also carry a huge risk. These risks include falling interest
rates and company bankruptcy.
Stock funds hold the highest percentage of making a huge profit,
but also have the highest risk involved. This type of risk is
one that short-term holder may choose. They will invest in stocks
that do better than other investment instruments over time.
More investment funds include 'growth funds' that try to expound
on capital gain and 'income funds' that focus on the stocks that
yield dividends on a regular basis.
Mutual funds are a great way
to invest money for a buyer who has little investment experience
or not a lot of money to invest. You will have to decide what
fund is right for you according to your risk comfort level and
your hope for return on your investment.
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