SHOULD BEGINNERS BUY MUTUAL FUNDS OR INDIVIDUAL STOCKS?
One of the biggest decisions you have to make when you are buying stocks for the first time is whether to go out and put money in individual stocks yourself or mutual funds that are managed for you.
A mutual fund is a basket of stocks that all fit under some criterion. You might buy a mutual fund that specializes in a specific industry, in growth stocks, in dividend stocks, or in something else. You can find mutual funds for pretty much any industry or investing philosophy you might want nowadays as mutual funds have become very popular.
Mutual funds have taken off in popularity in the last 25 years because you get the professional money management of the fund manager. He or she is supposedly an expert in the field of the fund and thus properly positioned to make good investment choices. The fund manager buys and sells stocks of different companies and all those companies together make up the fund. It is the manager’s sole responsibility to choose what stocks to buy and when to buy or sell them. When you invest your money into a stock fund, you are really putting a lot of your trust in the fund manager.
The reason many people recommend stock funds to average investors is the belief that everyday working people don’t have the time required to keep up with and do the proper research needed for buying individual stocks on their own. People have busy lives and most just don’t have the knowledge or enough free time to do ample research. Why not put your money in a fund and have a qualified profession do it all for you? That is the reasoning.
The drawback of stock mutual funds are the fees you pay for them. Nothing in life is free and the way stock fund managers make their money is to charge all the fund members a fee. You are paying the fund manager to manage the fund (your money) and make decisions that you hope will be good ones. These fees are most often more than you would pay to buy and sell the individual stocks online yourself.
You might be still learning how to buy stocks online and wondering whether you should go your own way or instead invest your money in a fund that looks appealing to you. One thing you might consider is that now there are so many different stock funds available that it may be just as hard to choose a fund as it is to choose individual stocks. There are thousands of mutual funds to pick from as there are thousands of stocks. How can you intelligently pick a fund when you really have no idea how to rate it without doing your own research that you might be trying to avoid in the first place?
The one good thing about stock funds is that once you do decide which one(s) to go with, you don’t have to pay as much attention to them as you should with individual stocks. You need to monitor individual stocks often to keep up with current events and make sure your stocks are still positioned correctly. This is the same service you would be paying the fee for if your money were in a fund.
So, it boils down to how much time you want to invest and whether you are willing to pay to have someone manage your stock picks for you. Only you can decide whether you are confident enough in your own stock choices or would rather pay someone to make those choices for you.
