Are Mutual Funds Safer Than Individual Stocks?

Whether it’s preparing for retirement, or their kids education or some other project, many people, when they find themselves with a little extra money, begin looking for ways to make a little money a lot of money. The options are myriad, so the choice can be confusing. Should they invest real estate, bonds, or leave their hard earned money in a savings account. The return may not be great but the money is relatively secure.

Another investment vehicle many investors hear about are stocks. The stories make stocks AUM-MF-Industrytempting. Stories of investors buying a stock for pennies , then watching their investment increase exponentially practically overnight. Then there’s the down side of stocks bought at the height of the market and crashing taking the investors hard earned money with them. if only there was a way to have growth potential of stocks while minimizing the risk? This is when some investors start looking at mutual funds.

Below are some facts about both mutual funds and individual stocks to help the investor make an informed decision.

Mutual Funds are professionally Managed:

Mutual funds are professionally managed by people who have gone to school and done the research to choose winning stocks. This eliminates the need for the investor doing the research on which stock to invest in. However the investor does need to investigate the mutual fund, as well as it’s managers to get an idea of the track record of the mutual funds.

Mutual Funds are diversified:

Mutual funds are diversified, meaning the money is spread over several different stocks and some even branch out to different industries. This takes advantage of the old adage of not putting all one’s eggs in a single basket. With diversification, the rise or fall of a single stock is not as devastating to an investor.

Mutual Funds are convenient:

Many investors find mutual funds more convenient than individual stocks. Many investors use stocks or mutual funds as only part of their investment strategy but individual stock purchases can quickly eat up the lion’s share of the investor’s time. Each stock must be investigated for past and future performance as well as the market the industry is part of overall. This can quickly lead an investor to spending several hours a day investigating stocks. With a mutual fund the research is done for the investor. Instead of the entire world of stocks, the investor is presented with a few stock, the mutual fund manager deem worth a closer look for investing.

Overall, most investors find mutual funds safer than individual stocks for the above reasons as well as many more. Also some investors have a mixed media approach to investing. They might invest in a mutual fund as well as individual stocks that might catch their eye. This gives the investor the best of both worlds, safety under the umbrella of a mutual fund with the freedom to select stock on their own.