Mutual Funds Vs. Stocks

A person invests in stocks or mutual funds only after careful scrutiny of the risks and returns involved in each sphere. If an investor is looking for a high return on their investment, then he/she must be prepared to face a high risk. The most important step is to learn all about the companies you wish to invest in before buying their stocks. However, learning about mutual funds and its types is much easier than stocks.

Time taken to comprehend both entities

• If you wish to invest in the stocks of a company then you need to take the time of knowing the company at the back of your hand. This means that you should know the company that you believe is the best to invest in by learning to read financial reports. These reports will help you understand the magnitude of money making present in every company and its strategies to attain maximum growth earnings. Stock Earnings is a company that has a vast library of knowledge on company stocks along with the trends followed by successful companies to help the customer gauge the best company to invest in. It is also important to stay at the top of the economy along with its ups and downs and their impact on the company and its revenue. Knowing all about the industry that the company specializes in is also important for those investing in the company.
• Mutual funds don’t require so much effort. You don’t need to learn about every company because that is the job of the mutual fund manager. What you need to do is to find the previous years’ performance of your selected mutual fund. You need to make decisions based on the sectors of the industry that you find promising. The economy and its effect on all companies are also important.

Levels of risk

• It is commonly known that stocks are much riskier than mutual funds because funds are a pool of various stocks (in a stock fund) and bonds (in a bond fund).
• The risk reduces in the case of mutual funds because an underperforming company and its shares can be compensated by the over-performing businesses. The businesses may fail due to poor management or a losing business strategy. But it is uplifted by other businesses with winning strategies.

Cost based differences

• Although the mutual fund manager researches the mutual fund for you, the process takes a long time. Managers are usually changing the companies owned by them and this brings a set of challenges along with it. You can check the past performance of the funds, but if a manager changes their strategy then the performance of the company and subsequently the fund can change dramatically. Mutual fund managers charge a fee to their customers called ‘annual management fees’.
• Stocks require the investor to pay for the initial outlay, which turns out to be not as expensive as the mutual fund.

Though the difference between both the entities is too large, it is upon the investor to place their money on the correct entity that he/she finds profitable in the near future.