What Are Mutual Funds?
If you’re new to the world of investing, you may be wondering “what are mutual funds”? Mutual funds are accounts managed by a financial professional bringing together money from many people and using it to invest in stocks, bonds and other assets on their behalf. There are various types of mutual funds such as stock funds, bond funds, index funds, balanced funds, money market funds, income funds, international/global funds and specialty funds – each function differently to help you reach your investment goals. Actively managed funds will require more of a hands-on approach compared to passive funds that require less buying and selling.
Advantages of Mutual Funds
A few advantages to having mutual funds can include advanced portfolio management, diversification , fair pricing, and convenience. Mutual funds are also the most popular investment choice for many. Having a diversified portfolio is a smart move when investing because it allows you to invest without risking all your assets in one place. Diversification means spreading out your investments to limit exposure to manage risk. Placing all your assets into only one place can be a risk and it can also prevent your investments from reaching their full potential.
What Are Individual Securities?
If you have the time and inclination to get involved in the stock market on a more hands-on level, you can invest in individual stocks. What are individual stocks? Individual stocks are shares in companies that are available for purchase on the market. What does it mean to invest in securities? When you invest in securities, you own part of a company or corporation. You can purchase stocks and bonds with both a security and a mutual fund, but with a security you are buying into something much larger along with other investors.
Advantages of Individual Securities
One advantage of individual securities is that you get to build your own portfolio. You may choose to build your own portfolio to control your investments, it's enjoyable or want to focus on a certain criterion - like investing in a company that is focused on pursuing climate-friendly initiatives or a company with a diverse board of directors. If you aren't sure where to start with your investment portfolio, here are a few tips to help you get started and build your own portfolio.
Key Differences Between Mutual Funds vs. Individual Securities
Let’s recap a few key differences between individual stocks vs mutual funds. Individual stocks may have reduced fees because you no longer pay the fund company or an annual management fee, but ticket fees can be expensive so be aware of this. You can also have control over the stock you choose to invest in. A few cons of individual stocks include loss of diversification and a longer time involved monitoring your investment.
With mutual funds you are working with a fund company to manage your investments in stocks, bonds, etc. This comes with an added fee since the fund company is doing the work for you, but there are usually low trading costs with a mutual fund. You also may not know the specifics of what you are investing in because the fund company is managing the ins and outs for you within guidelines. With mutual funds you have professional money managers doing the heavy lifting for you – which can be a plus if you don’t feel comfortable investing. Even though you aren’t aware of every detail of the ins and outs, your mutual funds portfolio can still be easy to access and track.
Is it Better to Buy Individual Stocks or Mutual Funds?
Overall, before you start investing, create a financial plan. Doing this will allow you to know how much you want to invest, where you should invest and understand how these investments are helping you achieve your investment goals. Understanding your risk tolerance can also help you better understand what your investment journey will look like and what you feel comfortable with. Whatever works with your financial plan will help you in determine if you should buy individual stocks or mutual funds.
If you have questions and want to discuss your options, you can find a local Farm Bureau agent using our online agent finder.