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Stock Trading Or Mutual Fund Trading - Which One Is Right For You?

May 26, 2008
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.
About the Author
Learn successful stock and Index Fund Trading with exclusive Technical Analysis tips, tools, and techniques. Start trading profitably with our no cost stock trading report for traders of all skill levels. Get your free copy at http://www.StockTradingReview.com today.
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