Which is better. Investing in Shares or investing in Mutual Funds?
I want to invest some amount of money either in shares or in mutual funds. Which option would be better?
both are equal. Nothing going to give you surety for the future but investment in property could be a good step.
they are not equal in that mutual funds incur and expense to run. Buying stocks directly you dont incur this expense.
For me they are because I was considering both as future assurance.
I have all three, property, and stocks and mutual funds
This all depends upon your risk taking capacity and knowledge of the instruments. Even if you have excess cash to burn and do not know anything about shares don't play with fire, it is just like playing casino.
For common investor who has limited risk taking capacity and limited knowledge they should go for Mutual Fund SIP in different scheme.
Those who has knowledge and understanding then they should split their portfolio between 60 :40 to 75:25 , i.e. mutual fund : share market.
Those who know market, has time and keep watch and has risk taking capacity can go 40:60 to 50:50, mutual fund to equity.
Mutual funds usually incur an expense. Investing in individual companies, you have a better say of how your money is spent and the expense you would incur investing in mutual funds,can be money growing for you. Most investment mutual funds, invest in a wide range of different sectors, to manage the risk of loosing money. Therefore, if you like to study companies, how they are doing financially, if they manage their business well, have low debt, pay dividends etc. you can choose select companies and do just as well as the pros. Be sure to invest in many sectors to manage your risk.
The vast majority of investors are better off with Mutual Funds, and even better ETF's for the purpose of diversification. A portfolio should generally not have more than 3% exposure to any one company. So in order to capture and asset allocation with the proper diversity, individual equitiy holdings make litle sense unless your portfolio is several million dollars.
The ETF market is more cost effective and will not hold you to minimum investment amounts. The mutual fund world is more cost effective if you are on a systematic investment plan, in that you would not pay the transaction fee's. Even though they are nominal with online trading these days, they can still add up if you were attempting something as little as dollar cost averaging $100 weekly.
If you're are just starting out with little knowlege of the financial markets, your best bet is to use an asset allocation fund that takes a balanced approach in concert with your time frame. As your portfolio grows, you can learn to personalize your allocation towards your goals and tax status.
Mutual funds are designed to manage your money for you. If you own 20 individual stocks one has eliminated 95% of risk through diversification. Mutual funds have hundreds of companies they own and eliminate 99% of risk through diversification. I prefer managing the 20 individual stock (large core holding companies) and mutual funds for the other asset classes of stock. It is more important to manage your financial assets by asset allocation than any other way. The is a substantial amount of information on asset allocation exists.
For a common man with a little knowledge of equity market, investment in mutual funds with SIP method is advisable. For best returns in SIP, you have to invest in reputed large cap and midcap mutual funds on weekly or monthly basis for a long time.
When I say long time it means more than 25 years. $ 200 a month should turn $ 1 million in 25 years. You may not believe it but this is true. You have to invest all the bull runs and bear phases that you see during this long period. During the period of 25 years you will see at least, 4 bull runs and bear phases.
On the other hand, if you have experience in stock market and you know the crux of stock market you, will be able to be billionaire in half the time. In case of direct investment in stocks you have to be very alert and change your positions from time to time. Even during a single day you have change your stance many times. You can see it below… http://btstorstbt.blogspot.com/
Mutual Funds > Funds are handled by expert fund managers and team. For a common man who knows less about investment (shares), mutual fund is a better investment options.
Shares > Investing directly in shares should be avoided if one lacks know stock analysis. Ask yourself a simple question and you will know if you should directly invest in shares. Do I know to read and analyze balance sheet of a company? If answer is no, do not touch shares.
I think investing in stocks means high risk while investing in mutual funds depends on our risk appetite. And For long term investment mutual funds will give high return because mutual fund works on the concept of power of compounding.
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