Is investing in mutual funds and stocks the same thing?
People have told me due to my high level of risk that I should invest most of my money in stocks. I know my bank offers mutual funds and IRA's but I am not sure if they offer stocks. If I have no stock investing experience then should I hire a broker to do it for me or should I just stick with aggressive mutual funds? Are stocks and mutual funds the same thing? What is an example of a stock?
- Dave WLv 61 decade agoFavorite Answer
Stock is a tiny share of ownership in a company. If Acme Widgets has 1,000,000 shares of stock and you buy one, you effectively own 1/1,000,000 of Acme Widgets.
Because the fortunes of any single company rise and fall over time, the value of shares of stock rise and fall by significant amounts. It is therefore highly recommended by most financial experts that money invested in stocks be "diversified" (spread across many different stocks in many different industries). With a large enough amount of money, that can be done by buying stock in 20 or 30 good quality companies in different industries.
For people with modest amounts to invest or limit understanding of or interest in stocks, mutual funds or ETFs (exchange traded funds) are a good way to achieve diversification. They essentially own a bunch of different stocks and then you buy a share in the mutual fund or ETF, which gets you a tiny piece of each of the stocks it owns.
Note that some mutual funds invest only in stocks, some only in bonds, some in a mixture, some in other types of investments. Which one is best for you depends on your time horizon, risk tolerance, and in some cases even your tax bracket.
- 1 decade ago
A stock is shares of a public company, such as Coca-Cola, IBM, Wal-Mart, Sears. Suppose you buy stock in Wal-Mart for $50 per share. If the price goes up to $60 per share, then you just made a profit of $10 on every share you bought. If the price goes down to $40, then you just lost $10 on every share you bought.
A mutual fund is a whole bunch of stocks. The fund manager is constantly changing around what's in the fund and getting rid of the stocks that are losers and looking for more winners.
Buying just one stock is risky because the stock might go down. Buying a mutual fund is safer because there's lots of stocks so there's a small chance that they'll all go down. Even if one or two go down, hopefully the rest of them will go up, so the average of all of them will go up.
Here's what you should do. Open an IRA at your bank. Then look at some research on mutual funds and their performance and choose one that you like. You could get an individual stock too if you want, but you should focus on making sure you are diversified.
If I were you, I would not hire a broker. They usually choose for you the investments that make them the most commission. Instead, read some investing articles on the internet and you'll get good at investing.
- dm_dragonsLv 51 decade ago
A mutual fund is like a "wrapper" that is made up of some security like stocks.
Like a candy wrapper - we know it is candy inside, but it could be a sucker, a candy bar, etc. Likewise a mutual fund is just a name for what is "inside the wrapper". This means you can have stock only inside the mutual fund. Or bonds only in a mutual fund. Or a mix of both. Or REITS. Or just about any other investment option available.
Of course, when we say a mutual fund wrapper contains stocks, it could be a certain kind of stock. So we could have a large company mutual fund. This just describes in more detail what kind of stock (or bond, etc.).
A very popular type of mutual fund lately is the Index Fund. This fund tries to own the exact number of shares for every stock available in that index. For example, we might have Dow Industrials Index Fund, so when we watch the evening news report what the stock market did, your portofolio would be identical. The index candy inside a mutual fund is the maximum from of diversification possible - 1 of every thing!
Let me try to explain one last way by pointing out another type of wrapper. An IRA - again, it is just a type of wrapper, but could contain stocks or bonds or CD's, etc. In the same way a 401(k) is a wrapper - if all you told me is you have a 401(k), I couldn't really guess at what is inside it.
We have all these different types of wrappers because each means something different in the way of taxes or how easy you can access the money inside the fund or if you can take a loan again that kind of wrapper, etc. But knowing the wrapper type alone doesn't indicate what you really have in that fund...although in most cases it is stocks and that's why they seem to be the same thing to you.
So, buy stocks on your own or mutual fund? Well, day 1 in a mutual fund you get a equal amount of all the stocks the managers of the fund have bought - that's diversification. You can do the same thing on your own, but you need a minimum on each company to make it worth the average of $15 per buy/sell you make.
And it will take a while before you get positions in even ten companies. I've read you need $50,000 to get into the individual stock purchasing in order to have enough cash to ensure diversity and allocation.
But mutual funds aren't free either and most (90% or more) fail to beat the stock market rate (which means the only fund I can recommend is a true index fund so you get the stock market rate). Of course, that would be stock market rate MINUS the fund's fees which is why 90% can't beat the market's rate! Make sense?
If you are comfortable with being your own "mutual fund manager", then go for it. Otherwise, shop for low fee funds. There are even some with no-fees up front so your money grows faster...but they get you eventually when you take your distribution out.
- Anonymous1 decade ago
Basically a mutual fund is a basket of stocks that a mutual fund manager buys based on his criteria. You as an individual can buy individual stocks if you open an account with a broker such as Scottrade, Etrade, Fidelity, etc. If you don't know anything about investing, I would suggest that you do research and look for a both the mutual fund's and manager's past performance. The higher the better. If you would like to some day have total control and invest yourself, buy books on technical and fundamental analysis and read them before you invest one dollar. Many companies that have issued stock can be found in the markets such as: Microsoft (MSFT) Yahoo! (YHOO) Google (GOOG) Continental Airlines (CAL) etc. Also never hire a broker to manage your money. Brokers don't have the know-how to make you money, otherwise they would not be brokers and would be self employed investing their own money. Good luck with your investing.Source(s): http://stockpicksandtips.blogspot.com/
- How do you think about the answers? You can sign in to vote the answer.
- Anonymous1 decade ago
If mutual funds are run by experts, why do 75% of them under perform the stock market?
Mutual Funds are a pool of different securities in which people buy into the pool and share the gains or losses.
I am not a big fan of mutual funds anymore.
Do your homework before purchasing.
- Common SenseLv 71 decade ago
Stocks & bonds can be in Mutual Funds.
Stay away from banks and insurance companies for any investment products.
Learn about "asset allocation". Make an "asset allocation".
Pick 3-5 funds (or an "asset allocation fund") from a good low cost no commission (no-load, unlike banks) Mutual Fund Company like;
T. Rowe Price (I especially like their "asset allocation/retirement funds).
Not too hard & it will save you thousands of dollars over your lifetime.
- Swaminathan PLv 51 decade ago
business is same - but practices, way of control, etc., are different.
mutual funds are run by experts - return is low (they don't take much risk - as they are answerable and accountable) - as they diversified - retun is averaged - it is difficult for MF to sell at peak because of large volume (hedge funds, PN sell at peak) - MF loses this opportunity. they can afford to pay little more than bank interest - at times NAV comes down also.
you have no control on investment made in MF either in bear or bull market.
they are different than wife (literally means equal partner)
stock - - high return with high risk. to enter in to this trade you should have experience.
if there is compatability - you will have excellent life partner.Source(s): investor