Wondering what the best way to invest in stocks and equity is? Are you unsure if you want to do it on your own or use mutual funds to offset some of the risks and work needed? Then you’ve come to the right place.
For many years, investors and traders have been discussing the pros and cons of investing in equity on your own or using mutual funds, and we thought we’d provide you with our views on the matter.
To do so in the clearest way possible, below we’ve provided short descriptions of both types of investments along with pros and cons for each method.
Investing in Equity On Your Own
Investing in equity can be incredibly fruitful if you know what you’re doing, have studied the markets and securities in detail, and have a bit of luck on your side. There are countless examples of people who have bought stocks in companies for pennies and turned those investments into millions of dollars.
Now, there are many benefits to investing on your own accord. For example, you have full control of your funds and investments, you get to analyze the instruments on your own to ensure what you’re getting yourself into, and, maybe, more importantly, all the profit you make is yours.
However, there is also a downside to investing on your own, especially if you lack knowledge and experience. You see, for every hundred people that succeed with their investment and make a profit, there are thousands of people that will never make any substantial profits from their investments and even more people who end up losing.
The odds are clearly against you.
Add to that the fact that you will have to dedicate a tremendous amount of time analyzing, planning, and executing your investments, and you have a situation that’s unfit for most people with an active lifestyle.
In fact, investing in equity on your own is a massive undertaking, and if you’re not prepared, mutual funds could be a better option. Either way, here are some of the pros and cons of investing in equity on your own.
Pros:
- You’re fully in charge of your funds and investments
- You only invest when you are confident that you’ve found a good investment
- You get to keep all of your profits to yourself
Cons:
- Equity investing is time-consuming
- The risks are very high, especially when you first get started
- It’s a big undertaking that will take a lot of preparation and dedication
Investing in Mutual Funds
A mutual fund is a professionally managed fund that uses funds from several investors to buy securities. Instead of you having to find a stockbroker, analyze the securities you’re interested in, and then place your investment, a mutual fund is operated without your input. Typically, these funds are managed by long-term investment experts whose sole job is to find great investments for clients.
Naturally, there are many benefits to this type of investment compared to buying securities on your own, but there are also some disadvantages.
Firstly, mutual funds are generally less risky than individual investments since they’re managed by professionals. That being said, investments are always risky. Moreover, since you don’t actually have to invest yourself, you can save a lot of time and effort that would otherwise be spent on learning how to invest in and analyze securities. Also, mutual funds help you diversify your portfolio very easily.
However, one of the biggest disadvantages of mutual funds is that you have to pay a fee to the manager which can add up, especially if you don’t invest a large enough amount. On the other hand, mutual funds present several great tax solutions that lower your liability.
Pros:
- Less time-consuming
- Potentially less risky
- Easier to diversify your portfolio
Cons:
- You have to pay fees
- Your investments will be handled by a third person
- You’ll lose out on the excitement associated with investing individually
Our Conclusion
It’s up to you to decide whether you feel comfortable investing in securities by yourself or if you’d rather take a shortcut and use mutual funds.
A good rule of thumb is that inexperienced investors should stick to mutual funds until they have the skills needed to do it themselves, while more experienced investors might prefer investing based on their own analytic work.
Just make sure you weigh all the pros and cons before making your decision because, as mentioned, all types of security investments are high-risk. And if you want to learn more about how to best invest in stocks, we suggest you check out the trading pros over at Bullmarketz.com.