How to decide between stocks and mutual funds

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By 02SmithA
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This will help you decide whether stocks or mutual funds are the right investment for you.

Difficulty: Moderate

Instructions

Things You'll Need:

Brokerage account
Money to invest
Internet

Step 1

Decide how much money you have to invest. The amount of money that you have will greatly influence which investment choice you should make.
Step 2

Decide how you want to diversify your portfolio. Will you do it through stocks or mutual funds. A diversified portfolio is essential to succeeding in investing.
Step 3

Weigh the advantages of mutual funds over stocks. Mutual funds allow you to be diversified instantly and have less risk than individual stocks do. The pooling of investors money makes mutual funds very efficient.
Step 4

Weigh the advantages of stocks over mutual funds. The reality is, 80% of money managers underperform the S&P 500, so that professional management you're paying for might not be worth it. Stocks allow you to have complete control over your investment portfolio. While stocks have a greater risk, they also have a much higher potential reward.
Step 5

If you have under $10,000 to invest you should likely choose a mutual fund since it will be costly to diversify your portfolio in individual stocks. If you have a larger amount, AND you are willing to put in the time and research needed to hold individual stocks, they might be the right path for you.

Comments

MrBB said

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on 2/25/2009 Good article on the pros and cons. Although with the stock prices what they are today it might be easier to diversify without a ton of money.