Mutual Funds or Individual Investments – What to Choose

Usually, when you’re planning to start investing, you have two main options: investing in mutual funds or going into free sail yourself acting as an independent stock market player. Me myself, I prefer to work independently, but it is worthy to understand what different options propose and what suits your needs the best.
First, I’ll provide a brief explanation of what mutual fund actually is. Basically, this is a company, which you give money do trading operations. They have a defined investment strategy that is public, so before investing you can get to know where your money is going to be invested, what are the risk and what are the expected profits.
Ok then, how do these all funds differ then? It all depends on investment strategy: the hugest category is index funds that only invest in shares of companies that are included in indexes like Dow Jones or S&P 500. Other companies may invest only in emerging markets’ companies, companies of some industry, “growth” shares or some other. This opens a huge space for choose: you can find the needed balance of risk and yield that suit you the best.
The major benefit from mutual funds that inexperienced investor can get is professional management. Usually, mutual funds hire executors with a sufficient background in investing that can increase your chances of getting profit from the investment. Another good issue about funds that shares they are trading have a good liquidity. And as funds have huge capital, they have more opportunities to diversify, what they do rather successfully. Maybe the best point is you don’t have to keep track of shares that you’re holding and do a lot of micromanagement activities as well as research. But as I just mentioned, it’s a reasonable benefit if one is only entering the world of investments. Also, as a small advantage, mutual funds have smaller transaction commissions which can make a significant difference if one is trading with a relatively small amount.
But still, I stand for investing on your own. Why? Simply because I want to keep control of my portfolio. This provides me with a flexibility in taking decisions. Another not good point about mutual funds that managing, for example, the same portfolio, they will make a smaller yield for you. This happens because of fund expenses: management salaries, marketing, legal and accounting expenses as well as cash keeping expenses (this is needed to maintain liquidity, may reach 1% of company’s turnover). And don’t forget about the charges: although the transaction fees usually less than in individual trading, in mutual funds you must pay yearly charges, that may reach 2% of the amount you invested. Considering the fact that an average fund provides the 10% yield (sometimes they can even generate losses), you will lose 20% of your gain. One more fact is that usually, funds get your investment capital tied in the fud for a couple of years you won’t be able to take them without being charged. One more thing that should be noted about this way of investing is that poorly performing funds can sell profitable shares to create a profitable picture in their accounts. This may help attract new customers and reassure present investors but hurts the general long-term profitability.
Investing in mutual funds just keep in mind: huge profits are not guaranteed. Of course, as at the beginning of the investment path professional managers of mutual funds would do a better job for you, but for experienced investors and for those who are ready to conduct research themselves and to do a lot of portfolio micromanagement individual investing will be the more profitable solution. Reed more.

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