Should You Invest In Mutual Funds Or Stocks?

With so many options out there for the individual investor, it is sometimes difficult to determine that investments are right for you. The key to having a long-term, stable and profitable portfolio is to diversify your investments. For many investors the process of diversification includes investing in both mutual funds and stocks. The best course is to learn all you can about both types of investments and find your ideal balance between the two.

Mutual funds are open-end funds that are not listed for trading on a stock exchange. They are created by companies who use their capital to invest in other companies. Mutual funds will sell their own new shares to investors. Capitalization is not fixed and normally shares are issued as people want them.

1. Mutual funds have great characteristics for investors

Mutual funds are professionally managed. The mutual funds employ professional managers to operate all investing. These professional managers bring with them many years of experience. They are experts in selecting and evaluating investments for the fund. The managers make all of the buying decisions and selling decisions that relieves the individual investors from that responsibility.

2. Mutual Funds Are Diversified

Another advantage of mutual funds is that most of their portfolios are highly diversified. This means that the mutual fund is invested in a wide variety of stocks. The advantage of diversification is that if a few stocks drop in price the entire fund won (TM)t be dramatically affected. Diversification occurs by investing in many different companies. It can also be accomplished by investing in several different industries. The advantage of diversifying through mutual funds is that the funds can reach a wider diversification than can be reached by individual investors.

3. There are thousands of mutual funds to choose from

Depending on your preferences, you can choose to invest with a mutual fund that covers the whole market or with a fund that focuses on one or two industries. There are even mutual funds available that invest only in foreign markets. Mutual funds can be very convenient for the investor since the fund does all the record keeping. Your mutual fund will provide you with all the forms you need to file your taxes. Additionally, many may offer perks such as the ability to write checks against the money market fund.

4. Stocks Have Greater Returns (Potentially)

On the other hand, purchasing individual stocks has attractive features as well. After the brokerage fee is paid, there is no ongoing fee associate with owning individual stocks. This is in contrast to mutual funds that charge a participation fee. Mutual fund fees can totally negate the mutual fund return that you are expecting.

Mutual funds are open-end funds that are not listed for trading on a stock exchange. They are created by companies who use their capital to invest in other companies

With investing in individual stocks, an investor has the ability to be very flexible with their investing and move with market if they so desire. Mutual funds are very stable but this also keeps them slow. Individual stock investments can be traded quickly if need be, and purchased just as quickly if the investor finds an undervalued stock.

5. More Control

With individual stock investing, an investor has a greater level of control over their investing. Although brokerage firms are involved there is the opportunity to be more hands on with the stock purchases. This level of involvement is impossible with mutual funds. Many investors like to know exactly where their money is going and this can be hard with a mutual fund that holds shares in 50 or more companies. Investing in individual stocks allows the investor to have a larger relationship with the company they are investing in. This can create a sense of comfort for the investor because they know where their money is being used. They can track the activities of the company they have invested in and feel like a true part of that company.

6. The Verdict

Investing a mixture of mutual funds and individual stocks seems to the best method for a majority of investors. Those who do not want to take the time to research their stocks and would rather let an expert handle things are more comfortable with mutual funds. On the other end of the spectrum, those who want a greater level of participation with their investments will find individual stock investing attractive. As part of a long-term diversification strategy it may be best to look into both in the ratio that you are comfortable with.

Introduction to Money Market Mutual Funds

Since money market instruments such as Treasury bills (T-bills) and certificates of deposit (CDs) require initial investments that only the wealthiest of investors can undertake, individual retail investors interested in the money market are limited to money market mutual funds, which don't require initial outlays of tens (or even hundreds) of thousands of dollars. That said, even smaller investors who purchase money market mutual funds are advised to have at least a rudimentary understanding of such instruments as T-bills, CDs, and municipal notes ("munis"), as these are the products that will form the bulk of their money market mutual fund purchases.

Purpose of Money Market Mutual Funds for Investors There are three instances when money market mutual funds, because of their liquidity, are particularly suitable investments. First, money market mutual funds offer a convenient parking place for cash reserves when an investor is not quite ready to purchase an individual stock, bond or mutual fund for his or her long-term portfolio holdings. Money market mutual funds offer ultimate safety and liquidity. This means that investor will have an expected sum of cash at the very moment that they need it.

Secondly, an investor holding a basket of mutual funds from a single fund company may occasionally want to transfer assets from one fund to another. If, however, the investor wants to sell a fund before deciding on another fund to purchase, a money market mutual fund offered by the same fund company may be a good place to park the proceeds of sale. Then, at the appropriate time, the investor may exchange his or her money market mutual fund holdings for shares of the other funds in the fund family.

Thirdly, to benefit their clients, brokerage firms regularly use money market mutual funds to provide cash management services. Putting a client's dormant cash into money market mutual funds will earn the client an extra percentage point (or two) in annual returns above those earned by other possible investments.

Operational Details of Money Market Mutual Funds Money market mutual funds are designed to offer features that are particularly suited to the needs of small investors. Minimum initial investments range from $500 to $5,000, whereas the minimum initial investments of other money market instruments range from $5,000 to $100,000, or even higher.

You can purchase money market mutual funds directly from brokerage companies or mutual fund firms, just as you would purchase a stock or equity mutual. Also, many banks offer sales of money market funds and even act as investment advisors to clients interested in purchasing funds. Some banks have their own proprietary money market funds, as securities legislation now gives banks the right to advise customers to invest in the banks' proprietary funds.

Money market mutual funds also offer some simplified withdrawal features that are more typically associated with bank or trust accounts. For example, money market funds allow investors to withdraw assets by writing checks, usually of a minimum amount, say, $500 per check. If the investor does not want to write a check as a means of withdrawing funds, he or she can easily redeem shares by requesting payment by mail or by remittance through a wire transfer to his or her bank account.

Categories of Money Market Mutual Funds Money market mutual funds may contain a specific type of money market security or a combination of securities across a wide spectrum. That said, most funds adopt a specific investment philosophy that relates to a particular money market instrument.

One particular type of fund limits its asset purchases to U.S. Treasury securities. Another class of money market funds purchases both U.S. government securities and investments in various government-sponsored enterprises. The third and largest class of money market mutual funds invests solely in privately issued money market securities that offer the highest degree of security, such as those rated "A1" by Standard & Poor's or "P1" by Moody's.

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A second important categorization for money market mutual funds relates to their taxable or tax-exempt status. Taxable funds invest in securities such as Treasury bills and commercial paper, whose interest income is subject to federal taxation. Tax-exempt funds invest exclusively in securities that are issued by state and local governments and are exempt from federal taxation. Tax-exempt funds generally appeal to those investors in a higher federal tax bracket who are seeking tax savings on the overall interest income generated by their portfolios.

Some tax-exempt funds purchase only securities issued by governments within a particular state. If an investor can find such a fund for his or her home state, that investor can earn interest income that is exempt from federal, state and perhaps even local income taxes. Tax-exempt money market mutual funds have the potential to offer a triple-whammy tax reprieve for investors!

Conclusion Just as equity mutual funds have greatly simplified the world of equity investing, money market mutual funds have made money market investing accessible to individual retail investors. Money market mutual funds are among the safest and most liquid financial instruments widely available. Moreover, money market funds offer modest initial investment requirements and provide simple procedures for withdrawing funds by check or transfer to a bank account. Finally, if they choose carefully, purchasers of certain tax-exempt money market funds may also enjoy relief from federal, state and even local taxation.

The Right Mutual Funds For Baby Boomers

The Right Mutual Funds For Baby Boomers By C.C. Collins, Wealth Strategist,http://www.jxj831116.energiser1.hop.clickbank.net

If you are a baby boomer, time is not on your side. Many baby boomers see retirement age fast approaching with little to nothing in the way of retirement assets that will allow them to actually retire and live a comfortable lifestyle.

With the benefit of time in short supply, substantial investment performance in a shorter than normal time frame becomes strikingly important.

Mutual Fund Advice A case could be made that a special type of mututal fund, an index mutual fund, in conjunction with careful market trend analysis (not predictive market timing) could be used to achieve higher returns faster than a standard mutual fund.

As to the specific type of index fund to consider using, investors would do well to "keep it simple" and use an index fund that tracks well known indexes like the S&P 500, Nasdaq100, and Wilshire 2000.

Index funds that track any of the major indexes are just taking advantage of the concept of diversification. The only remaining risk is whether the entire market goes up or goes down and one can switch to a fund that is designed to profit from a down market when such action is called for.

There are very few active investment managers that outperform index funds or exchange traded funds over a five year or greater period. This is why an index fund is recommended in the case of baby boomer-aged investors who need stellar performance over shorter time frames.

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http://www.jxj831116.energiser1.hop.clickbank.net

C.C. Collins is a Financial Planning Advisor and Author of "Scientific Wealth Strategies" at http://www.jxj831116.energiser1.hop.clickbank.net. Find more information at http://www.jxj831116.energiser1.hop.clickbank.net

Invest In Mutual Funds And Let Someone Else Do The Work

Deciding to risk your money in an investment is a big decision, however a decision that can also have big returns while minimizing the risk as well. So, if you are interested in saving for the future and making more money from an investment, then you should definitely consider the many benefits offered to investors of mutual funds. Some of the reasons why mutual funds are good investments include great management, access to money in an emergency, investment diversity, and other personalized services.

When you invest in a mutual fund company your investments will be given top priority and managed by professionals experienced and knowledgeable in managing portfolios and mutual funds. This is an amazing opportunity for your investments because they will be watched at all times to make sure they are performing as well as possible. Your mutual funds managers know what a good investment is and what is not, because it is their job. If you leave your investments to them you will likely see faster and better results than on your own.

Also, when you invest in mutual funds you will generally have access to them at all times for emergency purposes. That is to say if you need money for an emergency or other situation you will more than likely be able to sell your mutual funds for market value, unless your mutual fund company has a rule against this and most do not. While you don't anticipate having any financial emergencies, it is nice to know that if one arises you will be able to access your money.

Another great benefit of a mutual fund investment is that your dollars are spread out and invested in a variety of securities so as to make the most of your investment and provide additional security. This protects against the whims of the market to some extent so your investment will not suffer overall due to rises and falls of the market. You would not be able to invest your funds this way on your own, but your mutual fund company can and it will protect you and make you more money.

Additionally, when you invest your money with a mutual fund company you will find that not only will your money be well managed but also you will receive additional services. These services include automatic reinvestment of the funds, direct transfer of funds as well as a variety of other services.

If you have considered investing and were not sure the best method, then definitely consider making your investment in mutual funds because you will have a higher return on your money and less risk. Do some additional research if you want to know more information.

Robert Michael is a writer for Rmh Investments which is an excellent place to find investment links, resources and articles. For more information go to: http://www.rmhinvestments.com

 

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