The U.S. stock market may resemble a roller coaster ride with its ups and downs and fast-paced changes, but because of the potential returns many investors are still drawn to the market and pin their financial hopes on publicly traded companies that just might let them hit the big payday later on. With the stock market also recovering from the slowdown of the last few years, first-timers are being urged to throw their hat in the ring and invest right away.

For the newcomers, and even for some of the more experienced, the question of whether to get stocks or mutual funds always comes up. You are bound to get either slightly different explanations or completely opposite viewpoints on which type to invest your hard-earned money in. Truth is, both individual stocks and mutual funds have their pros and cons, and both can also be ideal financial investments for anyone who understands their differences and maximizes them to his or her advantage. In fact, you can also build a portfolio with a mix of stocks and mutual funds for more diversity.

Individual stocks require hands-on management

When you opt for individual company stocks, you have the freedom to buy how much you want, at what prices, and how to diversify your portfolio. With the liberties of stock purchases come responsibilities as well, which means monitoring the movements and coming up with solutions for minimizing risks, balancing your portfolio, or watching current financial trends in order to make the right decisions regarding your investment.

If you invest in individual stocks, you do have to have a working knowledge of the financial terminologies and trends and understand fully the procedures. You will also need to look at the company’s records, particularly earnings reports, interest rates, commodity prices, etc. Individual stock purchases and investments are ideal for those who already have some experience with the ins and outs of the stock market, and those who have the time and resources necessary to properly manage the investment.

Mutual funds are managed for you

In mutual funds, different stocks are combined into one portfolio, in smaller units and with generally smaller returns or dividends compared to the more high-risk game of individual stocks. A professional fund manager usually handles the mutual fund for the investor, and the manager is in charge of the decision-making, including which stocks or equities to invest in. The investor does not need to worry about record-keeping, corresponding tax forms, or monitoring the fund constantly. The mutual fund and the assigned professional manager takes care of it for the investor.

Mutual funds are great options if you are just getting your feet wet in the water of the stock market, and are not familiar yet with the terminologies and the intricacies of investing in the stock market. The downside is that mutual funds also have smaller return percentages, although because of the smaller risk involved in a portfolio of small equities and diversified industries or markets, mutual funds are also more resilient to market upheavals.



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