When trying to invest in stocks there are two primary ways; mutual funds and individual stocks.
Mutual funds are a way of investing in a set of stocks with a single purchase. Mutual funds have several advantages:
Simple diversification, get many different stocks with a single purchase. Purchase different types of funds to get coverage over different financial segments. Does not require you to research your own stocks. Get professional money management without the pricey broker fees.
Unfortunately not all about mutual funds is good. There are also several disadvantages:
Often mutual funds are not as diversified as one thinks. Most mutual funds only cover a very small financial segment. e.g. The S&P 500 is one of the most popular indexes tracked by mutual funds. It has 500 stocks, but it really only tracks a very small financial segment (very large US stocks). The vast majority of mutual funds underperform the index they track (~80%). This is because as with all things about half actually outperform and half underperform, but because you have to pay fees a larger percentage end up underperforming.
In my experience mutual funds are good for people who don't have the time/desire to research their own stocks but still want to invest in stocks. And for the vast majority of those folks an index fund is the best way to go as it allows you to track the index while having the lowest possible fees.
But for those with the time and desire to try to beat the indexes' returns they would be much better off researching and picking their own stocks. The advantage the individual investor has is they do not have to try and perform for their investors, which causes them to do things that may not actually be the best money making choice. i.e. They may need to sell certain stocks to lock in profits to show on their annual reports.
If you are interested in trying to invest in individual stocks your first step is to find a discount broker. As with mutual funds one important part to being successful is not getting drug down by fees. You will need to find a broker with a good price, but also with the kinds of features you're interested in. Many brokers offer research and help finding stocks. Start by comparing different brokers and trying to find the one that best fits your needs.
Investing in stocks incurs more risk, you may lose money on your investment. Please contact your financial advisor before changing any of your current investment strategies.
Written by Mark Reynolds, president Gotta get my info. You can find more about stocks and all things financial at the Finance page at Gotta Get My Info.
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