Mutual Funds vs Stocks: Where to invest?

There are too many investment instruments available today, so much so, that novice investors find it a bit confusing. The question which arises in everyone’s mind is Mutual Funds vs Stocks: where to invest? Which is the most profitable and safest?

Investment in Mutual Fund

In mutual funds, your investment fund will be managed by the Investment Manager. Of course, they have more experience and knowledge than you, as you may be just starting to invest now. Thus, the assumption is that investment in mutual funds will be safer because if there is a volatile market, investment managers already have anticipation measures to keep customers’ funds safe.

However, investing in mutual funds, means that we share the risk with others, and the returns must be divided as well. At the very least, you will be charged an administration fee by the investment manager. It may be only a small percentage, but if your investment amount is big, it will also cost a lot.

Investment in Stocks and Shares

If you invest in stocks, then you will manage your own investment funds. Indeed, there will be securities companies that will be your intermediaries to conduct stock transactions, but they really only act as brokers. They don’t have the authority to manage your investment fund. You alone must analyze, consider, and ultimately decide which stocks you will buy, sell, or hold.

Therefore, investing in stocks includes high risk, especially if you are a beginner. It is not recommended to do stock transactions without sufficient knowledge, especially if you do not have enough knowledge about the same. Fluctuations in the capital market are too high, so it could increase your stress level if you are not used to it. Sometimes, instead of getting good returns, you may lose your invested amount too.

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Considerations for Mutual Fund Vs Stock Investment

So, what are the considerations, when investing in mutual funds or in stocks? Let’s see them one by one.

1. Financial objectives and time horizon

Your goal of investing will be one of the most decisive consideration factors, whether it is mutual fund investments or stocks.

Our financial goals are divided into 3 significant groups: short, medium, and long-term goals. Certainly, both are closely related to the time horizon. Short-term goals are financial goals that must be achieved within a short period of time, usually less than a year. Between one year to 5 years, you can consider it as a medium-term goal. More than 5 years, or even 10 years, is a long-term goal.

Everyone can have different goals, and this is natural because our needs and priorities are different.

For short-term purposes, for example, to store Emergency Funds, mutual funds will be the right instrument. It is quite liquid and safe, the returns also do not need to be too high.

For long-term purposes, for example for pension funds, you can take advantage of stock investments. Because the time horizon is long– say 10 years–then there will be fairly enough time to anticipate movements or price fluctuations. Because basically, if the shares of the company you choose are healthy and good company shares, the share price will also rise over time giving you good returns.

2. Time required for analysis

When you want to invest in stocks, then you will need to take out time to learn about the company whose shares you are planning to buy. It helps to read their financial statements to then be able to analyze whether the company’s shares are worth collecting.

You also need time to consider other aspects that could affect the share price in the future, as well as the industry in which the company is engaged. You have to understand the economic situation as well.

Meanwhile, to invest in mutual funds, you can entrust this analysis to the investment manager. They’ll do it for you. You choose an investment manager that you can trust, and maybe study the mutual fund fact sheet that has been provided to check the profile of the investment manager.

So, where should you invest – mutual funds or stocks?

If you do have time to do an in-depth analysis of stocks and the stock market and are ready to take high risks for higher returns, then there is no harm in investing in stocks.

However, if you feel inexperienced in investment product analysis, and feel that you will not be able to manage risk properly, mutual fund investments will be more suitable for you. However, entrusting the analysis to the investment manager does not mean you stay put. You also need to monitor the performance of your investment manager, is the fund developing well? or, does it need some action?

Mutual funds or Stocks?

Well, after comparing mutual funds against stocks, now is the time for you to choose which investment is more suitable. Remember, there are 3 basic components that should always be your guideline for choosing, namely your own financial goals, time horizon, and risk profile.

By recognizing your risk profile, you will be able to determine the right investment instrument. Meanwhile, goals and time horizons will be able to help you to be consistent and can be a guideline when you want to do reviews and evaluations periodically.

Once you have purchased an investment instrument that fits your profile, goals, and time horizon, it does not mean your role is over. You should periodically review and evaluate these instruments. Is it still going according to plan? Is the development as expected? If so, you can go on. If not, you can immediately find alternative solutions to solve them.

Conclusion

If you are an aggressive investor, willing to take high risks, can invest for the long term, and are willing to take the time to understand and spend time on doing research on the companies, then stocks can be the right choice for you.

But if you are an investor who does not have much experience in investing, is afraid of investment risk, and does not yet have a lot of funds, then mutual funds can be a good option.

So, what kind of instrument do you want to invest in? Mutual Funds vs Stocks?

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Mutual Funds vs Stocks: Where to invest?