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are mutual funds better than investing in stocks an is it riskier?

December 16th, 2009 | | Tags: , , , | 6 Comments | |

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6 Responses to “are mutual funds better than investing in stocks an is it riskier?”

  1. ssunderagarwal Says:
     December 16th, 2009 at 9:04 am

    YES, but invest in the popular and strong mutual fund backed by strong group to keep your money safe and pays returns

  2. Michael S Says:
     December 16th, 2009 at 9:04 am

    When you invest in most mutual funds you ARE investing in stocks. A mutual fund buys you a tiny share of many different stocks at once (in most cases). If the stocks that fund owns decline in value, so will the fund. The advantage to a mutual fund is that your entire investment isn’t tied up in ONE stock, so in that regard mutual funds are less risky because they are more diversified.

  3. question Says:
     December 16th, 2009 at 9:04 am

    Micheal S makes a good point but fails to point out that there are also mutual funds that invest in bonds, a combination of stocks and bonds, or even commodities or real estate.

    Mutual funds allow you to own a diversified portfolio of securities for a much smaller investment than you could by buying individual securities. The fund is ran by a fund manager who gets paid from the fund’s expense ratio and tries to beat his or her benchmark.

    The real question is whether or not it is worth paying someone to try and beat the market when empirical evidence proves that it is next to impossible to do so over long periods (and almost certainly impossible for an individual investor to do so by themself). There is a type of mutual fund called index tracking funds which charge a very low expense ratio and only try to match their benchmark. An investor can create a portfolio of index funds that track a variety of indexes; from large cap to small cap from domestic to international and from stocks to bonds to real estate to commodities.

    For example a "smaller" investor could go to Vanguard or Fidelity (or use ETFs which act like index mutual funds but trade throughout the day like stocks) and buy an S&P 500 index fund, a Russell 2000 index fund, an EAFE index fund, a Dow-Jones/Wilshire Real Estate index fund, a short-term bond index fund, and an intermediate to long term bond index fund and be as diversified as an investor with millions to invest and an expense ratio under 0.50% (saving one percent per year in expenses can really add up over time with compounding!)

    And finally, ALL INVESTMENTS CARRY RISK. Generally the more risk you take the more potential return you can achieve.

  4. zanthus Says:
     December 16th, 2009 at 9:04 am

    You have to understand that a mutual fund is a pooled resource…where you buy a unit in a certain fund that is invested in many different investments.

    You know the expression, don’t put all your eggs in one basket..well a mutual fund by definition spreads the risk

    When you say, instead of stocks, here is where you are not really understanding what a fund really is…

    A strictly equity mutual fund does invest in stocks..just a LOT of stocks.

    A money market mutual fund just invests in very safe short term bonds.

    So as you can see, although a mutual fund spreads the risk, a mutual fund may only invest in very risky stock investments, which might make this particular fund MORE risky than investing in just one BLUE chip stock….see what I mean.

    Any mutual fund company has a whole range of mutual funds that they offer, from risk free, to very risky.

  5. mallya s s Says:
     December 16th, 2009 at 9:04 am

    of course they less riskier than investing in stocks because there are trained people tracking mutual funds…

  6. Uncle Leo Says:
     December 16th, 2009 at 9:04 am

    Mutual funds usually contain a variety of investments, and therefore tend to be more diversified than individual stocks. Diversification lowers risks since you don’t put all of your eggs in one basket. You can achieve diversification from investing in individual stocks. But it takes more money and more work on your part in managing the money. There are mutual funds that are focused on particular sectors of the economy, which can be fairly risk because they aren’t as diversified. But overall, mutual funds are easier to invest in and less volatile than stocks.

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