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Benefits of Mutual Funds - Stock investing comparison

Despite the fact that mutual funds are mostly composed of stocks, a clear distinction between the two is worth making since there are several advantages that are not observed in stock investing, but prevalent investing in mutual funds, such as:

  1. Money making concentration

    You should sacrifice the fun of investing in one particular company for the sake of focusing on earning money. You cannot afford to lose your hard earned cash just because you are excited by the story of a particular company. Investing is a complex endeavor that should be planned as seriously and thoroughly as possible.

  2. Management by a financial professional

    The participation in a mutual fund automatically provides you with the services of a professional financial manager at a very low cost. Such managers possess the expert knowledge and rich experience since they have been active on the capital markets for a long time. You should avoid the common mistake of being too confident in your abilities and underestimating the expertise of such managers. Additionally, they save you the time that it takes to research all the provided possibilities and daily trade on the financial markets.

  3. Diversification

    Diversification represents the biggest advantage of using mutual funds for investing your money. Most affluent investors have acquired their wealth either through participation in mutual funds or through the purchase of myriads of different stocks. As a whole diversification lies in the foundations of their wealth, since it greatly reduces the risk.

  4. Usability

    The acquisition of many stocks leads to complication of their management. Through mutual funds this burden is reduced. If you embark on stock investing you will surely encounter bookkeeping problems, whereas mutual funds are more convenient especially if you personally manage your taxes.

  5. Higher efficiency

    Due to the large amounts of money with which they can operate, mutual fund managers often trade with no commission and enjoy special privileges by brokerage firms. Additionally, they can benefit from the economies of scale since they manage many investors' resources.

  6. Lower cost
    Compared to stock investing, mutual funds represent a better choice for small investors since the transaction cost is smaller. Additionally, mutual funds allow for the investment of small amounts. Furthermore, stock investors that operate with large sums of money get special treatment from banks and brokerage firms, whereas in mutual funds everyone is treated equally.
  7. Higher liquidity

    Mutual funds are highly liquid meaning that whenever you need money you can have them by simply stating it in your order. By the end of the working day of the market, you will have the money in your account or you will have them by check. On the other hand, stock investing does not provide this liquidity especially the so called CD's. Furthermore, some mutual funds offer you the capability of writing checks, the payment on which comes directly from your account.

  8. Risk reduction

    As mentioned above, due to diversification the risk of loss is significantly reduced. This is because of the fact that in stock investing the only thing that is enough to lose your money is the company to go bankrupt. On the other hand, by investing in mutual funds this risk is reduced next to the zero since the fund owns stocks of thousands of companies and all of them should go bankrupt in order to lose your resources.

    It is true that particular mutual funds are riskier than stock investing, but it is up to you to make the right decision in selecting the right one for you from the pool of proposals.

Finally, having presented some of the advantages of mutual funds, we hope that you will make the right investment choice for your hard earned money.

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