Investing In Mutual Fund Safer Than Individual Stock

Monday, July 5, 2010, 12:22 AM | 5 Comments

Let’s face it. Among all the industrialized nations, Americans have the hardest time when it comes to saving , though recently their saving rate has increased exponentially to 5% from a measly less than 1% a year ago. But compared to others, it’s still not enough. When they don’t save enough, they don’t invest enough.

Even folks who put away money for long-term goals, such as college, a home down payment or retirement, do so in the least risky ways such as certificates of deposit and accounts paying fixed rate of interest, or in government bonds.

So what’s the problem?

Investments like these produce returns roughly equal to the combined rate of two culprits: taxes and inflation, if even that. The only way to beat these two over the long haul, to actually increase your wealth rather than just preserve it, is to invest in common stocks.

How do you go about increasing wealth?

Individual stocks are too risky for most folks. If you don’t have the time or the inclination to do research necessary for individual stock investing, the alternative for small investors can be mutual funds. They can be the perfect way to invest in stock.

Mutual funds offer the following advantages to the small investor who wants to invest in common stock:

  • Convenience

    Many excellent mutual fund companies offer a broad range of funds. You can open an account with a single fund family that offers funds investing international and domestic, big and small companies and various styles, such as growth and value.

  • Professional Management

    The fund industry tends to attract some of the best professional stock pickers in the business. But you still have to do research on your own to pick the best.

  • Instant Diversification

    By the nature of mutual funds, the typical equity one has positions in literally hundreds of individual stocks. This reduces your risk significantly. A well-diversified portfolio is less prone to wild price swings than one made up of a few stocks.

  • Affordability

    It is possible to begin an investment program with any of more than two dozen no-load mutual fund families that require an initial investment of $50.

  • Discipline

    Though investing $50 a month doesn’t sound like a lot of money, over time and investing consistently, it can grow into a sizable nest egg in 5 or 10 years or more.

In a Nutshell
If you ever wanted to invest in stocks, equity mutual funds can be a better option to get into.

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  1. 5 Responses to “Investing In Mutual Fund Safer Than Individual Stock”

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