Wednesday, September 26, 2012

Stock Market and Mutual Funds

Confuse where to put your hard-earned money for a sound retirement plan?

In today's world of highly diversified way of life, no one cannot afford to just sit in one corner and wait for the sunset to come, everyone must do something to insure the future is well taken care of without becoming financially incapacitated and dependent to others. It's a horrifying vision to become so helpless when retirement age comes without anything to spend on with personal needs. Not so much about living in luxury and comfort but more on basic needs, something that could augment the defining moment of survival, this is where intelligent investing comes in.

For many decades, economy experts had been telling us that the best way to expand financial portfolio and grow money is through investment, stock market is very famous, but in recent years, this intelligent investing strategy evolved into different options, mutual funds is one.

The difference between investing in the Mutual Fund and Stock Market

Mutual Fund comprises of stocks, bonds, short-term money market instruments and other securities and usually operated by private companies and banks. It is a collective investment strategy and the fund is being managed by a money manager. The investment is diversified. This is ideal for people who have no knowledge how to read the trend of stocks. Fund managers know the intricate process of the stock trading, thus it is more safe to choose the mutual fund.

Stock Market is a trading organization and normally you will pass to a stock broker who will provide a sound advise what stocks to buy and when to sell it. Individuals can purchase a stock independently however, it is not for everyone, stock market fluctuates overtime and if you have no knowledge how to read a trend then you will lose the large part of your investment.

With the above description of each investment option, we can conclude that stock market is a lot riskier than mutual fund. 

The scenario of stock market and mutual fund is this:

In the stock market, it's like putting all the eggs in one basket, if that basket will drop, all your eggs will be cracked. While in the mutual fund, the eggs are put in different baskets, so if one basket will drop, you still have many baskets to look on.

How to decide where to go?

No matter how wise you are in making decisions where to put your money, considering the volatile conditions of the global economy, you will eventually lose some, losses are common for both investment strategies but you can spare the headache of losing large part of your hard-earned money by acquiring enough knowledge first what are the advantages and disadvantages of investing through stocks or mutual funds.
  • Make/do a research first before you decide what investment option to make.
  • Study the financial risk analysis of both options.
  • Consider the amount you want to set aside for investment if it is for a long-term investment or short-term.
  • Weigh the advantages of both options.
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