Do you have difficulty choosing between stocks or mutual funds?
You’re not alone!
Both are very good asset classes, but one may be better suited than the other for you, your level of knowledge and your interest.
it all depends on what type of saver you are.
And the good thing is, you do not have to choose.
Many who save actively and successfully invest some in funds and some in equities.
So, should you invest in stocks or mutual funds?
Both equities and mutual funds are very good to save in. For those who are interested in learning more about the stock market, equities are best. If you become good at shares, there is an opportunity to get a good return on your savings. For many, a combination of stocks and mutual funds is the very best.
For those of you who do not have the time or interest in shares, mutual funds are a very good alternative.
What is the difference between stocks and mutual funds?
Let us first find out what the difference is between a stock and a fund. A share is an ownership interest in a company, while a fund is a package of various shares, and sometimes also interest rates.
If you buy a share, you get access to a specific company, while a fund gives you indirect access to many different companies at the same time.
Okay, no weirdness. But when is it appropriate to save in shares and when might it make more sense to choose funds?
When should you save in shares?
With shares, you have the opportunity to invest in the very companies you believe in and thus take part in the development that these companies have.
The risk you take, on the other hand, is significantly higher than with funds where you get an automatic risk spread.
The value of a share can fluctuate sharply from day to day, so it is important to keep up and read about the companies you invest in to decide whether you should continue to own the shares or sell them.
It is also important that you spread your risks so that you do not have all your money invested in a few stocks.
In general, it can be said that stocks fit better if you
- wants a chance at a higher return
- is comfortable taking high risk
- find it fun to follow your savings and the stock market.
When should you save in mutual funds?
With funds, you spread your risk automatically because you do not invest your money in an individual company but are allowed to take part in the development of all the underlying holdings that the fund owns.
If you choose an equity fund, you will thus indirectly own the shares that the manager of the fund has selected.
The manager then monitors the holdings and replaces them based on the analyzes that are performed on an ongoing basis.
It is this work that you pay a fee for, a so-called management fee.
Funds are usually better suited for you who want to
- spend time on other than your savings
- take lower risk but still have a chance at a good return
- get an automatic risk diversification
- pay a little for a manager to take care of the investments for you.
Combine stocks and mutual funds
For most people, it is probably best to invest in both stocks and mutual funds. Funds allow you to spread your risks among many more markets. Funds are a stable basis for good savings.
Funds give you security and risk diversification
Funds are a good base for your savings. You get your money managed by professional managers.
You also know that you have a good spread of risk. Saving in mutual funds is smart and convenient.
Stocks give you an extra spice and the opportunity for extra high returns
It’s always fun to have some spices in your savings. It can be a company with products that you like extra much. It can also be companies with new exciting technology that you believe in.
Shares you have selected for a special reason are extra exciting to follow.
Good investment rules when investing in stocks or mutual funds
When we invest, we are governed a lot by emotions and impulses from outside. It can be a stock tip from a friend, large price movements on the stock exchange or something else.
We usually make bad decisions based on emotions. By creating clear rules that you decide to follow, your investments will be much better.
1. Set a goal and dare to be long-term
It is important to have a goal for your savings. You can have different savings with different goals. Adjust the risk according to which savings horizon you have.
2. Invest regularly
Regardless of the savings horizon, it is important to invest regularly. This is a great way to reduce the risk of your savings. If you save regularly, you also make sure that your savings really get off.
3. Check the risks
Try to understand the risks of what you invest in. Do companies make money? Are they highly valued or low? Have you invested in companies in different industries and in different markets?
It is also important to know how long you are saving.
A good rule of thumb is that the longer the savings horizon you have, the larger the share you can save in shares.
4. Be careful with mortgaging
It’s cheap to borrow right now. It can be tempting to borrow a little to invest in stocks.
But it is always a risk to invest. Only buy shares for money you can afford to keep for a long time.
Having a loan that you bought shares for that goes down in value is no fun.
5. Stay informed
Set aside some time every now and then to track your investments. Follow up on how they develop. Feel free to take some time to read the most important quarterly reports from the companies you own.
Many funds also regularly submit various reports with interesting information. Following how companies and finances develop is interesting and useful
6. Do your own analysis
Decide criteria for which companies or funds you want to invest in. Then you have your own strategy for your investments.
It’s easy to skip tips from friends or various forums. Sometimes it can certainly be good tips, but it can just as easily be a losing business.
Stick to your strategy and your analyzes, then you know what you are investing in and why.
7. Set rules for when you can relocate
Just as you have rules in what to invest in and when you need to think about when to sell. Maybe you sell when a certain price has been reached?
It can also only be to make reallocations if a certain stock or fund grows much larger than your other holdings.
So, what is the best? Stocks or mutual funds?
The most important thing is that you understand what you are getting into once you get started. Investing without an understanding of what it is you are investing in can have devastating consequences for your finances.
I do not like to tell people what to do with their savings.
But based on my experience on the stock exchange, I would say that you should open a savings in both shares and funds because you then prevent only choosing stocks that can go bad, because funds actually give a very good return in the long run then the fund managers are better than you think.
Many people like to beat themselves up and think that you should be a stock market shark and beat the stock market through shares, but most people actually benefit the most from having a savings in funds and letting someone else take care of it for you.
Hope you liked what you read, and feel free to check this video I found on Youtube if you wanna learn more: