There are three popular ways for individual investors to invest in the stock market: buying stocks directly, mutual funds, and ETFs (exchange traded funds). Each of these options have their pluses and minuses.
Buying stocks:
The most simple and straightforward method to invest in stocks is to just buy them! All you need to do is sign up at a broker and buy whichever companies you decide are the best investments. The benefits of this method is you choose which companies you believe will perform best. Of course, the drawbacks here are that you may not have enough time to identify which stocks make the best investments. It is also sometimes hard to diversify your portfolio, since you likely will not have substantial knowledge on a variety of stocks from various sectors.
Mutual funds:
If you decide you want someone to do the investing for you, consider investing in mutual funds. When you put money into a mutual fund, you are pooling your money with other investors and allowing professionals to invest it for you. The advantage here is that you do not have to follow your investments yourself, since someone else is doing the work for you. Also, mutual funds tend to buy hundreds or even thousands of stocks, so even just buying one mutual fund can give you diversification. The drawback is that most mutual funds under perform the market (due to fees and asset bloats), so most of the time you are actually better off just randomly picking stocks yourself!
ETFs:
An ETF is like a mutual fund, except it passively tracks an index like the S&P 500. The advantages of the ETF are the same as the advantages of the S&P 500. Also, since ETFs just buy whatever stocks make up an index, they have lower fees than mutual funds. However, by its nature, an ETF will never beat the market since it just attempts to mirror the market. ETFs have become increasingly popular though since many investors have become disillusioned with mutual funds.
Charles writes for a stock investment tips website as well as a website that helps investors find top performing mutual funds
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