Would stocks give you a better return than mutual funds, or is it the way around? First of all, let’s understand what each of them is.

Stocks: Most people believe they have a basic understanding of what stocks are, simply because of their exposure to the term in culture. Stocks are small parts of companies people can buy in open trading on the stock exchange. Because of the fact that some companies require a minimum purchase, stocks are often sold in bundles. Stockholders have a vested interest in the company’s well-being, as the price of their stocks are directly related to a company’s performance. Stocks are separated in categories which reflect the type of business they represent.

Mutual Funds: Mutual funds are collective investments that pool the money from a lot of investors and put the money in stocks, bonds, and other investments. Mutual funds are always managed by a certified professional, while stocks are often managed by individuals. In other words, mutual funds take advantage of different types of stocks.

Choosing to go with stocks or mutual funds is a decision that depends on personal expertise and financial availability. Some people love the “game” of buying and selling stocks, and they love being able to invest their money into a single company they can learn about. The downfall with stocks is that their price is usually already high by the time they make it out on the market, and also, investing everything in one company can be very risky. Some of the wealthier investors split their investments into different companies, but this is something not everyone can afford to do.

The better bet for the beginning investor is to purchase mutual funds. Since mutual funds are based on different types of stocks, the chances of losing money are lower, and they opportunities to earn gains are higher. Mutual funds may not provide quite the excitement of investing in a lucky stock, but they are good investments for a long-term financial opportunity. Also, mutual funds are managed by professionals who know the market like their own pockets, so they are much safer types of investment. Mutual funds are not as risky, since the risk is split among all investors equally.

For the individual with some extra money, who does not have the time or the expertise to properly “play” the stock market, mutual funds will prove the better option.

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