Stocks Or Stock Funds The Difference Between Stocks And Stock Funds Is That A Stock Gives You Direct Ownership In A Single Company While A Stock Fund Attempts To Diversify Risk By Investing In A Number Of Different Corporations.
The gains from stocks can be higher than that from funds but so can the risks.
When you purchase a share of stock you buy a piece of a company. You get direct ownership, some rights (such as voting for executives) and a share in the company's profits. You also take the risk that the company will fail and you will loose money. Most people purchase stock in the hopes that it will increase in value and that they will sell it for a profit.
Stock Funds
In a stock fund you put up the money but a professional manager picks the stocks. The fund invests in a number of different stocks to diversify risk and the professional manager spares you the hassle and cost of buying and selling stocks. In most stock funds the manager or management company charges fees for services.
There are three common types of stock funds in the United States today that are often confused by investors. The most common kind of fund is a mutual fund which is often included in IRAs and other retirement funds. A mutual fund is essentially a company that makes investments based on a strategy. The shares in such a fund are usually sold directly to investors and not traded on exchanges. A fee is often charged every time a share is sold.
The second popular stock fund is an ETF or Exchange Traded Fund which functions how much can you Make a month mining bitcoin like a mutual fund. The difference is that the ETF is traded directly on an exchange like stocks and anyone can buy a share. These funds often have lower administrative costs.
The third popular kind of stock fund is a hedge fund which is a syndicate of investors. A hedge fund is usually closed and persons will have to buy shares directly in one from its managers. Unlike mutual funds and ETFs, hedge funds are often only open to large investors.
Advantages to Stocks
The big advantage to stocks is the flexibility and the lack of fees. Persons can buy shares directly and trade them fairly easily online. You will have to pay a brokerage fee when you trade stocks but there are discount brokerages available.
The disadvantage to stocks is the risk you take. Your future return will be entirely dependant upon the company's performance. There are some really good stocks like Google and Berkshire Hathaway that provide a high steady return but shares in such firms can be very expensive.
Advantages to Stock Funds
The big advantage to a stock fund is diversification and lower risk. Since it is invested in different companies it should have less risk. An indexed fund could be invested in several hundred companies at once. Another advantage to such a fund is that it could allow you to invest in companies that are not normally available to ordinary investors such as foreign shares.
Another advantage to a fund is professional management a professional manager will be constantly looking after your investment. He or she will usually follow a specific strategy the fund is based on such as an index or a focus on one area. Unfortunately this does not always guarantee a good return or protect you from losses.
Which Should You Buy?
Persons investing for the long term or retirement will usually be better served by stock funds. Short term investors and speculators will be better served by stocks. There are also some ways to limit the risk from stock funds including investing through indexed annuities which do provide some insurance against market losses.
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