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Mutual Funds Better Than Indvidual Stocks ?

Though it cannot be said in general thatrisks of stock trading by spreading out
mutual funds are always better thanthe capital over many stocks. But
individual stocks, it still cannot beover-diversification is again a bad
denied that they usually involve lowerthing. First, an investor gets into many
risks, less money and generally yieldfunds that have significant mutual
lower but safe returns. It all dependsimplications, thereby losing out on the
on the risk attitude of the investor.full benefits of risk stretching that
This is understood clearly by looking atdiversification affords. Secondly,
the disclaimer attached with any mutualover-diversification may decrease your
fund options that are nearly identicaloverall return. By hitting too many poor
with that applicable to any other (kindthrough mediocre funds, the investor
of) stock. They have their advantagesreduces the return by missing the
and loopholes like any other form ofpotential of a few well-managed funds.
investment. And as in other forms ofIt is true that mutual funds play it
investment, one has to be fully aware ofsafe. This is because mutual funds are
potential pitfalls and while drivingactively organized by a professional
high with mutual funds, has to be alertmoney manager who keeps constant checks
enough to avoid them. Mutual funds areon the stocks and bonds in the fund's
seemingly the easiest and leastportfolio. As this is her/his primary
stressful way to invest in the stockoccupation, s/he can devote much more
market. Quite a large amount of newtime to choosing investments than an
money has been put into mutual fundsindividual investor. This provides the
during the past few years. Briefly put,investor with the peace of mind that
a mutual fund is a pool of moneycomes with informed investing without
contributed to by individual investors,the stress of analyzing financial
companies, and other organizations.statements or calculating financial
There will be a fund manager hired toratios. But on the negative side, a
invest this cash with a primary goalmutual fund, unless open-ended, must
that depends upon the type of fund. Theremain confined within a fixed
manger usually diversifies in a mannerportfolio. Even with open ended mutual
such that the net average earning isfunds, the range of potential is often
expected to be considerably positive. Slow as compared to what is available to
he may be a fixed-income fund manager.an investor free to choose any stock s
In that case s/he would work hard tohe likes. Besides, mutual funds some
provide the highest return at the lowesttimes come as load funds in which the
risk. On the other hand a long-terminvestor has to pay the sales commission
growth manager should try at least toon top of the net asset value of the
beat the Dow Jones Industrial Average orfund's shares. Also, the dollar-cost
the S&P 500 in a given fiscal year. Butaveraging strategy is just the same with
that is what any successful investormutual funds as to any common stock. Of
attempts to do, and anyone with acourse, fixing such a plan can
similar approach can be expected to makesubstantially reduce your long-term
the same earnings. It all depends reallymarket risk and result in a higher net
on the overall investment climate andworth over a period of ten years or
the sectors in which funds are flowingmore. Hence considering the stress,
in. Diversification is definitely a goodagony and risk that any stock may
approach when it comes to successfulinvolve, mutual funds look a shade
investing by a reasonable investor. Butbetter than independent trading, if low
with mutual funds, there is that thebut steady is ok for you. Article
controllers may over-diversify.Written By J.
Diversification minimizes the inherent



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