Do You Need Mutual Funds?
October 28th, 2009 by Money Manager
Everybody has heard of mutual funds. Mutual funds seem to be the obvious place to look for new investors who want to get into the stock market. But do you actually need them?
Before we talk about that let us look at the question, what exactly are they? How do mutual funds work? Mutual funds are simply funds which people can invest in and have professional money managers manage their investment for them. Each fund manages the the combined money of all of their investors and their investors either makes a profit or a loss based on how well they do.
In other words you are counting on these professionals to make you a good return. You do not have a say in what they invest in, but you hope that they do make a decent return.
Obviously not everyone likes to just give their money to another person and hope for the best, so there is another way to get a return in the stock market. You could always manage your money yourself.
Managing money yourself has a few advantages over mutual funds, you don’t have to pay management fees, you can decide where your money will be invested, and you may even make a better return than the mutual funds you were going to invest in.
I believe that anyone can learn stock trading and beat the returns that they would receive if they had simply decided to invest in a mutual fund. That does not mean that everyone should. It can be a lot of hard work to get the used to the market and to start making a good return, so unless you are willing and able to put in a lot of time and effort then you probably will not get very much out of it.
The first step to learning how to make money in the stock market is finding out what kind of a trader you are. Do you want to only invest in the long term and not have to worry about consistently managing your account? Or maybe you are the exact opposite and want to learn how to trade the short term movements in the stock market and do not mind feeling the highs and lows that come with short term trading.
There are many strategies out there everybody is different and everyone will approach the stock market differently. Luckily, there are many different strategies out there which will help you to trade the market in a way that is the most comfortable for you.
Another big challenge for all new traders is the constant emotional battle that comes with the investing experience. When you are consistently making and losing money you are going to feel greedy and fearful at times, there is no way to get around it. All new traders must find a way to live with their emotions otherwise they will be heading towards bankruptcy.
So, I do not believe everyone needs mutual funds, in fact many people would be much better off by learning how the market works for themselves, but unless you are willing to take the time and energy to learn stock trading you might be better off by letting a fund manager make your investment decisions.
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