Should you save in funds or stocks? If you are wondering what is the best investment for you, you have come to the right place.
In this article, you will learn a great deal about the differences, so that you can recognize what suits you and your risk profile best, making you better equipped to make a well-considered choice.
Further in this article you can read more about the differences between funds and shares, the respective advantages and disadvantages of each one of them, what is best for different types of investors, and which investment ultimately has the highest potential.
Let's get started!
Fund VS stocks
There are several differences between investing in funds and investing in individual stocks.
One of the main differences is that when you buy mutual funds, you buy a share of a basket that contains various investments, while when you buy stocks, you buy shares in a single company.
Funds are often composed of a number of different assets, such as shares, bonds and commodities, which give you as an investor a diversified portfolio. This helps you to spread the risk, so that you do not have all your money invested in one and the same place.
You can choose between active funds or index funds. You can read more about the difference between index funds and active funds in this article.
Individual shares, on the other hand, give you ownership shares in a single company, as mentioned. So if you buy shares in just one company, and the company goes bad, you can quickly lose a lot of money (in the worst case, all).
But the upside potential for trading in individual shares is, on the other hand, enormous.
Get started with investing at Nordnet
I recommend Nordnet because of their large selection of shares and funds, low fees, good learning resources + free access to the share forum Shareville (ad).
Advantages and disadvantages of stocks
Next, let's take a look at the various advantages and disadvantages of each of them.
Benefits
- Possibility for high returns: Historical returns on individual shares are often higher than other investments such as bonds or having the money in a savings account
- You learn more by investing yourself. By analyzing individual stocks, and following the market, you learn more about investment, market psychology and much more that can come in handy in other aspects of your life too
- Ownership in a company, which usually gives you voting rights and the right to receive dividends and the opportunity to participate in the company's financial success
- Quick and easy to sell: You can realize the return quickly compared to funds. Shares can be sold at any time within the stock exchange's opening hours
Disadvantages
- You can lose money: Investing in individual shares can be riskier than other investments, such as bonds or just keeping the money in a savings account, as there is a greater chance that you can lose money on the investment. You must therefore analyze companies carefully before investing
- More time-consuming to follow individual stocks than funds: In order to increase the probability of success with individual stocks, it is important to keep up to date with the companies' development and financial situation. This may require more time and research than other investments
- More risk that a single share could weaken the portfolio: If one of the shares in your portfolio does not develop as expected, this can affect the return on your entire portfolio. Especially if it is a large part of the portfolio
Read also: shares for beginners: a great guide to investing in shares and fund
Advantages and disadvantages of funds
And what about funds then? What are the advantages and disadvantages here?
Benefits
- Often lower risk of losing money: Funds give you as an investor a more diversified portfolio, often with hundreds of companies. This gives a lower risk of loss than if you had invested in individual shares
- Easy to automate the savings: It is easy to buy and sell funds, and you do not have to keep track of individual shares and companies and you can create fixed withdrawals to the fund every month
- Broad diversification of your money: Funds give you as an investor the opportunity to have investments in several different assets and industries, which reduces the risk of significant losses
Disadvantages
- Lower potential return: With a broad and diversified portfolio, you reduce the chance of losing big, but you also limit the upside. Funds often give lower returns than shares over time
- Less control over what the fund invests in: When you buy funds, you leave the investment decisions to the fund manager. This can be a disadvantage for investors who want to have more control over their investments
Get started with investing at Nordnet
I recommend Nordnet because of their large selection of shares and funds, low fees, good learning resources + free access to the share forum Shareville (ad).
Who should invest in mutual funds?
Funds are best suited for investors who want to diversify their investments and who do not have the capacity or interest to follow individual stocks.
It is also easy to automate fund savings, which makes saving in funds well suited for those who do not want to be very active with the investments themselves.
Saving in funds is also a good solution for investors who want a lower risk and who do not want to take responsibility for the investment decisions themselves.
Who should buy stocks?
Stocks are best suited for investors who want to have more control over their investments and who are willing to take a higher risk for the opportunity to achieve a higher return.
It is important that you are aware that investing in shares requires more time and analysis. It is therefore essential to keep up-to-date on the company's development and financial situation.
That's why you should download my 7-step checklist on how to find quality companies.
You can download it by clicking on the image below.
Stocks Vs Funds: which one is the best investment?
Which is the best investment vehicle of mutual fund or stocks depends on your risk tolerance and your investment goals.
If you want to diversify your investments and avoid betting everything on one card, funds could be the better solution. Funds give you a diversified portfolio with lower risk, and give you the opportunity to invest in several different assets and industries.
But if you want to have more control over your investments and are willing to take a higher risk, shares may be a better option. Shares give you the opportunity to choose shares in companies you believe will do well.
Buy stocks and mutual funds at Nordnet
If you want to start investing in funds and shares, I recommend the online broker Nordnet.
Nordnet is a leading online broker in the Nordics that gives you the opportunity to buy both shares and funds. It's easy to get started and they offer a range of tools and resources such as the share forum Shareville, and their own blog, which can help you make better investment decisions.
So, visit Nordnet to learn more about how you can invest in funds and shares, and create an account today!
Disclaimer
It is important to note that investing in shares and funds entails a risk of loss of invested capital. It is always important to investigate and understand the risk before making an investment. It is also important to have realistic expectations of returns and to diversify your investments to reduce risk.
