Should You Buy a Stocks, Mutual Fund, or ETF?

pexels-photo-374710.jpeg

Should you invest in a stock, choose a successful Mutual Fund or buy an ETF (Exchange Traded Fund)? The age old argument persists. Some experts promote the picking of individual stocks, while others, advocate investing in either Mutual Funds or ETF's. Let’s explore which option is best for you. As an investor, you should understand the risks and benefits associated with each so that you can make an educated choice.

 What are stocks, Mutual Funds, and ETFs?

The stock of a company refers to the total number of shares into which its ownership is divided. When you buy shares of a company, you become a part owner of it in proportion to the number of shares you buy. For instance, if you buy a hundred shares in a company with a total number of a thousand shares outstanding, you will have a claim to 10% of the company’s performance.  The advantage of owning shares in a company is that it gives you voting rights, the ability to receive dividends when paid buy a company, and the right to sell your shares to someone else (hopefully at a higher price than you bought them for).

 Mutual Funds and ETFs, though not without their differences, are similar in their concepts. Mutual Funds take investments from many investors and diversify those investments into different stocks. Mutual Funds are professionally managed and are classified based on the principal financial asset in which they invest. Thus, there are fixed income or bond Mutual Funds, stock funds, and hybrid funds (a combination of stocks and bonds).

 Exchange Traded Funds (ETFs) are similar to mutual funds in that they invest in many different stocks or sectors of the market. However, ETFs sometimes track an index such as the Standard and Poor's 500 (SPY), the Dow Jones (DIA), or the Nasdaq 100 (QQQ) and are similar to stocks in that they are traded on U.S. stock exchanges. One can say that an ETF is a mutual fund that trades like a stock.

Picking individual stocks gives an investor the benefits of high liquidity and the complete freedom to choose the companies he/she wants to invest in. There is also the advantage of tax efficiency as the investor can decide when to buy or sell his stocks.  When buying and selling a stock you will incur a commission charge from your broker. Individual stocks do, however, carry more risk than investing in mutual funds or an ETF as a stock is not diversified. Also, investing in a stock is more time-consuming as the investor has to do all the research his/her self unless they use the services of a full service brokerage whom charge a fee for that luxury. Investing in a single stock means the investor will not be successfully diversified thereby magnifying his risk of picking a losing stock.

 

On the other hand, Mutual Funds have as their primary advantages the fact that they provide the investor a very high level of diversification, carry low investment minimums (in the range of $1000), and they are professionally managed. Some disadvantages of Mutual Funds are that they have lesser tax benefits as capital gains taxes are incurred every time the shares within the funds are traded.  They also incur expenses such as management fees.  Some management fees are charged when entering the Mutual Fund, while others are charged upon liquidation of the fund.  Also note that Mutual Funds are traded at the closing price of the day which make them less liquid than stocks.

 ETFs, on the other hand, provide long-term investment returns with higher diversification than stocks and a lower fee than Mutual Funds. Unlike Mutual Funds, they are tax-effective because you incur capital gains taxes only when you sell them. Moreover, ETFs do not trade only at the end of the trading day like Mutual Funds; ETFs are available for trading all throughout the trading day. Since trading ETFs are like buying and selling individual stocks, they do not incur any management fees (only commission charges) making them more cost-effective than Mutual Funds.  

 Each of the investment vehicles described have their pros and cons. If you are someone who wants to be in charge of your investment decisions and portfolio, picking individual stocks may be for you. If you do not mind incurring management fees and being hands off with your investments, you can go for an actively managed Mutual Fund. Finally, if you desire attractive investments with low costs, tax efficiency, and stock-like features, you should consider ETFs.

 

The current situation of the market and the Relative Strength Index

People come up to me all day long and talk about the market.  They ask what direction I think the market is headed? Will there be a recession coming our way? Should they invest now or wait?  All of the questions I have been getting recently, seem to have a touch of impending doom surrounding them.  Let’s talk about that!!! 

Since our pull back in December the Dow has rallied back to about 26000…

Read More

IM's 19 Stocks under $19 in 2019

Success in the 2019 stock market will be like surviving a Kingda Ka rollercoaster ride.  Insane volatility can be anticipated as numerous political, economical and financial roadblocks are lurking in the shadows.  Due diligence, research, and executing a disciplined game plan will separate the pretenders from the contenders. Below you will find a list of Investment Mob’s annual 19 stocks for under $19 in 2019. Utilize these investing ideas to unlock new sectors and prospective portfolio selections for the New Year. 

Read More

Back to Basics: What is the Stock Market???

To understand the stock market, you first need to understand a stock.  According to the very popular investment website, Investopedia, “A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.”  In other words, when you purchase a stock you purchase a portion of the company you just invested in.  Based on a number of factors the stock will increase or decrease in value as time goes on...

Read More

How Much Money Should The Beginner Trader Invest?

Let’s start buy saying that a beginning investors should not invest all of their savings. First time investors need to take their time and learn as much as they can while “dabbling in the market”, until they feel comfortable enough to invest a large sum of money.  To figure out how much money you should invest, we need to determine how much money you have to start with...

Read More

Doubts of a Young Investor

My greatest fear as a beginner investor was the fear of losing money. I did not have more than a few dollars, which I earned by doing homework for other students at my school. I knew that my money was laying around under the idol of Krishna for safekeeping and that it wasn’t going to multiply by itself. After conversing with lead strategist Mr. Jeff Courtney and Mr. Tom Muir during one of our morning sessions, I came to the conclusion...

Read More

Fall of the House of Tesla

Like an Edgar Allen Poe poem, this tale may not have a happy ending.  For years now Tesla has promised investors that it will soon show positive earnings, but for years now we have watched their company earnings fall!  This is not, however, reflected in................

Read More

Welcome to Investment Mob

Welcome to the Investment Mob blog.  I created this space on the internet to form a community of investors that have a common interest in sharing winning trades using technical analysis of stocks.  Here I will provide swing trade picks that meet my criteria for the perfect trade.  Its a tough market out there and any advantage traders can have is appreciated.

Investment Mob is a premier investment Blog/Vlog/Newsletter created by lead Trading Strategist Jeff Courtney. The securities focused upon all trade on the major U.S. Stock Exchanges.   I use a swing trading strategy to pick stocks.  The formula revolves around technical analysis of securities. MACD and Stochastic Oscillators along with Parabolic SAR trends are used to determine the winning trades.

 Feel free to comment, share, and like any post I create.  All feedback is welcomed!