Where should you put your investment money? There are three basic choices for growing your money or building your retirement fund: stocks, mutual funds and ETFs.
Your choice depends upon a number of factors based primarily upon your willingness to accept risk, the risk of losing, your time to manage your investments and, of course, your desire for growth, for profits.
How you choose to invest, where to place your money, doesn’t have to be exclusive to just one type or another; you can mix and match. Each of these four basic types has their own pluses and minuses:
• Stocks are the most well-known. Investing in stocks allows you to pick individual companies such as Ford (F) or Apple (APPL). In buying stocks you are banking on the growth and success of the individual company to prosper so that it’s shares increase in value and thus your account grows.
With the ‘right’ pick the potential for major profit is great. On the other hand, the potential for major loss is equally great should the company falter, the economy tanks or world events scare investors.
• Mutual Funds offer some protection from the traumatic roller coaster effects that can occur with individual stocks. Not totally, but somewhat. This is because funds are composed of many stocks based upon the nature or description of the fund. A ‘utility’ fund, for example, will consist of stocks from electric companies, natural gas companies and even telephone companies.
Because each fund is ‘managed’ the manager of the fund will buy and sell individual stocks to produce the best returns for the fund as a whole. And because the fund is invested in many stocks if one company’s stock dives the result is not as severe as it could be because the growth of others tends to balance out the overall value of the fund and in this respect, help to protect your money while still offering growth.
Buying and selling of mutual funds is governed by many more rules than either stocks or ETFs. For example most funds have required minimum holding periods which mean once purchased you cannot sell for 30 or 60 or 90 days, depending upon the fund, without paying a penalty.
• ETFs are similar to mutual funds but are not managed on a daily basis like funds. Because once an ETF is built with the various company stocks it tends to remain with those holdings. In this respect an investor buying ETFs is still diversify his holdings when he buys a ‘utility’ ETF.
An advantage of ETFs over mutual funds is that they trade like stocks. This means you can buy and sell at any time. There are no minimum ‘hold’ times, for example.
In terms of risk and greatest potential profits these three types of investments would rank:
3. Mutual Funds
In terms of time requirements, you can invest in any of the three regardless of whether you have lots of time or very little. However, if you have very little time, less than an hour a month, stocks would be more risky unless you are buying strictly for the long term.