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Should I invest in the stock market or mutual funds?

I'm 33. Stable income, few major debts. I read that I should buy stocks at my age, and then get into mutual funds later, but how late is too late?

Jan 11, 2012 by Tina from Orlando, FL in  |  Flag
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I have no idea where you read this particular piece of advice because it's not only wrong but confusing. The smart beginning investor who wants to buy stocks will invest in mutual funds because that is a way of investing in stocks without having to guess which stocks to buy. You can invest in a fund that is managed by investment professional (actively managed funds) or buy a fund that invests in a broad basket of stocks that make up an index (like the S&P 500 index). I hope this, and all the other advice you have received clears up the confusion.

Comment   |  Flag   |  Apr 23, 2015 from Suffolk, VA

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Steve Casull Level 13

Tina, these questions could lead to great harm if not answered properly. To answer them properly more information must be evaluated, information about the client...you. You mention debt, how much and what interest are you paying? Is it a psychological bummer to have this debt? For example, it could be from your charge card used to pay off an old boyfriend's bail, and every time you get the statement your day is wrecked. Pay it off.
Investing in Mutual Funds is in fact investing in the stock market. Can I say something before going forward with unbased suggestions and advice based on little information? Finding a good Financial Advisor is hard and boring. Don't be a victim. Don't be lazy in this. Spend the time, and utilize your intuitions. I wrote the following article for this very situation:

http://www.brightscope.com/financial-planning/advice/article/17238/Do-You-Want-The-Best-Investmentfinancial-Advisor-Or-The-Best-Salesperson-What-Is-Your-Idea-Of-Best/

Comment   |  Flag   |  May 18, 2015 from South Jordan, UT

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You'll do better in mutual funds most likely. Most people will not sell their loser individual stocks quickly enough and will not keep their winners long enough. Most people chase stories and are not disciplined. Your local stockbroker is likely no better at it.

If you have the ability to have your money managed by the most effective investors in the country (the top mutual fund managers) and they charge less than 1% a year, sometimes much less, is there any reason to think a not very well connected small investor is likely to do better in their spare time than the top pros in the industry?

1 Comment   |  Flag   |  Apr 09, 2015 from Charlotte, NC
David L. Hoshour AIF®

While I think most investors do better in funds than in individual stocks, they tend to do more poorly in mutual funds than the mutual funds' track records would indicate. Morningstar routinely runs studies of average investor performance showing that their returns routinely trail the fund's listed performance because investors jump into or out of funds as they chase performance of the fund, the fund's market sector or the asset class (stock, bond or cash). The size of the shortfall is 2-3% per year. It is so hard for investors in this impatient age to get good returns because investors of all levels trade too much. I have found in my practice that the higher the turnover in an account, the lower the return. Many studies back this up. Since compensation for stockbrokers is still largely based on transactions, they like individual investors tend to be too active and fall into the same boat as Morningstar's study. A fee-only advisor, also living in our fast-paced, impatient world is not compensated on transactions but he too may move too frequently. I say this as someone who was a stockbroker and has been a fee-only advisor for 20 years now. Here's the key - whether investing in individual stocks or mutual funds, what matters is patience and discipline in sticking with a good overall allocation that suits the clients needs, personality and goals in a way that is in their best interest at all times. A professional advisor can help you set that up, educate you, provide service and enforce a reasonable sell discipline. Bottom line: patience, correct allocation and discipline are much more important than whether you are doing mutual funds or individual securities.

Flag |  May 19, 2015 near Charlotte, NC

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