Mutual Funds VS Single Stocks

This is a big decision if you’re into investing. While I enjoy investing, I also realize that there are many people who understand it much better then me. So what I’m going to do is layout good explanations of what the stock market is, how it works, Single Stock investing and Mutual Fund investing. Then at the end, I’ll explain which one I go with.

The biggest question regarding investing into stocks is really the way you want to do it and your risk tolerance.

I was inspired to get into this based on the immediate rise of GameStop stock. It’s interesting seeing people make a single decision and being able to see their financial futures drastically change. But it causes us to ask the question, which is better?

This video details a good summary of investing in the stock market:

What is Investing in the Stock Market?

I really like the simplicity of this video. I want to make money while utilizing the stock market but I’m not going to act like I know a ton about it. I know simple principles. That’s about it. This video helps you to get acclimated. It’s a good visual introduction.

Now we will break down single stock investing. I am going to post multiple opinions on single stock investing and multiple opinions on mutual funds. I don’t like to listen to only one side of the story. As a critical thinker, you can check this out and figure out what you think.

Single Stocks

Single Stock investing is when you invest money into a single company. You are betting that the value of that one company will go up and not down. It can make you some money immediately. But it’s also very dangerous and you can likely lose money quickly.

For the guys who bet on GameStop, the risk was high but the reward was also very high. For them, it worked out in the extent that the stock raised extremely high and gave them options to get out with huge gains.

You need to learn your risk tolerance but you also need to make a sustainable investment plan.

Dave Ramsey here gives the reason he doesn’t believe in investing in single stocks. But there are also people who like investing in single stocks.

David Gardner from the Motley Fool has a different perspective on single stocks. It’s worth thinking through. He says that investing in single stocks helps you to learn a lot more about the culture. He also says that if you do your homework, you can beat the market over time. He’d line up with people who’d say that you can make more money doing your homework on companies and investing in them.

Mutual Funds

First we need to get a good breakdown of what mutual funds are because they are a little more complicated then single stocks.

Mutual Funds are a very diversified way to invest money. It spreads money across several companies and assets and grows in a good way.

Now, let’s start with an argument against mutual funds.

If you want to skip past the intro, start at 2:00.

His problems with Mutual Funds:
1. High Minimums
2. Load Fees (Some funds)
3. Underperformance compared to S&P 500.
4. Fees (High Management fees)

Now he endorses ETF’s. Obviously that’s his niche. I also see guys who heavily endorse dividend investing with single stocks. Or many other ways to invest.

Before laying out my opinion, here’s a case for mutual funds:

Chris Hogan, a member of the Ramsey Solutions team, lays out the difference of Mutual Funds and Index Funds. In it, he explains the strength of mutual funds.

Where I Stand?

Writing this was good for me. It helps to hear from different voices on Single Stocks and Mutual Funds. There are always going to be guys who make a boat load of money off of a single stock investment. What you won’t see are the MANY people who lost.

For me, with my risk tolerance and based off the fact that I want to make as much “sweat free money” as possible, mutual funds have the heavy portion of my investments. I only look at single stocks to have fun with the money. It’s fun to get on Webull, Robinhood or whichever app to get my stocks to go up and down. But that’s my fun money. I could lose it and feel fine because it’s no different then entertainment money.

Regarding the video above opposing mutual funds, I understand frustration about fees but I also know I go to Chick Fil A and pay more for that Chicken Sandwich because the service makes it worth it. I don’t mind paying fees on a fund that I spend NO time worrying about. It’s an extremely passive investment.

As well, regarding it’s growth, there are a lot of stats that show many mutual funds that outperform the S&P 500 for different time periods. Once again, I go to my financial advisor to set that up for me. As much as I enjoy learning the stock market, I also know what it’s like to lose. If I can leave an investment alone and get on with my life, it does much better then when my emotions dictate buying or selling a stock. Life’s stressful enough.

Now if you are a full time investor, then I understand why you’d reconsider investing. But for many of us Average Guys and Gals, we are better off to trust professionals and put money into an account that grows(like a mutual fund).

I know this was a lot of videos but the information was so valuable to consider. I hope this information blesses someone.

My Winner: Mutual Funds

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