Many new investors wonder why they should invest in a mutual fund instead of buying stocks. Mutual funds offer lower fees, professional management and a more diversified (that is, less risky) portfolio.
Mutual fund owners just deposit or withdraw money from their account to meet their goals. Then, they walk away and leave the worrying to the manager. Fund investors don't have to pay attention to the market
Those fees add up. And if you hire a broker to manage your account you'll pay even more. You can buy lots of mutual funds that don't have any sales charge.
By contrast, even a concentrated mutual fund, which takes big bets on only a relatively few companies, will own a few dozen stocks. The most popular stock mutual funds are well diversified and may own hundreds, if not thousands of companies.
The benefit of having diversified investments is that your returns tend to even out. If you invest in lots of companies in all industries, all countries, all regions, one may be up while the others are down.
When you buy a mutual fund you can relax and leave the worrying to a professional manager. The manager researches the companies to invest in, make a professional judgment about when to sell and keeps an eye on the broader economy.
All that you have to do when you invest in the market through mutual funds is pick the management style you want to match whatever you're saving money for. If you pick the right asset allocation for your investments--that is, the right mix of stocks and bonds for the risk you want to take--you don't have to pay attention to the market.
Buying individual stocks takes a lot more effort. You need to keep track of company fundamentals, such as earnings and sales growth. And you also have to watch how the price is doing to know whether it's time to buy more or sell out. Finally you do have to pay attention to the company's sector, its competitors and take the temperature. Finally, you'll have to always be on the lookout for new investments.