What are the pros and cons of hiring a stock broker to make your investments? Pros and cons of mutual funds?
Posted by admin on 14 Mar 2008 10:24 am. Filed under Investing.
Daniel C asked:
I don’t have a lot of understanding of how it all works out, but I’ve heard since I was in middle school that I should invest. There’s mutual funds and there’s buying stocks from companies. I know what the difference between stock and bonds are, I just want to know what is the best way to invest? It would seem that mutual funds are the way to go, since they’re investments in different companies, but there have to be some cons.
I don’t have a lot of understanding of how it all works out, but I’ve heard since I was in middle school that I should invest. There’s mutual funds and there’s buying stocks from companies. I know what the difference between stock and bonds are, I just want to know what is the best way to invest? It would seem that mutual funds are the way to go, since they’re investments in different companies, but there have to be some cons.
On March 15th, 2008 at 6:37 pm
pros, they do the thing for u, con, u pay to them, if u do it urself u dont need to pay any commision.
On March 19th, 2008 at 2:30 am
A stock broker will charge you commission on trades, which may be several percentage points of what you invest. The commission fees generally make this an unacceptable option when you are investing small amounts of money. You have to remember with a stock broker that the broker doesn’t make money unless he’s making trades for your account (unless there is a fee arrangement of some sort). For small amounts of money, mutual funds are probably more reasonable. The pros of mutual funds is that they are a generally low-cost way to invest across several different companies, and there are professional investors who get paid well to make good investment decisions. The cons to mutual funds is that they also charge high fees, generally 1-2% and often have really high turnover which can leave you with a hefty tax bill. Further, it is proven that professional investors rarely beat the stock indices (S&P 500, Russell 2000, etc) over the long term. My best advice for you would be to explore low cost ETF (Exchange Traded Funds) products that would give you exposure to the market. Vanguard is well known for a very low cost fund that tracks the S&P 500, which is roughly the largest 500 stocks by market capitalizaiton. There are also funds that track bond indices, like the Lehman Aggregate index, but assuming that you are younger, you don’t really need to have much exposure to bonds right now. If you can’t invest directly with Vanguard or a similar firm that offers low-cost exposure to the market, then you could open an account with a low-fee online broker like Etrade or Ameritrade and then buy broad market ETFs that track something like the S&P 500, etc. You would also want to consider putting about 10% of your portfolio (assuming again that you are young) in international stocks, which could also be accomplished through low-cost ETFs.
This probably sounds kind of confusing, but the key point here is that stock brokers and mutual fund companies charge high fees and rarely beat the broad market indices. If you are being charged 2%, then your fund needs to return 2% more than the market for you to come out ahead. That’s much easier said than done.
On March 19th, 2008 at 8:49 am
Pick a mutual fund that charges low fees such as Vangard S&P 500. Or buy SPY through a discount broker.
On March 19th, 2008 at 12:04 pm
Hiring a broker these days is too expensive. It is best to research and learn what you are doing and just invest your self with a deep discount online broker. It will save you lots of money, and you’ll gain lots of knowledge and insight as well.
Here is a great discount broker:
Here is a good page to learn investing online for the first time:
On March 22nd, 2008 at 1:45 am
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Good Luck and Best Wishes!
On March 24th, 2008 at 3:23 am
I wouldn’t hire a broker to manage money for you. Most mutual funds don’t beat index funds over the long haul. Many people look at track records of mutual funds, but some research I saw while I was in school said that even ten year records aren’t a good indicator of future performance for a fund. Only 16% of the funds with 20 year records who were in the top 10% in one decade stayed in the top 10% the next decade. Given 10% ought to stay there by pure chance…that doesn’t say much for past performance as an indicator of future performance.
I think that perhaps 2-5% of the people involved in the market can really beat the market, and the rest are going to get average to worse than average results. I also think that trying to pick a mutual fund that will beat an index fund is a losing game. If you really enjoy puzzles and games, and figuring out how things work…if the research that it’ll take to be able to be your own investment advisor sounds like fun to you, then I’d go the route of trying to trade for yourself. If not…don’t get fancy…put whatever money you are going to invest into index funds.