Many people in the world of finance are asking the question of whether mutual funds are the best stock investments that are available today. The truth is that this kind of investment option comes with many different advantages, however there are certainly some drawbacks as well. Therefore to really answer the question and determine if they are the best stock investments, you have to look and both their strengths and weaknesses and determine for yourself how they fit into your game plan.


Starting with one of the primary benefits, the whole concept is that you do not buy individual stocks or bonds, but instead pool your money and buy shares of a fund that buys up many different stocks, bonds and other investments. By doing so, you are diversifying what you hold and you are protecting yourself against risk because one or even several investments falling or failing won't hurt the entire fund too much.

The general rule of thumb is that the entire stock market is eventually going to move up, even if it does suffer major downturns in the process. Individual stocks will fail and seriously fall, but if you aren't investing in individual stocks, then you'll ride the upward momentum of the entire market.

Another benefit is that you can find a fund that comes in all different shapes and sizes. In other words, you can still find some that offer high risk for high reward. You can also find an index fund, which isn't managed but instead buys up all of the stocks in the entire market, or in one particular index or industry. The options are endless, and you'll be able to pursue whatever you'd like.

Of course, one downside to this option is that you won't be seeing any dividends. A dividend is a return you see on a stock investment without having to sell off your shares. Different stocks come with different levels of dividends, and some don't come with any dividend at all.

However, many investors seek out the stocks with the best returns here, knowing they will hold onto their shares and they'll be able to create an additional stream of income in the mean time. Some managed, pooled investments may offer a degree of dividends however you shouldn't count on that option.

Another downside to this option is that because you are diversifying, you also limit the potential returns that you see from one or two really great stock investments. That's the whole risk vs. reward trade that investors have to make. You are protecting yourself from one or two major losses, but then you also won't be on the bandwagon for one or two major gains because your money is spread around.

So at the end of the day, are mutual funds the best stock investments [http://www.401k-investment.net/best-stock-investments.html]? People will have different view points on this. Some people love the diversification and the hedging against risk, while others miss the dividends and the huge, one-shot returns. Of course, you can find varying degrees of risk and return with something managed like this, however it all comes down to personal preferences and what you're expecting to receive in return for your investment.