Once you have decided that you want to benefit from stock market investment, the next consideration is to determine the best way to invest for you. There are two main options:
Investing directly by buying stock and shares through a stock broker
Investing through a mutual fund by buying units in the fund
Which is best for you depends on your experience, your attitude to risk and the time you have to oversee your investments.
To be successful in direct stock market investment, you need to have in-depth knowledge about the companies whose shares you are considering buying and the answer to such questions as: What are the company's future prospects? What is their history? What are the general trends in the industry the company operates within? Is the share price at an all time high or does it represent a bargain? You also need to know how to read a financial report and make head or tail of a balance sheet.
Many people do not have the time, expertise or the necessary information to undertake this type of analysis. If you fall into this category you should not consider direct stock market investment as investments that are not based on sound knowledge are very risky. When you invest in a mutual fund, this type of analysis is done for you by the fund manager.
All stock market investment, whether you are investing directly or through using a mutual fund, carries a risk as the price of shares can go down as well as up. To reduce the impact that a fall in price of any one share may have on your portfolio, the most sensible investment advice is to diversify your investment. The less risk you are prepared to take with your money, the more you should diversify.
Many private investors do not have sufficient funds to diversify on their own and are only able to afford direct investment in one or two companies' shares. For these investors we suggest that mutual funds provide a more balanced, lower risk investment. This is because your money is pooled with that of other investors meaning you benefit from investment in a much wider range of stocks and shares than you could on your own.
How involved do you want to be in your investment decisions
If you are a very 'hands on' investor and want to make all the decisions relating to your investment your self, you are likely to find direct stock market investment more in line with your needs as you are involved in every decision. With a mutual fund, you rely on the expertise of the fund manager to make investment decisions.
Of course, you don't have to choose between either direct stock market investment or mutual funds. You may choose to have a proportion of your portfolio invested directly in the stock market in companies you have a particular interest in while the balance is invested through a mutual fund, benefiting from the expert management and diversity this type of investment brings.
Our Customer Service team will be pleased to discuss the options with you.