Note: Make sure you check out the rest of the series on personal investing.
Picking individual stocks may be fun and exciting, but it usually generates a much lower return than simply investing in low-cost, index mutual funds.
If you’re going to invest in stocks, you basically have 4 options:
- Pick Stocks Yourself. You can decide, for yourself, in which individual stocks you’ll invest.
- Use a Broker. You can pay your stock broker a fee (i.e. commission) to pick stocks for you.
- Invest in Mutual Funds. You can pay a mutual fund manager a fee to actively select stocks for you. The annual fee is typically 1% – 2% of your investment.
- Use Index Mutual Funds. Index mutual funds simply invest in most or all stocks in their respective market index. They don’t pick stocks, so fees are much lower, typically 0.05% – 0.50% each year.