I've recently been taking a look at the variety of options that I have in my stocks portfolio and wondering if there's anyway I could diversify it. If you're relatively new to buying stocks you might not be aware that there are other trading options available to you. There are numerous things you can invest in and ways to do it. When I was first starting out I focused solely on buying stocks in companies that I had identified as undervalued. I'd spend weeks reading over the annual reports looking for a break or a sign that I had found a bargain. For this method to work efficiently you have to keep the number of trades as low as possible. Don't forget you are billed for every transaction you make with your broker. How else would they be able to make a profit? I was making so many trades that I was hardly making any progress because of the broker fees. This is not the way to make a profit in the stock market.
After reading about index trackers and mutual funds on line the value of them finally clicked with me and I haven't looked back since. A mutual fund is quite a simple concept. It's basically a professionally managed stock portfolio which you buy into. The mutual fund manager makes all the decisions regarding how to invest your money. You pass your funds to him and trust his judgment to make you a profit. Index trackers are much easier as they buy up stocks from any index that you pick. There's no fund manager in charge making educated guesses at which stocks to buy. You don't get charged for each purchase so it's fine to set up a recurring payment each month where you invest a set amount of cash. It also leaves you in a win win situation. Look at it this way, if the the stock price is on the rise then you will get less for your money but the value of your existing holdings will go up. If the stock market is going through a dip in price then you will pick up more stocks for your money. You can't really lose.
There is a fee involved when using mutual funds however. I've made it sound like the whole thing is free so far! The fund manager's services have to paid for and so there is usually an annual management fee payable. Make sure you research how much this is before sinking your money into a mutual fund. The cost of this could greatly affect the return on investment. The money also goes towards the team of researchers who work with the fund manager to get undervalued stocks for you and make the fund as profitable as possible. Even with the management fee, it still works out to much more cost effective than it would to buy stocks yourself via a broker.
In conclusion, I'd recommend mutual funds and index trackers as another option to add to your portfolio. It's a slow burner if you like but if you set up a monthly payment and forget about it you might be surprised and how much your money has grown when the time comes to cash in your fund.
David WR Banks has written for various websites on the subject of how to buy stocks and beginners guides to investing. Mutual funds can be a useful addition to your portfolio as well as buying and selling stocks and options trading.
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