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Individual stocks or index and mutual funds – which is best for 2019?

Whether you are new to investing or an experienced trader, you will be curious as to the advantages of index funds vs stocks. For example, you may have sought out a forex guide for trading currency pairs or examined the movement of a variety of individual stocks and shares. Perhaps you decided to add your investments to a larger pool. Whatever the case, it may be time to rebalance your portfolio.

  • What you need to know about the stock market
  • Learn about the six types of mutual funds
  • Consider mutual funds pros and cons
  • Tips for choosing a broker
Stocks Highlights

Individual stocks and shares

In the UK, the London Stock Exchange is the main stock market where public limited companies and other financial instruments such as government bonds and derivatives can be bought and sold. The stock market is split into different indices. The FTSE 100 is the most well known and is comprised of the largest 100 companies. The most well-known indices come from the Footsie group – the FTSE 100, the FTSE 250 and the FTSE Fledgling. There is also the alternative investment market (AIM), which lists small companies and those backed by venture capital. Investing in the stock market is always done through a third-party broker, so most investors undertake a broker comparison to find one they wish to work with. To make a direct investment, you buy shares in a single company via the broker and become a shareholder. You can choose a broker to offer the kind of services you need – for example, to include advice on the benefits of index funds vs stocks for newer investors. A broker’s online platforms may allow you to buy and sell shares independently of any advice. Market experts recommend that beginners who want to be more involved in dealing with individual shares should consider opening an online account for execution-only share dealing in order to keep the cost of investing to a minimum, unless investment advice is a must.

Top 3 Stock Broker Comparison

1
of 10 Stock Broker eToro
National fees £0.00
Custody fee £0.00
Intl. fees £0.00
Dep. Protection £50.000
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
2
of 10 Stock Broker Interactive Investor
National fees £7.99
Custody fee £9.99 monthly
Intl. fees £7.99
Dep. Protection 50.000 GBP
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 10 Stock Broker IG Stock
National fees £ 8,00
Custody fee £ 8,00
Intl. fees 10 EUR
Dep. Protection 50,000 GBP
Go to Broker

74% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.

What you need to know about the stock market

Stock market investors spend some time working on their trading strategies before they commit any funds. This means they decide what their investment goal is – what they want to achieve, how long they are planning on investing and what level of risk they are prepared for. While it’s tempting to get caught up in the possibility of making huge profits, investors have to be realistic about their prospects and be prepared for both losses and gains. The two go hand in hand, which is why it’s important to ask yourself how much you are prepared to lose rather than how much profit you want. Experts scrutinise the company they are considering buying shares in very carefully, looking past the glossy marketing materials and focusing on the fund factsheets. They understand that the company’s true market performance is revealed in this way, including the downs as well as ups. Broker comparisons should always include comparing fees and charges on an account as these can vary considerably and undermine future returns. New investors tend to benefit from some independent advice from their broker – such as the advantages of index funds vs stocks – whereas more experienced people can simply access an investment platform. Regular contributions to a fund tend to be more successful in the longer term than a single lump sum deposit. Timing the market is very difficult, and with regular, modest contributions, you can hedge the effects of a market fall.

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Index or mutual funds

There are six main types of mutual funds. Money market funds are short-term fixed interest securities such as government bonds and certificates of deposit. Generally, they represent a safer investment than other funds, although they also usually have a lower level of potential return. Fixed income funds perform exactly as you would expect, paying a fixed rate of return primarily through interest. Equity funds are invested in stocks of different sorts, either separately or together. There are a number of different types of equity funds, and some of these may specialise, for instance, in value stocks or growth stocks, while others reflect market capitalisation at different levels. If you decide to invest in a mix of equities and fixed income securities, you will be opting for balanced funds. These are typically invested at a ratio of 40% equity to 60% fixed income. The aim of these funds is to generate higher returns than, say, government bonds, but also to mitigate risk through fixed income securities. Index funds are a popular choice because, generally, management fees are lower. This is because the manager doesn’t need to carry out as much research, as index funds track the performance of a specific index and go up or down accordingly. Among the top-rated indices are the FTSE 100 and Wall Street. Finally, you can also choose to invest in speciality funds, which focus only on a niche market such as healthcare, telecommunications or utilities.

Advantages and disadvantages of mutual funds

Mutual funds have three main advantages. They benefit the investor because of:

  • Professional management
  • Investment diversification
  • Liquidity

If you invest in mutual funds, your portfolio will be actively managed by a professional charged with constantly monitoring how the fund performs. Also, the manager will be able to spend more time in selecting investments than a nonprofessional investor would. The nature of mutual funds is that they allow for diversification. This means that a mutual fund is able to invest in several different asset classes rather than just a single stock. Additionally, mutual funds benefit from high liquidity, so you are able to sell them within a short period of time if you want or need to do so. To get a balanced view of mutual funds, it’s important to consider their disadvantages and potential risks:

  • Management fees and operating charges
  • Loss of control
  • Poor performance

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Mutual funds typically charge a substantial management expense ratio (MER) for operating expenses. Naturally, this lowers the overall level of return. Since mutual funds are managed by a manager, albeit there is a certain amount of loss of control when you invest with them. It’s worth remembering when considering whether to use say, individual stocks or mutual funds that you are giving someone else your money to manage and to take prudent steps to protect it. Mutual fund returns are not guaranteed and generally not insured against losses.

Basic tips for choosing a broker

So, you’ve done your research and looked hard at the markets and what’s on offer. What’s your next step before venturing into the world of stocks, shares and mutual funds? That would be searching for the best stockbroker to meet your needs. Make sure you use a checklist to help you find the right company. Look out for and compare:

  • Investment options
  • Account minimums
  • Banking
  • Costs of buying shares or stock
  • Customer service
  • International trading
  • Market research
  • Other fees
  • Retirement accounts
  • Security
  • Speed and order execution
  • Trading tools

Normally, an online stockbroker should offer you access to trading stocks as well as a strong selection of no-load mutual funds. You may want to change your investment options in the future, so consider whether there are exchange traded funds (ETFs) free of commission as well as more complex options. Forex and futures trading might also be of interest. Some brokers will allow you to open an account with no minimum deposit while others may require several thousand pounds. A broker may also charge more to let you have access to the best quality platforms, more functionality or personalised support. Banking services may be of interest to you if you want to be able to move funds seamlessly from a current account to an investment account, or if you want to have access to other financial services such as credit and debit cards or mortgages.

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Extra features of the better brokers

As a beginner, you might want to keep the process of buying shares or stock simple by looking for brokers offering trades for a flat fee. This means you will know immediately what the charges are, regardless of the kind of stock you are buying or its price. It also means that the size of the order will not make a difference. Beyond trade commissions, some brokers charge other types of fees such as inactivity fees. Charges may also apply if you have a retirement account or your broker provides other financial services. Customer service is always an important consideration in business dealings, and it becomes even more so if you are just starting out. Seek out a company with a good reputation for prompt, professional service when you need it most and you will always feel supported by your broker. Also ensure they are helpful – are they prepared to advise you as to whether individual stocks or mutual funds are best for your situation? International trading is not offered by all brokers, so if you are keen to invest in this way, make sure you have checked that your broker can help you to buy shares or stocks from other countries. Also pay attention to the range of market research tools they have available as the more you pay per trade, the better the market research provided should be.

1
of 29 Forex Broker Pepperstone
Currency pairs 70 Currencies
Max. Lever 1:30
Trading size Mini-Lot
Minimum deposit £ 200
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
2
of 29 Forex Broker GMO Trading
Currency pairs 60 Currencies
Max. Lever 1:30
Trading size Micro-Lot
Minimum deposit $ 250
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 29 Forex Broker XM
Currency pairs 55 Currencies
Max. Lever 1:30
Trading size Micro-Lot
Minimum deposit $ 5
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
4
of 29 Forex Broker iTrader.com
Currency pairs 50 Currencies
Max. Lever 1:30
Trading size Micro-Lot
Minimum deposit £ 250
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
5
of 29 Forex Broker ETFinance
Currency pairs Currencies
Max. Lever 1:30
Trading size Micro-Lot
Minimum deposit £ 250
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
1
of 6 ETF Broker IG
ETFs w/ discount 1200
Custody fee 0 GBP
Min. deposit £ 0
Trading from 5 GBP
Go to Broker

74% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.

2
of 6 ETF Broker Fidelity
ETFs w/ discount 93
Custody fee 0 GBP
Min. deposit £ 2.500
Trading from 25 GBP
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 6 ETF Broker AJ Bell Youinvest
ETFs w/ discount
Custody fee 0 GBP
Min. deposit £ 0.00
Trading from 1,50 GBP
Go to IG
Risk warning: Capital can be lost. Terms and conditions apply.
4
of 6 ETF Broker Bestinvest
ETFs w/ discount 216
Custody fee 0.4% annually
Min. deposit £ 500
Trading from 0 GBP
Go to IG
Risk warning: Capital can be lost. Terms and conditions apply.
5
of 6 ETF Broker DEGIRO
ETFs w/ discount 740
Custody fee 0 GBP
Min. deposit £ 0
Trading from 1,75 GBP + 0,004%
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
1
of 10 Stock Broker eToro
National fees £0.00
Custody fee £0.00
Intl. fees £0.00
Dep. Protection £50.000
Go to eToro
Risk warning: Capital can be lost. Terms and conditions apply.
2
of 10 Stock Broker Interactive Investor
National fees £7.99
Custody fee £9.99 monthly
Intl. fees £7.99
Dep. Protection 50.000 GBP
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 10 Stock Broker IG Stock
National fees £ 8,00
Custody fee £ 8,00
Intl. fees 10 EUR
Dep. Protection 50,000 GBP
Go to Broker

74% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.

4
of 10 Stock Broker Calamatta Cuschieri
National fees £ 7.50
Custody fee £ 0.00
Intl. fees £ 7.50
Dep. Protection 100.000€
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
5
of 10 Stock Broker Hargreaves Lansdown
National fees 11,95 £
Custody fee 0,00 £
Intl. fees 11,95 £
Dep. Protection 50.000 £
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
1
of 29 CFD Broker Pepperstone
FTSE spread 1 Point
Dep. Protection £ 50.000
Max. Lever 1:30
Min. deposit £ 200
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
2
of 29 CFD Broker GMO Trading
FTSE spread 1 Point
Dep. Protection € 20.000
Max. Lever 1:30
Min. deposit $ 100
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 29 CFD Broker XM
FTSE spread 1.0 Point
Dep. Protection £ 50.000
Max. Lever 1:30
Min. deposit $ 5
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
4
of 29 CFD Broker iTrader
FTSE spread 1 Point
Dep. Protection € 20.000
Max. Lever 1:30
Min. deposit £ 250
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
5
of 29 CFD Broker ETFinance
FTSE spread 1 Point
Dep. Protection € 20.000
Max. Lever 1:30
Min. deposit $/€/£ 0
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
1
of 18 Crypto Broker eToro
Crypto currencies 10
Max. Lever 1:2
Min. deposit $ 200
BTC spread 1,50%
Go to eToro
Risk warning: Capital can be lost. Terms and conditions apply.
2
of 18 Crypto Broker GMO Trading
Crypto currencies 33
Max. Lever 1:2
Min. deposit $ 100
BTC spread varied
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 18 Crypto Broker IQ Option
Crypto currencies 13
Max. Lever 1:1
Min. deposit $ 100
BTC spread 6 percent
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
4
of 18 Crypto Broker iTrader
Crypto currencies 33
Max. Lever 1:2
Min. deposit £ 250
BTC spread Floating
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
5
of 18 Crypto Broker ETFinance
Crypto currencies 5
Max. Lever 1:2
Min. deposit £ 250
BTC spread 1%
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
1
of 7 Social Trading Broker eToro
Underlying assets 866
Dep. Protection 50000
Min. deposit £ 200
Max. Lever 1:30
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
2
of 7 Social Trading Broker ZuluTrade
Underlying assets 200
Dep. Protection
Min. deposit £ 0
Max. Lever 1:30
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 7 Social Trading Broker Ayondo
Underlying assets 90
Dep. Protection 1000000
Min. deposit £ 2000
Max. Lever 1:30
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
4
of 7 Social Trading Broker Tradeo
Underlying assets 122
Dep. Protection 20000
Min. deposit £ 250
Max. Lever 1:30
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
5
of 7 Social Trading Broker FXTM
Underlying assets 247
Dep. Protection 20000
Min. deposit £ 10
Max. Lever 1:30
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
1
of 9 Spread Betting Broker City Index
FTSE spread 1 Point
Dep. Protection 50000
Max. Lever 1:20
Min. deposit £ 100
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
2
of 9 Spread Betting Broker FX Pro
FTSE spread 1.5 Points
Dep. Protection 50000
Max. Lever 1:30
Min. deposit £ 100
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 9 Spread Betting Broker IG
FTSE spread 1 Point
Dep. Protection 50.000
Max. Lever 1:30
Min. deposit £ 0
Go to Broker

74% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.

4
of 9 Spread Betting Broker Core Spreads
FTSE spread 0.8 Points
Dep. Protection 50000
Max. Lever 1:30
Min. deposit £ 10
Go to IG
Risk warning: Capital can be lost. Terms and conditions apply.
5
of 9 Spread Betting Broker OANDA
FTSE spread 1 Point
Dep. Protection 50000
Max. Lever 1:30
Min. deposit £ 0
Go to IG
Risk warning: Capital can be lost. Terms and conditions apply.

Know about security and good trading tools

All online brokers invest heavily in account security due to the way in which the web functions today. You can check a broker’s security status by examining their website address – it should begin with “https” and will often also have an icon of a closed padlock next to it. There are a variety of cryptographic protocols used to protect sites including Secure Sockets Layer (SSL) and Transport Layer Security (TLS), and some brokers also use two-part authentication. This may mean the site will generate a code when you begin logging in, which will be sent to your phone for you to enter in order to complete the process securely. Website security means you are able to trade safely. Generally, the better the platform you are using, the faster your trades can be executed. Execution speed and fill price are important for active traders, so pay attention to any differences you notice in trade execution times and quality of connections. The other thing to pay attention to is the tools provided by your broker, whether you have decided to trade individual stocks or, for example, currency pairs. Trading successfully becomes a lot easier when investors have good tools with which to work. If you are armed with a wide variety of trade tools, you are more likely to make the most of each and every trade.

Conclusion:

Conclusion – Is one type of investment better than another?

The short answer to this is no. There may, however, be one type of investment that suits you, as an individual investor, above all others. Choosing your investments is focused on those vital assessments you are strongly advised to make at the outset – what is your appetite for risk, what is your investment goal and how long do you want to invest for? If you have opted for individual stocks, you need to monitor the performance of your chosen companies and adjust or rebalance your portfolio as and when needed. Alternatively, we have seen that there are six types of mutual funds, for example, and the one you select should take into account all the factors we have explored. Above all else, it should be a good fit with your personal preferences and reflect what is acceptable to you as an investor.

Stocks Highlights