Better Option For Retail Investors
It is simply instinctive to get attracted toward equity. The success stories – few true and many false – of people having become millionaires overnight, are bound to allure anyone. But the fact is that Stock Market isn’t easy money; Stock market is not everyone’s cup of tea.
It is our hard-earned savings, which is at stake. So let’s be very concrete about it.
Do you have adequate capital?
It is sheer common sense that a diversified portfolio with 18-20 stocks is less risky than a small portfolio with only 3-4 stocks.
However, for a retail investor, capital is normally limited. With this small money supply it won’t be likely for him to adequately diversify his/her portfolio. In such a condition, Mutual Funds extend an alternative to be a part of well-diversified portfolio even with small capital like $100.
Naturally, a small portfolio can give super natural returns but on the other hand the risk is also very high. This high-risk high-reward scheme wouldn’t be appropriate for absolute majority of retail investors. It just suits a couple of select expert investors who have lots of money to put into market.
Also, with moderate capital it’s hard to buy pricey shares like Google, Infosys etc. This drives us to buy low price stocks. Broadly speaking high-priced stocks will be good shares and low-priced stocks might not be that good shares. Hence, with limited capital you could end up with a inferior portfolio.
Given the fact that moderate capital could mean small and inferior portfolio, Mutual Funds perhaps are more preferable path for those who cannot bring in enough money for investing
Do you have adequate knowledge & expertise?
Ok, let’s be really honest and frank here.
• Do you have more expertise about companies, economy, market trends, etc. than a qualified and knowledgeable professional investment company?
• Can you interpret the balance sheet and Annual Reports as easily as an investment company and make right conclusions?
• Can you identify the future sectors of growth? Or those that could face a downswing in the immediate future?
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