Is it better to invest in individual shares or in a fund?
More and more private individuals are discovering the possibilities of investing. If you do it right, you can achieve good results by investing. Nowadays, as a private individual, you can invest in both individual shares or in a fund. But what are the most important differences, and what should you pay attention to?
What is fund investment?
When you invest in a fund, you do not make the investment decisions yourself. The fund will then buy and sell shares on your behalf. You can also choose to buy individual shares yourself. Which method suits you best depends very much on your personal preference.
Buying a fund or individual stocks?
If you want to know whether it is better to invest in a fund or buy individual shares, it is wise to ask yourself the following questions:
Do you want to become a co-owner?
When you buy separate shares as a private individual, you become co-owner of the underlying company. As soon as you buy Apple shares, you become the owner of a tiny part of the company. With a mutual fund, you’re more likely to buy a whole shopping basket of companies: a fund puts together all the investments made by private investors and then distributes them over a large group of companies.
How much risk do you want to take?
When you buy a handful of stocks, you run a greater risk that your investment suddenly decreases in value. At the same time, an individual share can sometimes increase in value by tens of percentage points. When you invest in a fund, you often achieve more stable, less volatile results.
Do you want to invest in exotic regions?
Local brokers often offer shares from all well-known stock exchanges. However, it can be more difficult to enter more exotic markets: an investment in China, India or South Korea, for example, is a lot harder when you buy separate shares. With a fund, you can also invest in these kinds of exotic regions.
Do you want to leave the decisions to specialists?
A fund is managed by specialists who have made it their profession to invest. By buying a stake in a fund, you are actually handing over the work. You do hand in control for this: you cannot decide for yourself which individual shares the fund buys or sells.
How do you invest in a separate fund?
Which way of investing suits you best depends very much on your personal preference. For many people, investing in a fund is attractive: it allows you to achieve a good spread of risk even with a small amount of money.
Retail investors can invest with an account at DEGIRO without transaction fees in funds listed in the core selection. This allows you to invest an amount periodically and slowly build up more capital. Use the button below to directly open an account with DEGIRO:
How do you invest in stocks yourself?
Of course, you can also choose to invest in shares yourself. You do this by selecting companies which you find interesting. Private investors sometimes look at the transaction costs: some brokers can charge a lot when you invest a small amount of money.
Fortunately, there are also brokers where you can buy & sell shares completely without commissions. An example of a comparable broker is eToro. Use the button below to directly open an account with eToro:Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees.
What are the main advantages of investing in a fund?
Do you find it difficult to choose between investing in individual shares and investing in a fund? We briefly discuss the main advantages of investing in a fund in the rest of the article.
It is often unwise to put all your money into one investment product. Many private investors forget this and go along with the hype: this can have a nasty outcome. Hypes seldom hold up and share prices can quickly fall by tens of percent.
It is therefore essential within any investment strategy to spread the risks as widely as possible. With a good fund, you can immediately spread your risks across various regions and sectors without having to put a lot of effort into it. As a result, funds are often very attractive to the private investor with a small budget.
Investing in a fund is a lot easier than buying & selecting shares yourself. When you buy shares yourself, you have to do a lot of research. It is important to select undervalued shares. Financial reports contain many figures, and you have to delve deeper into the matter to draw useful conclusions. If you want to save time, an investment fund is an ideal option.
A final clear advantage of investing in a fund is its low cost. With many brokers, you pay high transaction costs with every transaction. Within a fund, these costs are divided among all investors, which means that you pay less as an individual. High costs can significantly reduce your return in the long term: this can quickly save tens of thousands of pounds!
What are the main advantages of individual shares?
Investing in individual shares can also be advantageous. In this part of the article we discuss why many private investors still choose to invest in individual shares.
When you buy & sell shares yourself, you are completely flexible. During an economic crisis, for example, you can respond well to the latest developments. A fund rarely changes its strategy, while during the corona-pandemic, for example, you can sell airline shares and buy stocks from supermarkets.
For an investor, selecting and buying individual shares therefore offers the advantage of control.
Building up income
Some people invest in shares to build up an income. The rise or fall in the price of a share is then somewhat less important. For this group of private investors, it can be smart to invest in shares that pay out a high and stable dividend. These are often the larger utility firms that are active in oil or telecom, for example.
Some private investors consider certain things to be critical: for example, they do not want their money to be used to finance weapons or activities that pollute the environment. By buying individual shares yourself, you retain full control of your investment portfolio.
It’s fun to do
If you used to like playing monopoly, you probably enjoy buying and selling shares as well. If you enjoy owning multiple companies and keeping track of your profits and losses, you can feel free to buy individual stock. After all, a bit of fun is also worth something!
Individual shares or a fund?
Whether you, as a private individual, can best invest in individual shares or a fund therefore depends very much on your personal preference.
With separate shares, the following characteristics apply:
- You have full control over your investments
- Shares are very liquid, so you can always sell them.
- Risks are higher on single equity investments
- You can also achieve a higher return with separate shares.
With a fund, the following characteristics apply:
- You save time and don’t have to make awkward decisions
- You can often only get in or out once a day
- The risks are spread over several regions & sectors
- The cost of buying funds is often lower
Whether you choose to invest in individual shares or in a fund: always conduct enough research! Even within funds, conditions can vary widely. Investigate carefully to make sure there are no unwanted surprises.
What do you need to invest as a private individual?
Before you can invest, you need an account with a so-called broker. A broker makes it possible for private individuals to trade in shares, commodities, Forex and index funds, among other things.
Are you curious as to where you can best invest as an individual investor? Then take a look at our overview of the best brokers: