You may want to know whether stocks or mutual funds are the best type of investment for beginners. There is a difference between them and mutual funds are considered to be safer investments than stocks. Stocks offer a higher earning potential whereas mutual funds offer built-in diversification to mitigate risk.

As a beginner and want to know whether you should invest in stocks and mutual funds. When you invest in stocks you invest in a single share of a company whereas when you invest in mutual funds you invest in a collection of stocks, bonds and securities.

Stocks offer a higher earning potential and help you reach your financial goals faster and grow wealth. Mutual funds offer built-in diversification in a volatile portfolio. Betting on a single stock is considered to be more riskier than investing in a well-diversified basket of assets.

However, where you should invest depends on your investment goals and risk tolerance. You should understand the key features of stocks and mutual funds and then decide where to invest.

Stocks

Stocks have the potential to offer higher returns than any other investments. Stocks give dividends which can act as extra income and help to mitigate losses from falling share prices. Stocks can be bought and sold during the trading session. You can decide when to buy or sell your stocks and thus you are in control of your gains.

You make all the decisions and the investment style followed is active. Once you purchase the stocks there is no ongoing expense. Stocks can be made a part of a well-diversified portfolio. The risk associated with the stocks of a single company is higher. You need to research and analyse before investing in any stocks.

Mutual funds A single mutual fund carries a range of investments that you can even afford to buy. Mutual funds are managed by professional fund managers who research and manage the portfolio performance. Mutual funds of high-performing large companies can give returns of up to 12.8% as per the last 20 years. The dividends can be reinvested to get the benefits of compounding.

Mutual funds are managed passively and carry an annual expense ratio. They can offer built-in diversification in a single investment and are a good investment if you want to diversify your portfolio.

What should you invest in?

If you do not have the time and expertise to research the companies, pick the right stocks and manage your portfolio then you can choose to invest in mutual funds.

If you want higher returns than what mutual funds can offer then you should invest in stocks though it will involve higher risks. Stocks can be a good option if you have a good risk tolerance.

Appreciate offers one of the best share market apps if you want to invest online in the stock market.

The author is a blogger and likes to blog about the stock market. Here the author has discussed the difference between stocks and mutual funds and the best share market app.