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Investing in Stocks vs. Index Funds
It is common questions for many investors and has been a topic of many debates whether it is better to invest in stock or in index funds.
Investing in Stocks
When you buy shares in individual businesses, you become a partial owner of the company. This means that you should get a proportional share of the profits or losses depending on how the successful the company is.
Many investors have succeeded in investing in stocks, and have grown very rich because the companies they invested in became successful. On the other hand, if an investor invested in a company that has failed to succeed and individual’s sales will be rendered worthless.
Although the market is unpredictable an extensive research about a company will give an investor an overview on what the company is about helping them make easier decisions on whether to push through with their investment or not
Investing in Index Funds
When you buy into an index fund, you are somewhat investing in a basket of stocks designed to track a certain index, like the Dow Jones Industrial Average or the S&P 500. In effect, investor who buys into an index fund owns a part of stock in different companies indirectly as long as those companies are under the same Index.
In terms of the success rate of the companies inside an index, it is statistically proven that 50% of the stocks are below average and 50% of stocks are above average. Although no one can decide for you on which approach is best to use for your situation, as a general rule, Index fund investing is better than investing in individual stocks because it keeps costs low and almost certainly results in being “average”, which is far better that losing your capital.