There are multiple financial instruments available in the market to help investors build wealth. These instruments are designed to help customers meet their unique investment objectives. Out of the different investment instruments available for customers, index funds and stocks are the most sought-after investments.
Let’s see how investing in both the investments can help you:
- Stock investments:
With the purchase of stocks, you get to become a part-owner of the company. This means you get a percentage of the profits or losses, depending on how well the company has performed. This way, you get to profit from the company’s success in the future. In stock investments, you can research the companies that can grow in the future and invest in them. This way, your stock’s value can go up depending on the company’s performance. However, it is important to conduct a good amount of research before investing in a company.
- Index fund investments:
An index fund is a fund plan that is structured to track a specific market index. With an index fund, you can earn profits similar to an index in the market. Index funds allow you to gain returns similar to a market index at a lower cost. With index fund investments, you will not have to worry about monitoring the fund, as the fund manager makes the fund adjustments and the allocation is done tracking the index.
The difference between stock and index fund investments:
The major difference between both the investment instruments is the risk involved. The risks involved in individual stocks are generally on the higher side when compared with index funds. This is because an index fund holds a group of stocks and securities in different percentages. This way, the risk is spread across the investment. However, in stock investments, the risk is entirely dependent on the stock’s performance.
Thus, both index funds and stock investments can be profitable investments. However, it would solely depend on your risk profile and investment objective to choose either one of them. Along with this, you must also conduct a good amount of research on the stock and look through the index fund’s expense ratio and tracking error before investing.