Investing in US Equities

If you are Indian investor who wanna diversify your bets spreading across global equities or if you are from USA who wanna park your funds in equities, this will help you for sure !!

When we get into equities, broadly we have 3 choices left to park our funds.

Direct Stock Picking
Mutual Funds
ETFs

Let us deep dive into each of these things and understand the pros & cons

Direct stock picking is’nt an easy game if you haven’t seen atleast one bull & one bear market completely. It’s hard to predict the stocks which tend to move higher and catch the businesses which perform better. One needs to understand how the rules and reforms help or effect companies and proper or destruct thier business model. Based on that, picking a sector and digging up a stock which has good fundamentals will become a tough job to do. If you spend some years learning things in finance, this journey will become bit smoother.

Advantages:

No need to pay for the fund manager in the form of expense ratio
Choice of picking the companies
Option of averaging the stock when it falls heavily
Brokerage charges are very minimal when compared to charges in India

Disadvantages:

Analysing and tracking becomes hard when we try to depend on direct picking
If we own a mutual fund or ETF for 20-30 years, we can pass it on to next generation easily because fund manager will manage the things but in direct stock picking, it won’t work
Retailer is the one who gets the information when game is about to end, so hard to make an entry and exit if something goes wrong. USA regional banking stocks fallen heavily within days recently.
If we create a portfolio, we often tend to see ups and downs of individual stocks, trying to exit and enter unevenly when market moves up and down. Actual compunding of money won’t happen if you continue to do the same. Whereas in mutual funds, we can only see the value of fund whether it is gone up or down which won’t effect our heartbeat much, Haha !!

I use vested app for direct stock investing, check out for sure if you are planning to park your funds.

In simple terms, mutual fund is basket of stocks where fund manager is managing. There are two type of mutual funds, active & passive.

In Active mutual funds, fund manager actively manage your stocks to beat the index, So, expense ratio would be marginally high when compared to passive index funds.

In Passive funds, fund manager just allocate the money as per the index weightage. Expense ratio would be lower and fund will perform as per the market moves.

Advantages:

Mutual funds help you to diversify the risk with your hard earned money without taking ton of your time.
Good tool for wealth creation in long term
Averaging whole portfolio of stocks would become tough job but averaging a mutual fund is way much easier.
When you purchase a mutual fund, units will be allocated and net asset value will be given, as the stocks in that fund grow your asset value increases.

Disadvantages:

Most of the mutual funds where retailer invests, minimum amount is bit higher. It anywhere ranges between 500$ to 5000$.
If you are picking active mutual fund, it requires time and effort to study about the fund manager, index funds are sensible option
There might be specific stocks in the mutual fund where I don’t want my money to get parked into but you only have view privilege to that mutual fund portfolio, not edit privilege Haha !!

Exchange Traded Fund ETF is also a basket of stocks but it works the same like an individual stock where people can buy and sell at a specific rate.

In Mutual fund, if we invest 100$, we get units worth of that 100$ and that units has certain value which is known as asset value. So, if you wanna redeem funds in your mutual funds, based on the asset value, you will get your money back.

In ETFs, same basket of stocks will be there but 100$ worth of basket is being bought and sold by people itself. So, sometimes if more people are buying automatically the price which you need to pay will go up. You will be paying 102$ for the same 100$ basket just due to demand. Same way when there is panic sell off in the market, ETFs value will be decreased drastically due to excessive redemptions.

Advantages:

Since ETFs are just like stocks, there is no minimum amount to invest which is a good part.
Just like mutual funds, we have wide variety of index and sector specific, thematic ETFs, rather than betting on single stock, one can bet on theme or sector by buying ETFs
Averaging is way more easier when markets fluctuates

Disadvantages:

Liquidity issues and price gap fluctuations will be there depending on the demand and supply in the open market.
There will be marginal difference between the returns in the market and returns in an ETF when you check in different time periods.

If you are beginner having less amount of money to do SIP every month, go with index ETFs. If you wanna bet a sector, check sector ETFs.

If you have seen the markets a bit and understand which companies will stay in the growth cycle, invest in some direct stocks it might be 20-30% of portfolio, remaining money can be parked in ETFs or mutual funds depending on the size.

If you are pro who have been involved in the market since many years and if you are beating the benchmark returns, then kudos, go with direct stock picking but check out funds where they park money in 100 different companies to reduce risk. So that 80% of your portfolio can be direct stock picking, other 20% you will be taking diversified bets using mutual funds or ETFs.

Here is the list of ETFs

If you want to invest in top 500 companies in USA, pick S&P 500 ETF.

If you want to invest direct stocks, choose the sector and bet on 3 to 4 stocks atleast in that sector. If you are betting on Largecap IT, then pick Meta, Google, Microsoft..

Based on the style, amount and duration of investments, choose and diversify the bets.

If you are investor in India and you wanna park some of your funds, pick any mutual fund or invest in direct stocka via vested or any other broker,

Source: Groww

Investing in US Equities

Advantages:

Disadvantages:

Advantages:

Disadvantages:

Advantages:

Disadvantages:

Comments

Leave a Reply Cancel reply