Mutual Funds vs Private Companies – Which is The Ultimate Investment?

A lot of people are searching for a place to invest their money into. The issue usually arises once someone starts understanding just how many options are there.

Some are making profit by buying and selling stocks, others just invest into a specific company and take the dividends, most of the people, however, are usually keeping their investments and the additional income into the company to generate more and more income over time as the company they invest into grows.

Where To Get Started

Investing is a risky business though. Understanding the market is crucial before one starts to invest, trade, or do anything connected with these markets. Technically, it is always recommended to have contact with a broker to have an assisting hand when it comes to trading.

In general, companies like Axiory for example, offer demo accounts for starter traders to familiarize themselves with the strings that come with the process.

Ideally, a lot of people start trading on the foreign exchange market (Forex, FX) due to the fact that to start trading with currency pairs one does not need to invest huge amounts of money making the market ideal for beginners.

There are numerous ways to learn FX for beginners however the demo accounts that are mentioned up above are still the safest although not the only one. Some offer different types of bonuses for the users to get some “free” headroom when it comes to investing and etc.

The options themselves are numerous. FX is just one of the ways but where most of the other professional investors transition into are stock markets, bonds, and other types of securities.

The stock market is the most common and technically beneficial place for an investor due to the fact that the price of the stock increases with the company giving the headroom to sell the shares later and gain the difference as a direct profit.

These are one of the main drivers of the economy for lots of countries like the United States with its New York Stock Exchange or Japanese Tokyo Exchange.

Investment bonds are also popular, which is basically you giving the government or the company a loan where during the bond’s life cycle the other party pays you an interest rate. Bonds are usually considered considerably less risky than stocks but the returns are much lower as well.

Mutual Funds

Mutual funds are a big one though. This is a place where lots of different investors basically collect their money to buy up securities like stocks, bonds, money market instruments, and etc. Every mutual fund has a professional manager constantly allocating the funds to produce capital gains or just income for the investors.

The investor here decides what their interest may be in technology, for example, and the manager decides where to put their money into with the best financial intentions in mind. Mutual funds thus operate in a way where they invest money into a big number of securities and the performance is tracked via looking at the change in the  total market cap.

The value of a mutual fund is determined by the performance of the securities that they own. When one is investing in a mutual fund the investor is basically buying the shares that the fund owns.

Private Companies

Much like public companies the private one also requires funding. While this may be the most necessary when the company is starting out the investment is always needed for different departments and operational sides to work in conjunction with each other.

Basically what already established private companies need the investments for maybe anything from research and development, new equipment, updating already existing inventory, etc.

A private company does not have the same ability to raise capital as the public one. Meaning that they physically do not issue stocks for example. All of the choices a private company takes to raise money are connected with different stipulations. This may be personal savings, friends and family, bank loans, angel investors, and venture capitalists.

All of them provide means to fund the company during its life cycle. Although depending on the investor, some do not even look at the profits the company is making. This may be due to the fact that a lot of these loss companies are having volatile stocks and thus give the ability to buy up their shares when the prices are going down and sell when they jump up again for a small period of time.

Friends and family are the most common investors for private companies in their early stages of development. It may be anything like pulling money from saving accounts, redistribution of retirement funds, or even a second mortgage for their residence.

Once these dry out the owners of the company resort to gaining support from their friends and family. The amount of investment may be quite small like $2000 or $10,000 but over time it adds up to considerable numbers.

Also, the repayment to friends and family is quite flexible and offers less involvement in the company operations.

Bank loans are also one of the biggest ways to find funds for a private company. This means that if the owner can provide a strong financial track record the banks or credit unions may be inclined to make some funds available for private businesses.

Angel investors are typically people with extremely huge net worth who lend out their money to the private companies as an exchange for partial ownership. These people offer huge investments netting the private company millions of dollars. However, most of them are professionals of the trade and therefore require pitching the ideas before the investment is made.

Another option for private businesses to fund their operations is the help of venture capitalists. These are a group of individuals or companies which manage such people’s funds, much like angel investors, who have an extremely high net worth.

These are one of the highest priority firms and individuals due to the amount of funds that are going through their channels. A business that can secure such investment is usually the ones with loads of experience and practical knowledge of how the markets operate and thus have a high chance of success.

One of the main requirements for venture capitalists is to have an exit strategy making them ideal for big startups like TikTok for example, which may be aimed to go public or just sell out to other companies.

Where to Invest

This is by far not a comprehensive list of investment options. However, we believe that it makes everything that much more clear on where one stands. The investment opportunities depend on the individual and their funds as well as their interest.

Overall, most of the time people who have other full-time jobs and are trying to just get extra income and security for the future are tending to lean towards mutual funds as they provide a much safer way of investment. However, this does not mean that one is protected from losses since there are numerous cases of mutual funds also losing money.

As an example, if an investor decides to invest in a technology sector, probably a company like Google, due to recent developments the aforementioned firm may start losing the value of their stocks meaning that the investment in itself is getting damaged and turning into a loss.

However, when one buys shares via mutual fund which invests in the technology sector as a whole meaning that some of the shares may be from Google, others from Tesla, Microsoft, Sony, etc.

the fact that an individual company is having a bad quarter does not impact the overall investments as much due to the fact that if Google loses some stock value, Tesla at the same time may have a better period like in April 2020 and thus even out the losses or Tesla may have a fantastic quarter thus even in the face of loses the loss of value in other company’s stocks may be overcompensated by the gains from Tesla.

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About FinanceGAB

Ajeet Sharma is a financial blogger and I am blogging since 2017. Financegab is a personal blog dedicated to personal finance. The main aim of this blog to help people to make well-informed financial decisions.
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