122: Mutual Funds vs ETFs vs Stocks: What You Need to Know Before Investing

If you've ever been confused about mutual funds, ETFs, and individual stocks, this episode is your beginner-friendly breakdown.

Jessica and Brandon cut through the noise to explain what each investment type really is, how they work, and how to choose what’s right for your goals. From 401(k)s to robo-advisors to picking your own stocks, this episode helps you avoid costly mistakes and invest with clarity.

You’ll learn:

• The pros and cons of mutual funds, ETFs, and stocks
• How fees and fund managers actually affect your returns
• Where to start depending on your age and experience
• Why emotional investing can derail your progress

Whether you're 25 and just getting started or in your 40s and planning for retirement, this episode will help you invest smarter, not harder.

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Money, relationships, and the mindset to master both. Hosted by financial advisor Brandon and his wife Jessica, The Sugar Daddy Podcast breaks down how to build wealth, unpack old money beliefs, and have real conversations about love and finances. Their mission? To help couples and individuals grow rich in every sense of the word: emotionally, relationally and financially.

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Transcript

Jessica 0:06

If you've ever wondered whether you should be investing in mutual funds, ETFs, or individual stocks, but had no idea what the difference is or which one's actually best, you are not alone. Most people are putting their money into investments they don't fully understand. And that confusion, it can lead to missed gains, higher fees, and way more risk than you signed up for. In today's episode, we're breaking it all down in plain old English what mutual funds, ETFs, and stocks actually are, how they work, how they differ, and the pros and cons of each. Whether you're investing through your 401k, using a brokerage app, or just trying to figure out where to start, by the end of this episode, you'll know exactly which option fits your money goals and how to avoid the rookie mistakes that cost people thousands. Let's get into it.

Brandon 0:58

Hey babe. What are we talking about today?

Jessica 1:01

Today we are talking about mutual funds versus ETFs versus individual stocks, what it means, because people throw it around like rice on the internets, on these internet streets. And most people don't know what they are, what the difference are differences are, the benefits, pros, cons, et cetera. So uh let's break it down for them.

Brandon 1:25

Yeah, about say it's a little bit hard because there is some overlap in regards to similarities between them. But then there are also some very key differences. And just like a lot of stuff when it comes to financial literacy, we're not taught about it in school, we're not taught about it in college, and really we have to just kind of figure it out on our own. So the idea here is that we're providing with some information to help, you know, shorten that process from a learning standpoint as far as understanding the differences and maybe help you figure out what's best for you.

Defining Mutual Funds Clearly

Jessica 1:54

Okay. Uh, where do you want to start?

Brandon 1:57

Well, first, we want to start out as far as defining each of these terms. Okay. All right. So first we're going to start out with mutual funds. All right. A mutual fund is a um professionally managed pool of money. And what it is that you have someone who's the fund manager who actually is picking the various investments within that mutual fund pool of money.

Jessica 2:16

Okay.

Brandon 2:17

Now, you probably are somewhat familiar with mutual funds because if you have some type of employer retirement plan, such as the 401k or 403B, the funds that you're investing in there are often mutual funds.

Jessica 2:29

Okay.

Brandon 2:30

All right.

Jessica 2:30

Yep.

Brandon 2:32

Any questions about that?

Jessica 2:33

Nope.

Brandon 2:35

All right. So moving on to the next one as far as a high-level um definition is ETFs. And ETFs um stand for exchange traded funds. All right. Now, there are some similarities between like an ETF and a mutual fund in the sense of it is a pool of investment, it's a pool of individual investments. However, there are some you know very distinct differences. So with a um ETF, it actually trades like a stock. Now, what I mean by that is that when you're purchasing a mutual fund, you're not exactly sure how much you're purchasing for until the close of the stock market that day. So stock market opens up 9 30 a.m. Eastern Standard Time. And if I was to buy a mutual fund, um invest in a mutual fund at 10 a.m., I doesn't actually show me what I purchased it for until it closes at 4 p.m. Eastern Standard Time.

Jessica 3:28

That's really weird. So it's like a surprise. You have an idea.

Brandon 3:32

But you have an idea. So like you have an idea. And also the pricing of mutual funds doesn't fluctuate the same way.

SPEAKER_02 3:37

Okay.

Brandon 3:38

So you know, with a stock, the price fluctuates from like second to second. Same thing with the with an ETF because it trades, it trades the same way as a stock. Now, the difference with the ETF, because we said it is a pool of, you know, funds, uh, a pool of funds. The difference is that it's often what's called passively managed.

SPEAKER_02 3:56

Okay.

Active vs Passive And Fees

Brandon 3:57

So it does have a fund manager, but the manager is not making all these different changes and choosing all the different individual um investments within it the same way that the investments are being picked within a mutual fund. So mutual funds are often what's called um actively managed. The manager is making a lot of changes on a regular basis as compared to with an ETF, they are not making the same changes. They are more passively allowing things to, you know, they've made the investments and allow them to do what they need to do. Now, with the ETFs, ones that most people are kind of familiar with is like an index ETF. So what it is is it's an ETF that mirrors, say, the S P 500. So you're picking the same investments that are within the S P 500. So you're not making those same changes.

Jessica 4:40

Okay. I'm probably skipping ahead here, but when I hear actively managed versus passively managed, I'm thinking fees and what I'm paying.

Brandon 4:51

You are 100% on the right thought process.

Jessica 4:53

Okay. So I would likely be paying more on something that's actively managed, like the mutual fund, versus something that is passively managed like the ETF's index funds.

Brandon 5:04

Correct. That is one of the key differences between the mutual fund and an ETF, is that often uh mutual funds have higher expenses than the ETFs do.

Jessica 5:13

Okay. What's next?

Individual Stocks: Upside And Risk

Brandon 5:15

All right. So moving into the individual stock, the sexy stuff that a lot of people think about when it comes to investing. All right. So a individual stock is actual ownership in an individual company. So for example, if you're buying a stock in Apple or Microsoft or the Hot One, NVIDIA. Oh, yeah. You are buying that boat. Yeah, you are buying, essentially you are buying a portion of ownership in that company. Now, it does have some benefits, but also has, you know, some drawbacks where you can have, you know, high upside in regards to how much it can grow, but with that also comes a much higher risk because you are not as diversified. As compared to with like an ETF and a mutual fund, you're investing in a pool of investments as compared to a stock, it's one company.

Jessica 5:58

Yeah. I like to think of um like the ETFs as you have the fruit basket, right, with all the different fruits. But if you're buying an individual stock, you're just buying the apple, you're just buying the banana, you're just buying the kiwi.

Brandon 6:13

That is a no, that is an excellent analogy.

Jessica 6:15

Um, because I like to give people visuals.

Buffet, Meal Kit, And From-Scratch Analogy

Brandon 6:17

Because like with the stocks, it it it's a lot more. So like with the ETFs and mutual funds, it could be a lot more hands-off for you as the individual investor as compared to with individual stocks. It does require more involvement and more research on your part.

SPEAKER_02 6:31

Right.

Brandon 6:31

Now, a an additional analogy is you know, between the three of them is that you could think of like a mutual fund as like a buffet with a chef.

SPEAKER_01 6:38

All right.

Brandon 6:39

So you have the buffet, but then you have the chef there that's kind of you know diving everything out.

Jessica 6:43

He picked the menu.

Brandon 6:44

Yes. And with the ETF, you can have a pre-pack, it's more like a pre-packaged um meal plan.

Jessica 6:51

Okay.

Brandon 6:52

All right. So you get what you get. It's put together, but you get what you get. You don't necessarily have the options of choosing all these various things. It's already pre-packaged for you.

Jessica 7:00

And you don't throw a fifth.

Brandon 7:01

Correct. And now, you know, when it comes to the stock, you're cooking from scratch. You have all you have to go and buy all the individual ingredients and you have to cook it and put it all together yourself.

Jessica 7:11

Okay. Oh, yeah, I like that. Which I would say with the individual stock, because it requires that research. What are you researching? Right. Like that's that's where it gets tricky because like most people aren't in finance and don't understand what they should even be looking for to say this could potentially maybe one day be a good investment.

Brandon 7:33

So when it comes to researching individual stocks, there are a variety of ways to do that analysis. Now, this episode is not going to go deep into that, but there are a variety of ways to do it. And one way is not correct and one way is not necessarily wrong. It also comes down to personal preference as well when it comes to how you're going to evaluate it and what specifically um uh details you're gonna actually look at.

SPEAKER_02 7:55

Okay. Okay.

Brandon 7:56

You talk, you could talk to three different, you know, uh certified financial analysts, and they might give you three completely different ways of the way that they go ahead and do it.

Jessica 8:04

Yeah.

Brandon 8:05

So you know, take that with a certain grain of salt that if it's something that you want to do, that's fine. But you are gonna have to put that time into doing it. And also, you know, continuous because it's not just a one-time thing.

Jessica 8:15

Right. What do you say to clients who may be locked in on a stock early and they're like very loyal and but they're all in on that one stock? What do you say to them?

Brandon 8:29

Well, the biggest thing that you want to also make sure that you're focused on is the diversification, because by diversifying, you also help to mitigate risk. If you have all your money from an investment standpoint into one individual stock as compared to having a portfolio constructed of mutual funds or ETFs, you have significantly higher risk often within that one individual stock. Because if that one individual stock doesn't perform well, the entire portfolio shot as compared to with the ETF and the mutual funds, if some of the investments in there don't perform well, you have a bunch of other ones to counter that, hopefully.

SPEAKER_02 9:01

Right.

Brandon 9:02

But the way that you know you would look at it is that if also it depends on what what account you're holding that individual stock in. Because, for example, if you have an IRA and you have individual stocks within your IRA, since it is a tax qualified account, you can actually, you know, if you have, say, all your money in Apple, you can actually sell off some of that and not have a tax consequence within your IRA.

Jessica 9:29

Oh, nice.

Brandon 9:31

Because it's a qualified account. The tax implication doesn't come into you actually withdraw funds.

Jessica 9:35

Okay.

Brandon 9:36

As compared to if you have um a brokerage account, which means that there's it's not a tax-qualified account. If you have all the Apple in there, if you were to sell off, that is a taxable, that is a taxable event. So therefore, the way that you might want to counter that instead, like if you're highly concentrated in that one stock, instead of selling off that stock, what you might want to do is any new contributions that you're putting into that account, you are contributing to other investment options and no longer purchasing Apple.

Jessica 10:04

Okay. I feel like you just said a whole bunch of stuff because what I'm hearing is it's not only important where you're like what you're buying, but where you're buying it. Yes. Okay. Okay.

Brandon 10:18

Because as well, you know, we stated, different accounts have different tax implications on the movement that you make within them.

Jessica 10:24

Right. Ooh, do y'all see why people hire financial planners? Because there's so much nuance.

unknown 10:32

Yeah.

Brandon 10:32

And the thing is that, you know, if you're a set of person that's going to dedicate the time to understand this, everyone can dedicate everyone can understand this if they had dedicated the time. Right. It's a matter of do you have the time? Do you want to, you know, make the time, do you want to do that? That's what it boils down to.

Jessica 10:46

Yeah. Okay. What else do you want the people to know?

Brandon 10:50

Well, we kind of touched on it as far as the difference between the active and passive management. Because, you know, with the active aspect, you know, you're having that human manager of the fund that is actually going to be picking and making changes within that um, you know, say mutual fund.

SPEAKER_02 11:07

Okay.

Brandon 11:07

And but like I said, that does come with a higher fee. And one of the biggest things that I find that like people don't pay attention to is the fees associated with the different investments that you're in. All right. Now, an individual stock doesn't necessarily have a fee associated with being in it, but when you buy and sell, you could have implications from a tax standpoint as far as um long-term versus short-term tax.

SPEAKER_02 11:29

Okay.

Expense Ratios And What You Keep

Brandon 11:29

But when you're choosing mutual funds and ETFs, there is something called an expense ratio. An expense ratio is a fancy word for how much you are paying to be associated to be to be invested in that fund.

Jessica 11:40

Okay.

Brandon 11:42

Passive, uh, passive investing, there are some mutual funds that do do passive investing, but passive investing is mostly with um ETFs, exchange traded funds, and the fees tend to be lower on there.

Jessica 11:53

Okay.

Brandon 11:53

All right. As compared to with your mutual fund, they're higher. It's going to be higher. And the reason you want to pay attention to that is because at the end of the day, it's a matter of what you keep from a growth standpoint. So you can have all this growth, but if all you if all this growth is in um um funds that have higher fees, that's gonna cut into the growth that you have.

Dividends Reality vs Hype

Jessica 12:13

Yeah. Can we talk about how these accounts grow? Because I know we always talk about compound interest, and compound interest is the eighth wonder of the world. And then online you see things where it's like, I went on this vacation to Bali and I used the payment from my dividends. Like, what does that stuff mean?

Brandon 12:33

All right, so dividends are great, but when you're hearing it in that standpoint, that means that person has a lot invested in that specific stock or you know, fund or whatever it may be in order to have the dividends. Because a dividend is simply a percentage payout based upon the, you know, performance or growth or success that that fund or individual stock has had for that year. And it's a percentage. So for example, if I only have like, you know,$100 invested in there and the percentage is 5% of for the dividend, all I got was five dollars.

Jessica 13:07

You are not going to Bali for that.

Brandon 13:09

Yeah. So when you hear people say that they're living off of dividends or that they're using them for, you know, very expensive purchases, they have a lot invested already. So it's not, I don't I don't want the people to have the misconception that, you know, oh, I have like$100,000 invested in the market and I'm gonna be living off of my dividends, like living lavish. That's not the reality. You these people are living off of this. They have a substantial amount of money invested. And that's why they're able to live off those dividends because they already have a lot of money to begin with.

Jessica 13:38

Is that what the people like in the fire movement are doing a lot of times, living off of their dividends?

Brandon 13:44

I mean, it it depends. It really depends on how they're it depends on how old they are, how their portfolio is structured. Um just to say it ha it really depends, to be honest with you.

What Index Funds Aim To Do

Jessica 13:54

Okay. When you say um something is actively managed and passively managed, these are not people that you're actually interacting with.

Brandon 14:03

No, not at all. These are the fund managers. Yeah. So an easy one.

Jessica 14:06

They're in the background, you will not see them, you don't know who they are.

Brandon 14:09

Because you have someone that is overlooking the fund and making sure that it's doing what it's quote unquote trying to do. Well, the big thing here, difference between the active and man and uh the active and passive is that often with an actively managed fund, they're actually trying to beat the uh market in a sense with that fund. So, for example, like if it's an aggressive um mutual fund, they're trying to beat the market. They're not trying to.

Jessica 14:34

I mean, isn't everybody trying to beat the market?

Brandon 14:36

No, not everyone, because you also have passively managed funds. Okay. And their goal is to try to do maybe just as well as the market. So for example, if SP 500 index fund is not trying to beat the market.

Jessica 14:47

Oh, okay.

Brandon 14:48

It is simply trying to do it, does the same that the uh SP 500 does.

Jessica 14:51

Okay. Okay.

Brandon 14:53

So that's, you know, could be a huge difference.

Jessica 14:55

And can look just to be clear, because I think SP 500 is something that if you're trying to educate yourself on the internet about investing, you see that a lot.

Brandon 15:05

And the SP 500 is since we're standard and pores, and it is it it is one of the most widely used indexes to measure the performance of the overall stock market. And um, what it is is 500 of the largest US stocks.

Jessica 15:19

Yeah. So again, you're getting that diversified uh, you know, better.

Brandon 15:24

But it changes too, because if you're, you know, if number 501 overtakes number 500, then it moves in.

Jessica 15:30

Then it moves in. Yeah.

Brandon 15:31

So you always could be some, you know, switching around the positions or you know, new ones coming in and the uh lower ones being dropped out.

Jessica 15:38

Yeah. Okay. Um okay. So I feel like you said a lot. We've got our, we've got our visuals, we've got our private chef, we've got our uh, you know, our home cooked meals, like we got our our fruit basket.

Matching Products To Life Stage

Brandon 15:53

And kind of like a little way to like, you know, we'll give you a little overview of kind of what we just talked about. Okay. And you can think of like the mutual funds, they're great for your retirement funds, all right? They're great for retirement and stuff like that, but you do obviously need to keep an eye an eye on the fees associated with it because they tend to be a little bit higher.

Jessica 16:07

Okay. And what do you what do you mean when you say high fees? Like what are we looking at?

Brandon 16:11

So, you know, you these in some mutual, I mean, some mutual funds may be pushing, you know, 0.6% to 1%.

Jessica 16:19

Okay.

Brandon 16:20

What that means is, you know, 1%. So if you have$100 in there, 1% of that is one dollar.

Jessica 16:26

Okay. That's what you're gonna be paying. So if for every$100 that you make, you're gonna be putting a dollar, you're gonna be paying a dollar to have that fund.

Brandon 16:35

Now there has been a move towards mutual funds trying to compete with ETFs. So there has been a move to um lowering the fees on that. But the whole premise of this is that we want you to be aware, this is one aspect of your investment portfolio that you need to keep an eye on. What are the fees that you are paying to be invested in the various funds that you have?

Jessica 16:52

Yes. Okay.

Brandon 16:53

Now, with the ETFs, that's more like honestly, that's more like more of a modern thing as far as for the modern investor people around our age, has you know, a similar aspect from um an ease standpoint and a diversification standpoint as a mutual fund. Big difference is is that not necessarily actively managed, so therefore the fees are lower.

Jessica 17:13

Okay. Yeah. I mean, uh if some people like again, the internet will have you believe that everything that has a higher fee is bad. No.

Brandon 17:22

But that's not the case. It's an analysis. It's based upon what is the growth that you're getting on that in comparison to the fee that you're paying. Right. Because if you're paying, you know, if you're paying a higher fee on a mutual fund in comparison to a similar ETF, but you're getting a better performance on that mutual fund, that uh higher fee may be justified. You have to simply have to do the math on that.

Jessica 17:42

Right. Right. Okay.

Brandon 17:44

And then you have obviously the stocks. That's the fun and flashy stuff that, you know, can have the high risk, high rewards. Um, but they can also, you know, you got to be more hands-on with that to pay attention to it.

Jessica 17:53

I don't want to be hands-on. Yeah. Which I don't have time, I don't have energy, I don't want to.

Brandon 17:57

Which I would say, you know, if it's people that are investing in individual stocks heavily, because I think it's fine to have a certain, a small portion of your portfolio in individual stocks. But if you have an overwhelming percentage of your portfolio in individual stocks, I really think you one need to be a hands-on person if you're doing this yourself, if you're not paying somebody else to do it. And honestly, if you're gonna be paying somebody else to do it, it's very specific individual from an advisor standpoint, because most financial advisors don't want to be picking stocks for people.

How To Start Researching Stocks

Jessica 18:24

Yeah. Okay. So let's talk about because this is still a lot of information. And even though I feel like we're breaking it down in an easier to understand manner, let's apply this to like real life. So our audience are millennials, 35 to 44, give or take. I'm sure there's some outliers. Um let's say you have a 25-year-old, what would you? I know it depends. You know, that's Brandon's favorite. It depends. But if you're a regular 25-year-old, you're working your first 401, uh, your first W-2 job, you're making decent money and you want to start investing, where would you tell them to start?

Brandon 19:04

I mean, honestly, within your within your 401k plan, you're limited. So we're gonna go outside of that.

Jessica 19:08

Okay.

Brandon 19:09

Um, these can be your low cost ATFs. Okay. And in all honesty, for a very, you know, for a beginner investor, it is perfectly fine to use the Robo Advisor because it's going to help with some of that um uh knowledge standpoint. And it's also gonna take some of the things off your plate as far as from a picking standpoint. It's going to ask you a variety of questions to help them understand, you know, who you are as an investor. And then it's gonna spit out a portfolio that works for you, you know, of low-cost ETFs.

Jessica 19:35

Yeah. So it's gonna have like your target date fund stuff, your risk tolerance, which at 25, you can be pretty aggressive. Um, we actually have an entire episode on like robo advisors versus traditional financial advisors.

Brandon 19:49

What it boils down to is like, what are you looking to get out of the medium that you're using?

SPEAKER_02 19:54

Right.

Brandon 19:54

And for a beginner, and you're just getting started, you want to obviously be very conscious of how much you're spending. And a robo advisor is, you know, you have to pay for robo advisors, but it's going to be a lower cost point than working with an uh you know a person.

Jessica 20:10

Yeah. Okay. What about people that are like us, 40s, family, you know, trying to think about retirement?

Behavior, Volatility, And Staying The Course

Brandon 20:18

You're going to obviously have your mutual funds in your 401k plan, but then also too, you can utilize the ETFs for ease and flexibility.

Jessica 20:25

Okay. Where do I buy those?

Brandon 20:27

You could buy those in any brokerage account. If you have an IRA at you know Charles Schwab at Fidelity, um, whatever it may be, even, you know, um the Robin Hood, even though I'm not a big fan of Robinhood, but what I'm saying is that you can buy ETFs on there.

Jessica 20:40

Okay. So if I have an IRA, I can buy ETFs in that IRA. Yeah. Okay. What about a Roth IRA? Same thing?

Brandon 20:47

It's Roth IRA is just a designation of how the money is um taxed. Yes. Yeah.

Jessica 20:54

Okay.

Brandon 20:55

So it's the same, you have the same options.

Jessica 20:57

Okay. Cool. Um what if I am like early 30s? I've been investing. I understand the power of time and compound interest. I'm not a I'm not a beginner. I'm not totally green. What would you advise for somebody who's a little bit more experienced and maybe wants to do a little bit more?

Brandon 21:17

I still think on the individual side, as far as like brokerage, like an IRA brokerage account, I still think there's a big benefit to having the core portion of your portfolio in ETFs.

SPEAKER_02 21:27

Okay.

Brandon 21:28

One, it's going to give you that diversification at a lower cost point. Because if you're thinking about trying to buy individual stocks in order to diversify your portfolio, you're going to have a lot more money in order to be able to do that because an individual stock is going to cost more. And so therefore, like I said, it's going to cost more to get that diversification that you need. So with a core portfolio of ETFs, you can manage your fees and have that diversification at a lower cost point.

SPEAKER_02 21:52

Okay.

Brandon 21:52

Now, I think it's perfectly fine if you are the type of person where you're going to take the time to be hands-on and understand investing in individual stocks. Because, like I said, with an individual stock comes more risk. So you are going to have to take the time to research and understand, you know, the risk versus rewards of doing that. It's perfectly fine to do it if you put in the work to understand what it is you're doing.

Jessica 22:17

Yeah. Do you have any tips or advice if people are like, I do want to buy some individual stocks, but I don't know how to actually research.

Brandon 22:27

Well, one of the tips I give people is that like obviously you could think of like the common ones that we know of, like Apple and NVIDIA, the ones that you see in the news that are doing well. You can obviously those are kind of easy ones to target. I kind of tell people that maybe look at where you're spending your money or specifically whatever uh sector your career is in, what do you see there?

Jessica 22:49

That's a good one. Well, because I've even said to you, you know, like if you open up our cupboard, if you look at our desk right now, we have a lot of Yeti products. I I'm I like Yeti.

Brandon 23:00

Now, I will preface that sometimes a good product doesn't necessarily make a good stock.

Jessica 23:05

That's what I'm saying. So if you're saying, hey, well, I already shop here, I have a lot of this, I, you know, this is a brand that I really like. Okay. I said, hey, should we invest in Yeti? And you were like, no, historically they have not done well. What did you look at to see that? Did you look at like their 10K? What did you Well?

Brandon 23:24

I'm not going to go into that's I think that could be a completely separate episode to go into those details because that's going to be more of an episode focused on how do you evaluate a stock.

Jessica 23:33

Okay.

Brandon 23:33

And I think that majority of people, like our listening core, I don't think that's where your time should be allocated, to be honest with you.

Jessica 23:40

Okay. All right. So then, all right.

Brandon 23:42

So then let's pivot into but if you are going to invest in individual stocks, I think from a knowledge standpoint, it's easier to start in areas that you know. So for example, if you work in healthcare, what are you seeing within healthcare on a day-to-day basis that may be, hey, maybe I should look into this. Like, for example, if you're if you worked at several different hospitals or you are overseeing several different hospitals, like what um softwares are you guys using within that hospital? Maybe that might be a good part place to start your research to see if it makes sense to invest.

Recap And Practical Takeaways

Jessica 24:14

Got it. Okay. Yeah, like all the hospitals going to electronic records using Epic or something like that.

Brandon 24:20

It's like, I don't know if they're public or not, but because there's tons of like because like obviously we hear about the um the sexy ones always, like you know, Apple, Microsoft, Google, yeah, yeah, you know, all those, you know, all the ones laying off 40,000 employees every single year.

Jessica 24:33

Yeah.

Brandon 24:34

But there's also plenty of other stocks out there that are having significant growth. They're just not as commonly known. So therefore, if you like I said, you working in your industry, it's an industry that I don't work in, so I wouldn't even be aware of these little, you know, smaller things that actually can have significant growth. Because also, it's not a matter of like how much the stock costs. Like if you're looking to buy like a higher price stock, you're looking at the difference between what you bought it at and what it grows to.

SPEAKER_02 25:02

Right, right.

Brandon 25:03

So like even if the stock is only$5 now, but at the end of the year it had a 15% growth on it, yeah, 20% growth on it.

Jessica 25:11

That's significant.

Brandon 25:12

Yeah, it's compared to like, oh, I'm gonna buy a stock that costs$200.

Jessica 25:15

Right.

Brandon 25:15

It's the the margin you're looking for of growth.

Jessica 25:18

Okay. So if we're thinking about where do I start, which one makes sense for me, what questions can people ask themselves to decide should I do a mutual fund? Should I do an ETF? Am I right to be picking my own individual stocks? What do you think?

Brandon 25:33

Well, you definitely first so I always look at it this way. Where do people normally start their investment journey? And most people start their investment journey at their first job investing in their 401k plan. Yeah. And within your 401k plan, that is often going to be a mutual fund. Okay. So that's going to be your first place to start because that's the easiest entry point.

Jessica 25:53

And let me sidebar, we have an entire episode on how to properly set up your 401k because most people, they enroll, they don't know what they're doing, they're not optimizing anything, maybe they're not changing their time horizon, their target dates, they're not actually changing the investments of what you can invest in. You're not doing like pre-tax, Roth, you know, uh after tax. Those are three different things. We have an entire episode on just 401ks. So we'll link that one in the show notes. But so that's important here when we're thinking about the mutual funds.

Brandon 26:26

Yes, that's gonna be your probably most people's initial entry point is taking a look at your 401k plan and seeing what investment options you have available to you, or your 401k plan or a 403B, whatever it may be, what investment options you have available to you in there. And like I said, that's mostly gonna be mutual funds, and that can help you understand by doing some little read doing a little bit of research on your um for on your retirement account to see what those different mutual funds are and what they entail.

Jessica 26:50

Okay. Awesome.

Brandon 26:52

Now, once you kind of move past, I've already, you know, been contributing to my um employer um retirement account, and now maybe I I want to take the next step and then you know do some investing elsewhere, whether that's an IRA or a brokerage account, that's gonna be, hey, looking at ETFs.

SPEAKER_02 27:09

Okay.

Brandon 27:10

Because it's gonna be similar aspect, like I said, to the mutual fund as far as being able to diversify for a lower cost point, but with the ETF, it is gonna be more passively managed, so therefore it's gonna have even lower fee.

Jessica 27:22

Okay. And then with the stocks? Yeah.

Brandon 27:28

Like I said, I I always c I always caution people about this because I have honestly, there's very few people I've seen that have done this on their own and end up doing well.

Jessica 27:41

Well, and I mean, all the research shows that like picking individual stocks does not typically yield a better return than picking something like an SP 500.

Brandon 27:50

Yeah, and the hard part is too, is that you also have to take into account human behavior. Do you have the fortitude to deal with the ups and downs? So you're gonna see if you are, you know, if you have investments in individual stocks, you're probably gonna see more fluctuation in those individual stocks because you have high reward, but you also have a higher risk. So you want to make sure that you're not buying into a stock, you see a drop, and then you want to go ahead and immediately sell it. You gotta really think about why did I, you know, purchase this individual stock? Do I believe in it? And you have to give it the time that it needs in order to see the return that you're hopefully looking to see. Yeah. Because what ends up happening is that, and this is just like an investment standpoint, investing um principle in general, not just simply with stocks. Too many people cannot handle the ups and downs. So they'll go ahead and you know be invested, but then they see the market dip, they get hysterical about losing money, they pull their money out, and what ends up happening, the market goes back up, but their money's not back in the market to go up.

Jessica 28:49

Yeah. So then they missed, they missed the boom.

Brandon 28:51

Yes.

Jessica 28:52

Because of emotional panic.

Brandon 28:53

Yeah. So a big part of it is having whether regardless of what you're investing in, you have to one understand what you're investing in, understand the time horizon that you're investing, and then understand from a um behavioral standpoint of what you should and should not do.

Jessica 29:06

And who you are as a person. Yes, who you are as a person. And can you handle the fluctuation and ride ride the the wave, so to speak?

Brandon 29:13

And the thing is too, is that the the behavioral aspect doesn't even have to do with anything from an intelligence standpoint.

Jessica 29:19

Yeah, yeah.

Brandon 29:20

I have extremely intelligent clients where I already know when certain things happen, you gotta give them a I'm gonna have to be proactive and say, hey, this is what we remember, we talked about this. We knew this is a possibility and go through all that to talk them off the cliff. And I know that. And that, like I said, that has nothing to do with their um uh their intelligence because they're extremely intelligent people. This is simply human emotion when it comes to your own money.

Jessica 29:42

Yeah, yeah. And then, I mean, would you say that maybe having a mix of the mutual funds and ETFs or maybe a mix of all three is the best way to kind of find balance in all of this?

Brandon 29:53

I'm not gonna say it's the best way to find balance because that's all gonna be depending on you know your individual goal. Well, it does. It depends on your individual goals and what you are going to do. Because, like I said, if you have stocks in there, you're gonna have to be a little bit more hands-on.

SPEAKER_02 30:08

Okay.

Brandon 30:08

So if your goal is to be as hands-off as possible, yeah, individual stocks is not the way to go.

SPEAKER_02 30:13

Right.

Brandon 30:13

So it really depends on it from individuals for as what's going to be the best for that person.

Jessica 30:18

Yeah. Okay. All right. Well, I think this was very helpful. Is there anything else that we missed or that you want to make sure we cover?

Brandon 30:27

Uh I think from I think for what we were focused on, I think we hit all the key points that I want to talk about because obviously there's so many different things in investing that we could address, but we do want to kind of stay focused to kind of the high-level overview of the ETF's mutual funds and stocks.

Jessica 30:42

Okay. Perfect. Well, we hope that this was helpful. We hope that the visuals that we gave you about the chef and the fruit basket and all of those things help you understand what you're actually getting yourself into when you purchase these investments, because you do have to purchase them. Um, and what the the the pros and the cons are and the risks, because investing is risk. There's no such thing as a sure thing. So if this is helpful, share with a friend and we will talk to you soon.