Funds vs. stocks

ASK THE FOOL

Q:

Is it best to invest only in mutual funds to avoid losing money in stocks? — D.G., New Orleans

A:

You can make mistakes and lose money (or just not grow your money much) with many mutual funds, too. The simplest way to invest in stocks for the long term is to stick to low-fee, broad-market index funds, such as ones that track the S&P 500 index of 500 big American companies. Invest a lump sum, or keep adding to your investment regularly, but either way, hang on through thick and thin. It’s important to not sell in a panic, as many people do when the market temporarily swoons.

It’s very possible to make blunders with mutual funds, such as buying ones that have soared after one unusually good year, only to watch them underperform in subsequent years. Other mistakes include buying funds that charge high annual fees or that have high turnover rates due to fund managers buying and selling too often.

For the lowest fees and turnover rates, your best bets are index funds.

Q:

Do single people need life insurance? — P.R.,

St. Joseph, Mich.

A:

They often don’t. Life insurance exists primarily to protect anyone who depends on you financially, such as a spouse, your kids, your parents or perhaps even your business. If your kids are grown and no one would be hurt financially by your demise, you don’t need it.

It’s usually best to buy term life insurance, and just for the term over which you’ll need it. Don’t buy insurance as an investment, because you can end up with insurance you don’t need and an investment that’s less profitable than many alternatives, such as stocks.