Mutual/Segregated Funds Vs. Stocks: Which Should You Invest In?

May 23, 2024

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If you’re new to investing, it’s crucial to understand the differences between mutual/segregated funds and stocks to determine the best investment strategy for your goals and risk tolerance.

You’re ready to start investing, and that’s a great step forward. Investing can create a sustainable future and provide a financial cushion against unexpected challenges. To avoid diving into the unknown, you’ve decided to take a cautious approach. However, you might be wondering whether to start with stocks or mutual/segregated funds.

Both options can enhance your financial security, but it’s crucial to understand the differences between mutual/segregated funds and stocks before deciding. Various factors, such as your investment goals and risk tolerance, should be carefully considered to determine the best choice for you.

Funds or Stock?

What is a Mutual/Segregated Fund?

Mutual/Segregated Funds:

  • Definition: These funds pool money from multiple investors to collectively buy a diversified portfolio of stocks, bonds, and other securities.
  • Management: Professional money managers make investment decisions, choosing which securities to buy and sell.
  • Ownership: When you invest in a mutual/segregated fund, you own shares of the fund itself, rather than individual securities.
  • Benefits: The primary advantage of mutual/segregated funds is diversification, which helps to spread out and minimize risk.

What is a Stock?


  • Definition: Buying a stock means purchasing a share of an individual company, giving you partial ownership of that company.
  • Ownership: Each stock represents a small portion of ownership in the company.
  • Trading: Stocks can be bought and sold on stock exchanges, such as the Nasdaq, New York Stock Exchange (NYSE), and Toronto Stock Exchange (TSE).
  • Earnings Potential: Stocks can offer higher returns compared to mutual/segregated funds, but they also come with higher risk due to the lack of diversification.

Pros and Cons of Mutual/Segregated Funds

Mutual/segregated funds and stocks each have their advantages and disadvantages. Understanding these can help you make an informed decision about which investment suits you best. Let’s start with the benefits of mutual/segregated funds:


Mutual/segregated funds invest in a variety of stocks and bonds, offering investors the chance to diversify their portfolio. This diversification minimizes risk by spreading investments across multiple assets, reducing the impact of price fluctuations in individual stocks.

Low Cost

Investing in mutual/segregated funds can be more cost-effective than buying individual stocks, as transaction fees are shared among all investors in the fund. However, ongoing management fees to the advisor must be considered, while stock investments usually only incur initial transaction costs.


Mutual/segregated funds are managed by experienced professionals who conduct research and make investment decisions, making them a convenient option for new or busy investors. This professional management can alleviate stress, making these funds more beginner friendly.

Potential Downsides

You must work through an investment advisor, limiting your control. Additionally, even the best portfolio managers cannot guarantee positive returns, and there is always the potential for loss.

Pros and Cons of Stocks

Now let’s examine the benefits and disadvantages of investing in stocks:

Higher Returns

Investing in individual stocks often offers higher potential returns compared to mutual/segregated funds. However, this also means greater risk due to the volatility of stock prices. Extensive research is necessary to make informed stock investments.


Some stocks pay dividends, providing a source of income that can be particularly valuable when share prices fall.

Tax Efficiency

With stocks, you control when to realize capital gains by choosing when to buy and sell, allowing for more tax-efficient investment strategies compared to mutual/segregated funds.

Potential Downsides

Investing in stocks can be risky, especially for beginners. It’s easy to lose money if you’re not careful, and even experienced investors can face significant losses. The need for thorough research is crucial, but the abundance of misleading or useless information can make it difficult to make informed decisions. This makes investing in stocks potentially more challenging and riskier compared to mutual/segregated funds.

Which investment option is better suited for you?

For beginners embarking on their investment journey, Mutual/Segregated funds generally offer a more accessible starting point. Investors who value customization in their investment decisions may find stocks more appealing.

However, the choice between Mutual/Segregated funds and stocks hinges on your individual needs and preferences. Consider the following factors before deciding:

Hands-on or Hands-off Approach

If you prefer a hands-off approach where you can set-it-and-forget-it, Mutual/Segregated funds may be ideal. Working with a professional investment advisor can provide valuable support, especially if you lack the time or expertise for extensive research. Mutual/Segregated funds also offer a lower-stress option compared to individual stock picking. Why would you invest in a mutual fund over a stock? The mutual fund versus stock debate generally boils down to your personal goals and risk tolerance. Mutual funds are an excellent option if you want an easy way to diversify your holdings (i.e., set-it-and-forget-it) or don’t have the time, interest, or expertise to research companies, pick individual stocks, and manage your portfolio. Mutual funds are also a smart choice for investors who want to avoid the emotional rollercoaster, stress, and sleepless nights that can accompany stock investing.

Conversely, if you have a strong interest in investing, enjoy researching companies, and are willing to manage your portfolio actively, stocks might be more suitable.

Short or Long-Term Goals

Mutual/Segregated funds are typically better for long-term investments, whereas stocks can be more volatile and suited to investors with longer time horizons. If you anticipate needing liquidity in the near term, Mutual/Segregated funds may not be the optimal choice due to potential fees that could erode short-term returns (we are talking about 1-3 years, but with investment loan, you may also be able to leverage funds to generate cash flow in the short term. Check a real client case: Alex).

Risk Tolerance

Assess your comfort level with risk. Stocks offer higher potential returns but come with greater volatility. Mutual/Segregated funds, with their diversified portfolios, are generally lower risk.

Before deciding, ask yourself these key questions:

  • How much investing experience do I have?
  • Am I comfortable paying management fees?
  • How much time can I realistically dedicate to research?
  • Am I more inclined towards higher risk or gradual returns?
  • How diversified do I want my investment portfolio to be?
  • How much control do I want over my investments?

Considering these factors will help you choose between Mutual/Segregated funds and stocks based on your personal financial goals and risk tolerance.

It’s clearer to put in a chart:

Mutual/Segregated Funds Individual Stocks
Less Diversified
Lower Risk
Higher Risk
Ongoing Management Fees
One-Time Fee
Beginner Friendly
Not Beginner Friendly
Requires Little to no Research
Requires Market Research
Less Customizable

Between Segregated funds and Mutual funds

The biggest difference between Segregated Funds and Mutual Funds is that Segregated Funds offer additional insurance-like features. For example, they may include principal guarantees, named beneficiaries, and potential creditor protection, which are highly practical in many investment scenarios.

Another reason Segregated Funds are favored by many investors with some understanding of investments is that you can use investment loans, which are specifically earmarked for purchasing funds. This loan allows you to maximize your principal or make significant investments without using your own money, which is crucial for long-term investment strategies.

What to do next?

If you’re still unsure of which option is best for you, you can speak to one of Ai Financial’s Investment Professionals online or in-person.

Whichever direction you choose to invest your money, be sure to consider all the factors carefully. It’s about making your money work best for you, after all.

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