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never heard such a rule.
Old 11-27-2011, 04:08 PM   #21
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never heard such a rule.

I have a portfolio much bigger than 100K and I have mutual funds, some stocks, treasuries, bond funds, cash, CDs, DRIPS, money market funds, international funds.

My main concern with individual stocks is the amount of time to monitor it on a daily basis.

I also believe that no matter how we study each stock, by the time most of us act on it, we're mostly late.

Anybody can go well in an up market, and it can deceive us thinking we're good at it until the whole market goes down and brings everyone down with it.

It's Ok to have stocks, as long as we're diversified with other asset class.
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Old 11-27-2011, 04:09 PM   #22
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That's certainly something to consider, but my main question is whether in 10+ years if the $ value of my portfolio will be significantly less if I take the easy way of just buying the mutual fund as opposed to mimicking the fund and buy the stocks myself.
I think you are grossly underestimating the personal cost and the effort involved in a DIY mutual fund mimicking strategy. To manage it effectively you'll have to track and monitor each individual stock and that could be an onerous task year after year after year.

Go with a MF or an EFT and buy a few 'testosterone' stocks on the side to feed your manly urges.
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Old 11-27-2011, 04:44 PM   #23
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So one aspect to look at is that there is considerably more work required to mimic a fund rather than just buying the fund?

That's certainly something to consider, but my main question is whether in 10+ years if the $ value of my portfolio will be significantly less if I take the easy way of just buying the mutual fund as opposed to mimicking the fund and buy the stocks myself.

Even if no-one necessarily has an answer, I appreciate the input and the various opinions on the topic.
I have 48 individual stock position (including puts I've written) which represents about 60% of my liquid net worth. On average I hold these positions about 6 years. Prior to retiring investing was a fun hobby. I still enjoy the intellectual stimulation but I spend somewhere around 1-2 hours day, reading Morningstar, the WSJ, watching CNBC. Plus another 5 hours a week doing the hard work of reading annual/quarterly reports and SEC filings with financial calculator in hand. I suspect I would be better served if I cut back the listening to the pundits <1 hour a day and doubled my reading of financial reports. I view managing my portfolio as job I really like, but a J*b none the less.

I pretty consistently out perform a portfolio of similar AA 75-80 stocks and the rest bonds and cash with modestly less volatility. On the other hand the couch potato portfolio of 50/50 stocks would have done better this last decade, than I did with fraction of the work involved.
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Old 11-27-2011, 04:54 PM   #24
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I buy both funds and individual stocks. I have done better with individual stocks, but funds are useful because they don't require much thinking. I find funds to be pretty much worry free. With an index of 500 or so companies in it, bankruptcy is not a concern.

I always buy things based on the income they generate. I don't count on share price appreciation for my return.
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Old 11-27-2011, 07:43 PM   #25
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But I add to my mutual funds every week (no cost for buying/selling) and my funds are mostly the TD E-Series which have a low MER of ~0.40%. If I were to DCA individual stocks 52 times a year that would add up the buying / selling fees very quickly!
I regularly (biweekly) deposit money in my brokerage 401k account.
Instead of immediately investing it, I let it ride for a while, building cash balance. Roughly once a quarter I buy ETF I need to bring me closer to my desired asset allocation.
So during typical year I pay only 4 commissions instead of 26.
Granted, if the volatility of ETFs I'm buying is large, I might be leaving some money on the table by doing less frequent DCA.
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Old 11-27-2011, 08:22 PM   #26
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I would stay the course that you are on and stick with mutual funds unless you have a lot of time to do the research needed to assemble an individual stock portfolio, and then it may still underperform the applicable index. Remember, the vast majority of index funds outperform their actively managed peers, so I would question whether you could do better than the pros.

If the question is between mutual funds and ETF's, it effectivley becomes a question of cost, but with a $100-$500k portfolio, I would favor mutual funds. I have nothing but mutual funds much more than $100k - mutual funds are easy, costs are low, they are tax efficient and I have better things I want to do in my life.
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Old 11-27-2011, 10:22 PM   #27
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I like the concept of the "accumulation phase". And yes the links all talk about ETF's becoming more cost effective once your portfolio is large enough to overcome the commission costs. I kind of view ETF as similar to stocks, in that you have to pay commission on every trade but you have much lower expense ratios (or none when it comes to stocks).

Some of them also talk about how you can basically mimic any mutual fund or index by buying one of every stock listed in it, and skip paying the MERs (which is paying someone else part of the profits), the issue is that to buy that many whole stocks requires considerable funds. When you have something around $100,000 you now have enough to be able to properly cover the gamut.

So the question I am trying to solve is: Should I begin moving my portfolio over to ETF's (or just buy stocks that copy my current mutual funds) now that I have $100,000 or leave it in my mutual funds?
Why not think about it for 10 minutes and I think your answer will be clear. As a good short cut, re-read Clifp's post and just do that.

Ha
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Old 11-27-2011, 10:34 PM   #28
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Another benefit of ETFs over MFs is most do not generate capital gains each year, thus deferring taxes.
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Old 11-27-2011, 11:26 PM   #29
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That's certainly something to consider, but my main question is whether in 10+ years if the $ value of my portfolio will be significantly less if I take the easy way of just buying the mutual fund as opposed to mimicking the fund and buy the stocks myself.
You're gonna have to do the math.

Assume you invest $100K each in a mutual fund, an index ETF that mimics the mutual fund, and the 20-30 stocks that make up at least 70% of either fund.

See how much your're saving each year. Remember that you're going to have to sell the stocks someday as well as buy them, and you may start trading more frequently if the individual stocks go too high or too low.

Plan to spend an hour or two researching what ETF you'd choose to replace the mutual fund. If you're going the individual-stock route then plan to spend at least an hour a week (more like two) researching & tracking the stocks. Call it 100 hours/year.

Then see if your savings divided into your hours are worth your personal time. As Bill Bernstein has said, he'd rather be living his life.

Personally I prefer index ETFs to mutual funds. They're less subject to fund bloat, management issues, style drift, tracking errors, and a whole bunch of other bureaucratic drama. However some index mutual funds (especially Vanguard) may be cheaper than some index ETFs.

One aspect of index ETFs (and individual stocks) is the ability to sell calls & puts on the shares. But at this point in your investing career you don't need to get into that.
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Old 11-28-2011, 05:37 PM   #30
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At 62 yrs old, I do not think I have the time nor patience to spend a big chunk of asset in individual stocks. I believe that no matter how smart and studious a person is, we just dont know what's going to happen in 10 years. Plus the daily time it takes to monitor these.

I still will keep my stocks and may add a few blue chips when times looks good, but I'm keeping most of my equities in mutual funds ,togther with bonds funds, and cash.
Even with this setup, I'll need to monitor and read about it about 1-2 hours a day on retirement, but it's not as stressful and there is no need to make very big drastic changes.
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Old 11-28-2011, 05:53 PM   #31
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If you really want to own every stock in the S&P500, then I think you are better off buying a cheap S&P500 mutual fund or ETF and be done with it no matter how much money you have.
+1. Just buy 'SPY' once and you own the S&P500.
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Old 11-28-2011, 08:32 PM   #32
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Plan to spend an hour or two researching what ETF you'd choose to replace the mutual fund. If you're going the individual-stock route then plan to spend at least an hour a week (more like two) researching & tracking the stocks. Call it 100 hours/year.
I don't think you need to spend any time at all researching the stocks. Simply select stocks randomly according to market cap weight and then you are done. With enough stocks, you should track the index fairly closely.
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Old 11-28-2011, 11:19 PM   #33
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I don't think you need to spend any time at all researching the stocks. Simply select stocks randomly according to market cap weight and then you are done. With enough stocks, you should track the index fairly closely.
Yeah, I used to read that advice a lot during the '90s. Don't hear much of it these days.
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