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After $100,000 - Buy individual stocks or DCA mutual funds weekly?
Old 11-27-2011, 08:50 AM   #1
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After $100,000 - Buy individual stocks or DCA mutual funds weekly?

Many places say that the magic number to switch from mutual funds to just owning the stocks yourself (or ETF's) is after $100,000. This is where you have enough money to be sufficiently diversified and you overcome the buying and selling fees because you are no longer paying the MER's etc of the mutual funds.

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!

Anybody here have thoughts/advice on which of these two methods is best? I'm trying to find data that I can use to calculate which method would have had the greater return for the TSX and S&P 500 but having a hard time finding data in a spreadsheet that is weekly (or even monthly), only data I find is every year.

Any insights appreciated
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Old 11-27-2011, 08:56 AM   #2
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I don't think there is a magic number, to each his own. I sold all my mutual funds within the last year however, and now only hold individual stocks or cash.

I did this after reviewing all the funds I owned over a ten year period, and the performance of my own stock picks and my stock picks well outperformed my fund picks. Personally I'd rather invest in companies I understand rather than take chances on a wide basket of stock picks someone else made and assume the fund manager is smarter than me.

On the other hand, I enjoy trading, reading financial journals and stock-picking and actively manage my money. If I didn't want to watch the market everyday, I'd probably pick some funds and forget about it.
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Old 11-27-2011, 09:36 AM   #3
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I have never heard any particular number with respect to introducing individual stocks to your port, but if I was at the $100K level I would probably continue to DCA into MFs. Lots of indexers here, and you will find others that may prefer active MFs, etfs, individual stocks, and even CDs exclusively. As for me, I utilize all of these vehicles to some extent in my port.
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Old 11-27-2011, 09:47 AM   #4
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To build a portfolio of diversified stocks a minimum amount of money is important but the knowledge and skill to select the right stocks is much more important. If you don't have that, no amount of money is enough and the savings from not paying ERs to a mutual fund will not offset the losses resulting from bad investing.

Do you feel you can invest more effectively than the MF?
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Old 11-27-2011, 09:55 AM   #5
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Canadian, eh?

There is no amount of portfolio that one should switch from mutual funds & ETFs to individual company stock. No amount.

Here in the US, we have expense ratios for funds and ETFs below 0.15%, so those are good ones to consider.
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Old 11-27-2011, 09:59 AM   #6
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Originally Posted by PolarisTLX View Post
Many places say that the magic number to switch from mutual funds to just owning the stocks yourself (or ETF's) is after $100,000.
Can you provide some links to a few of the many?
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Old 11-27-2011, 10:53 AM   #7
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Have you talked to a tax preparer? We were told at a similar point it cost us more in taxes to be in mutual funds. ETF's may also be a consideration to reduce the overhead fees and give you the option to get in or out during the trading day versus having to wait until a day's close especially with all the turmoil from recent months.
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Old 11-27-2011, 11:02 AM   #8
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Can you provide some links to a few of the many?
Yeah, this sounds like research funded by the American Society of Brokerage Commissions...
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Old 11-27-2011, 11:16 AM   #9
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In order to invest in stocks one must be able to pick stocks. I think that is far more important than the amount of money in one's portfolio.
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Old 11-27-2011, 11:19 AM   #10
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Can you provide some links to a few of the many?
Thanks for the input so far. I will try and find some links to sources that say this. I didn't save any of the links. But over the course of the past year or so that I have begun researching and learning about investing I have run into this claim a few times in articles and forums (may also have been in the books I read). I saw it enough times that I thought it was a common rule of thumb. I think I saw mostly when trying to learn about ETF's.

Essentially they say to just pick the same stocks that you already have in your mutual funds and just own them yourself at roughly the same proportions, or just buy all the stocks that are within the S&P 500 for example. Or get ETF's instead since they are lower MER.

Will post back in a little while if I can find some sources.
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Old 11-27-2011, 11:29 AM   #11
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Originally Posted by PolarisTLX View Post

Essentially they say to just pick the same stocks that you already have in your mutual funds and just own them yourself at roughly the same proportions, or just buy all the stocks that are within the S&P 500 for example. Or get ETF's instead since they are lower MER.
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.
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Old 11-27-2011, 11:44 AM   #12
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Quote:
Originally Posted by PolarisTLX
Thanks for the input so far. I will try and find some links to sources that say this. I didn't save any of the links. But over the course of the past year or so that I have begun researching and learning about investing I have run into this claim a few times in articles and forums (may also have been in the books I read).
Like many of us here, my investments are entirely in mutual funds and my portfolio is considerably larger than $100K.

Some of us are not familiar with this rule of thumb; at least I am not familiar with it. Most of us have been researching and learning about investing for years but we always can learn more! So a link would be helpful.
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Old 11-27-2011, 11:47 AM   #13
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Having an interest and some skill, which is a combination of knowledge and more important temperament in stock picking is far more important than the fees or commission as others have pointed out.

At 100K and 50 stocks it would cost you $<500 to buy the stocks and assuming an average holding period of 5 years about $200 year in commission. Those number compare to .5% and .2% ER respectively. Hardly worth the effort. However,with a 500K or a million portfolio the expenses reduction can be quite significant since the transaction cost remain constant.

It is worth noting that board favorite Wellesley has only 58 stocks in its portfolio.
A 50/50 allocation of stocks and bonds with the bonds being invested in the total bond market ETF and 500K in stocks would have annual expense of around $750/year vs Wellesley expenses of $2,100. All that said given Vanguard's track record with the fund, the added expenses are well worth it to many.
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Old 11-27-2011, 12:40 PM   #14
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Alright so trying to backtrack all my reading from the past year was not realistic but I gave it a shot anyways... and quickly ended up with almost 50 tabs open in my browser

Anyhow I haven't had time to properly quote the specific parts or look through forums/books where I think I found this mentioned, but here are some links that I believe are in order of most relevant. Basically they all suggest that ETF's make more sense once you have a larger portfolio.

I notice that most come from the same website so I suppose that is not a good sign since it's always better to get multiple sources but you be the judge.

Dollar-Cost Averaging With ETFs: Part 1 | MoneySense
Dollar-Cost Averaging With ETFs: Part 2 | MoneySense
Where to invest $100,000 | MoneySense
Should You Use Index Funds or ETFs?
How to trade ETFs | MoneySense
Should I Buy ETFs Or Index Funds?
Why Investors are Moving to ETFs | ETF MarketPro
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Old 11-27-2011, 02:49 PM   #15
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I'm heavily diversified internationally and don't wan't to dive into a bunch of small-cap stock stats, so MF's or ETF's are fine with me. Way more than $100k.

Yes, individual stocks can be more efficient. Yes it can be more satisfying to use them instead of MF's. But they will be more work. Even if you just buy what you have in MF's now, who's going to tell you when to sell and buy something else? You can hold MF's long-term without much thought, but stocks are a different matter. They can and do go to $0. I've done that a time or two.

ETF's are essentially MF's, just bought and sold differently. I like them better than regular MF's when they are commision free at your broker. They are fine if you can buy/sell in large enough chunks and hold them long enough to amortize the commisions to something less than the ER at least. For lots of DCA/reinvestments, I stick with regular MF's. The only irritant there is short-term redemption fees that limit your options a bit in a wild market.
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Old 11-27-2011, 02:59 PM   #16
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The Little Book of Common Sense Investing by John C. Bogle.

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Old 11-27-2011, 03:41 PM   #17
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Quote:
Originally Posted by PolarisTLX View Post
Alright so trying to backtrack all my reading from the past year was not realistic but I gave it a shot anyways... and quickly ended up with almost 50 tabs open in my browser

Anyhow I haven't had time to properly quote the specific parts or look through forums/books where I think I found this mentioned, but here are some links that I believe are in order of most relevant. Basically they all suggest that ETF's make more sense once you have a larger portfolio.

I notice that most come from the same website so I suppose that is not a good sign since it's always better to get multiple sources but you be the judge.

Dollar-Cost Averaging With ETFs: Part 1 | MoneySense
Dollar-Cost Averaging With ETFs: Part 2 | MoneySense
Where to invest $100,000 | MoneySense
Should You Use Index Funds or ETFs?
How to trade ETFs | MoneySense
Should I Buy ETFs Or Index Funds?
Why Investors are Moving to ETFs | ETF MarketPro
Judging by the links you posted I think your original question really should have been ETFs vs Mutual funds. Not mutual funds vs stocks.

Generally speaking I think mutual funds are easiest/cheapest in the accumulation phase. Once you reach a certain portfolio size $100K is not a bad number, the generally lower expense of ETFs vs mutual funds outweigh the commission cost. However there are a lot variables. Not to mention companies like Schwab, and Fidelity are letting you buy their ETFs commission free.
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Old 11-27-2011, 03:47 PM   #18
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Judging by the links you posted I think your original question really should have been ETFs vs Mutual funds. Not mutual funds vs stocks.
+1

Managing an individual stock portfolio of a sufficient number to be reasonably well diversified would closely resemble w*rk. No way thanks....
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Old 11-27-2011, 03:52 PM   #19
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Judging by the links you posted I think your original question really should have been ETFs vs Mutual funds. Not mutual funds vs stocks.

Generally speaking I think mutual funds are easiest/cheapest in the accumulation phase. Once you reach a certain portfolio size $100K is not a bad number, the generally lower expense of ETFs vs mutual funds outweigh the commission cost. However there are a lot variables. Not to mention companies like Schwab, and Fidelity are letting you buy their ETFs commission free.
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?
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Old 11-27-2011, 03:57 PM   #20
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+1

Managing a stock portfolio of a sufficient number to be reasonably well diversified would closely resemble w*rk. No way thanks....
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.
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