Get Out of Stocks and Into Index MF's?

[kcowan]

We are in individual stocks in our taxable account. They are buy and hold value stocks. What we like about them is the ability to defer taxes on the capital gains. This has made the tax hit in ER very manageable. By avoiding most taxes for 5 years, our portfolio has grown more quickly. Trades cost $10 but are insignificant when compared with paying even a low MER.

We have been lucky enough to beat the indices (e.g. still up 14% YTD as of Friday). OTOH it does require some attention to get these kind of results. We are thinking that we might go to a more passive approach in 10 years or so. Our objective is to get our SWR below 3%.

But in answer to your original post, if the individual stocks are not beating the indicies after deducting MERs and trading costs then why take on the extra effort? Unless there is a tax deferral advantage.

[unclemick]

Quote:

Originally Posted by kcowan But in answer to your original post, if the individual stocks are not beating the indicies after deducting MERs and trading costs then why take on the extra effort? Unless there is a tax deferral advantage.

Hormones.

heh heh heh

[Orchidflower]

Doesn't Warren Buffet say to go into index funds as an investor?

[JustCurious]

Active Investors - Index Funds Advisors, Inc.

"Warren Buffet stated in a February 1996 investment letter to his Berkshire Hathaway shareholders: “…the best way to own common stocks is through index funds….” In his 1997 letter he writes: “Let me add a few thoughts about your own investments. Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.” In February 2003 he gave this advice to investors in his shareholder letter: “…those index funds that are very low cost (such as Vanguard’s) are investor friendly by definition and are the best selection for most of those who wish to own equities. And, his February 2004 letter states: “Over the [past] 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns: All they had to do was piggyback corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous.”

[CyclingInvestor]

I am retired 1 year, and 100% in individual stocks, generally holding about 6 - 15
at any time. I find analyzing companies and investing to be relaxing enough to qualify
as a hobby for me, and I would not have been able to retire last year without the
results obtained. However, I always recommend index funds to my friends because
none of them are really interested in doing this, and it sounds like the fun is gone for
you also. It really comes down to what lets you sleep best at night.

[megacorp-firee]

Quote:

Originally Posted by CyclingInvestor I am retired 1 year, and 100% in individual stocks, generally holding about 6 - 15 at any time. I find analyzing companies and investing to be relaxing enough to qualify as a hobby for me, and I would not have been able to retire last year without the results obtained. However, I always recommend index funds to my friends because none of them are really interested in doing this, and it sounds like the fun is gone for you also. It really comes down to what lets you sleep best at night.

VERY SOUND advice. I agree... many on this board are DIYers who love doing the analysis ...etc. but for those less inclined or those less knowledgeable, or just plain lazy (that's me ) then, IMO, index mutual funds are the easiest, least expensive and least risk way to invest.

[Dawg52]

95% of my investments are in mutual funds and ETF's. The balance are in individual stocks. Yup.........hormones got the best of me too.

[Buckeye]

After reading "The Intelligent Asset Allocator" and "The Four Pillars of Investing," I would only hold individual stocks in a fund that didn't count towards retirement (play money).

These are two of the core books always recommended on this board and I understood why after reading them. I wish I had read these books ago. I am pushing them at some of the younger (30's) folks at work. One person has already read the Four Pillars and her comment was "wow."