Mutual Funds vs. Stocks?

[Ato]

I was wondering what the opinions of members on this board think of Mutual Funds vs Stocks. Obviously most will be biased towards stocks but that is fine, I'd still like to hear opinions. Which do you like better? Why? Advantages and disadvantages of each? Anything else interesting.

Cheers

 

[cutz]

Re: Mutual Funds vs Stocks?

Nah,

Don't like mutual funds for a few reasons as follows,
cost to much in fees, pain in the butt to enter/exit, can't employ safe option strategies to enhance returns, generally don't outperform the index, manager may lock the fund to stem a tide of redemptions, hassle all round.

Saying all that i'm invested in two funds, one's doing OK, the other ended up being a dog.

Tempted to close the dog fund but the process is a pain, i'll think about it next year.

 

[Mr J]

Re: Mutual Funds vs Stocks?

I think mutual funds are horrid things, and that many (most?) people would be better off learning a little about investing/trading and controlling their own money. Many people will claim that they don't have the time, or that they couldn't hope to perform decently, but these are just excuses. The majority of people work hard for their money, so they should put some effort into what they then do with it.

 

[Ato]

Re: Mutual Funds vs Stocks?

Yeah, fair enough. I am 8 months into teaching myself (and with other's gracious assistance, ie this thread) about finance. I was never interested at all until now. After 8 months I still have very basic questions, and still feel very lost.

At the moment I am alternating between mutual funds or stocks. I was thinking that perhaps, as I'd need about 30 stocks (that's the generally accepted average to lower risk right?) and have to sit down and analyse a whole bunch to find the 30 that suited me best, maybe I'd be better just picking a mutual fund that served my interests, ie Large cap Mixed or something like that. Plus I'm not interested in being a day trader. But the more I read, the more I think I will eventually go with stocks.

I dont intend to put any money down just yet anyway, as I want to get beyond the point of feeling like a newb as I mention above. As others have pointed out elsewhere in this forum, I'll use a pen and paper to practice for a while before putting money down.

 

[Mr J]

Re: Mutual Funds vs Stocks?

Yeah, fair enough.

I just think mutual funds are about treading water - if that. If one wants to actually get ahead with longterm trading, we find a good hedge fund or do it ourselves.

At the moment I am alternating between mutual funds or stocks.

No reason you can't do both. Perhaps you'd be comfortable letting "professionals" (hurts me to even say that!) handle a portion, and dabbling with the other portion yourself. Maybe you like doing it yourself and take over the full amount when you feel comfortable, or maybe you decide being hands on isn't for you and put the rest in the fund.

was thinking that perhaps, as I'd need about 30 stocks (that's the generally accepted average to lower risk right?)

Diversification lowers risk to an extent, but not nearly far enough. Investing in 30 stocks may protect you from smaller events such as a company or industry having trouble, but it won't protect you from the big moves, such as the "GFC". Diversification is a word often thrown around as a solution to risk, but the fact is that asset classes are heavily correlated. True risk management means far more than diversifying across different industries of stocks, or different asset classes.

I suggest focusing on a smaller number of stocks and paying more attention to individual trading decisions and opportunities, rather than trying to juggle 30 stocks.

Plus I'm not interested in being a day trader.

You should think about what sort of trader you do want to be. What are your goals? How much time are you willing to devote? Are you thinking of swing trading? Longer term trading? Do you want market returns? Do you want above market and if so, how much about market?

 

[wayneL]

Re: Mutual Funds vs Stocks?

If seriously considering mutual funds, consider exchange traded funds instead (ETF's).

Mutual funds have high fees and on average, under-perform the indices; they are fantastic..... for commission based financial advisers.

ETF's have extremely low fees and are much more transparent on their structure and constituents.

They are also cheap to trade into and out of. Try swapping funds through your FA and you'll leave with nasty hole in your balance.

To me the ONLY choice is between ordinary shares and ETFs. Mutual funds just have knobs on them.

 

[Nick Radge]

Re: Mutual Funds vs Stocks?

I'm not sure of the exact number, but its my understanding that 96% of US mutual funds have underperformed the index for the last 15-years. The major reason being drag of fee's and index tracking.

Try a intermediate term trend following methodology to beat them and take control for yourself. Use a discount broker (I use Interactive Brokers) to keep drag down as much as possible.

Nick

 

[Ato]

Re: Mutual Funds vs Stocks?

Thanks for the tips guys.

Diversification lowers risk to an extent, but not nearly far enough. Investing in 30 stocks may protect you from smaller events such as a company or industry having trouble, but it won't protect you from the big moves, such as the "GFC". Diversification is a word often thrown around as a solution to risk, but the fact is that asset classes are heavily correlated. True risk management means far more than diversifying across different industries of stocks, or different asset classes.

I suggest focusing on a smaller number of stocks and paying more attention to individual trading decisions and opportunities, rather than trying to juggle 30 stocks.

You should think about what sort of trader you do want to be. What are your goals? How much time are you willing to devote? Are you thinking of swing trading? Longer term trading? Do you want market returns? Do you want above market and if so, how much about market?

Goodo, seems like I dont really understand what diversification means, or have been lead to believe it is more than it really is. Time to hit the books again hehe.

I guess my goals are simply to grow my money so that I can comfortably retire when that happens. It would be nice to beat the market, and more specifically my biggest worry is not being able to keep up with inflation. If I can beat inflation, and beat the market somewhat I guess I'll be okay. As it's for retirement then it's long term trading. I guess once I have put in the initial study and got things under wraps, maybe an hour or so per day, timewise. I'm putting in 2-3 hours per day at the moment trying to educate myself from scratch. I dont know what swing trading is yet

If seriously considering mutual funds, consider exchange traded funds instead (ETF's).

Mutual funds have high fees and on average, under-perform the indices; they are fantastic..... for commission based financial advisers.

ETF's have extremely low fees and are much more transparent on their structure and constituents.

They are also cheap to trade into and out of. Try swapping funds through your FA and you'll leave with nasty hole in your balance.

To me the ONLY choice is between ordinary shares and ETFs. Mutual funds just have knobs on them.

Goodo, I was looking at ETFs way back at the beginning of this year when I first became interested in finance. But not knowing anything I didnt really know what I was looking at. I'll take another look at them.

I'm not sure of the exact number, but its my understanding that 96% of US mutual funds have underperformed the index for the last 15-years. The major reason being drag of fee's and index tracking.

Try a intermediate term trend following methodology to beat them and take control for yourself. Use a discount broker (I use Interactive Brokers) to keep drag down as much as possible.

Nick

Cheers Nick. Once I've got a few more basics under my belt, I'm hoping to come annoy you by getting a subscription from your Chartist site A friend sent me the IB site link a couple of months ago but I havent done much with it yet. I'll take another look at it.