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Why We Favor Mutual Funds Over Individual Stocks Too many investors hurt themselves by:
What do you really know about the companies that underlie the stock-ticker symbols? Common advice is to "buy what you know." But there is no guarantee what you know about a company has any bearing on its investment prospects. Even if you have analyzed the companies in depth, what do you know that is not already known by most people and therefore is already reflected in the stock price? Remember that if you rely on brokerage firms, magazines, newsletters or market gurus to recommend stocks, there is no evidence that they are very good at picking winners! Searching for a System Given the intense competition, it is highly unlikely that you will find a system which can consistently outperform the market, after expenses.. Of course, the investment industry is very happy to provide recommendations for hot stock and "superior" mutual fund managers. Wall Street depends on the belief that they can help you "beat the market." But most investors never achieve mutual funds' advertised track record, because they are chasing last year's results at this year's prices. The Importance of Diversification You need a large number of individual stocks to achieve diversification, and you can achieve this diversification easily using mutual funds. Selecting the "Best" Mutual Funds We use the following criteria to select individual mutual funds: No Load - There cannot be any sales commissions, deferred charges or "hidden" 12b-1 fees. Low Expense Ratios - Lower is better, because more money is returned to investors. Low Turnover - Lower turnover means the fund pays fewer commissions to execute trades and it generates lower tax bills. Tax Efficiency - For taxable accounts, it is beneficial to minimize both dividend and capital gains distributions, if possible. Dimensional Fund Advisors Our buy-and-hold programs are built (primarily) with institutional "asset class" mutual funds offered by Dimensional Fund Advisors (DFA). Each DFA fund is carefully constructed to capture the returns of a well-defined asset class that has historically provided investors a substantial premium for the risks those investors took. The outstanding no-load, low-cost enhanced index funds offered by DFA are available only through a limited number of quality firms that have been trained and authorized by DFA to use these funds to help long-term investors. Conclusion We use passive investing, which we believe is superior to active management. We use the best no-load, low-cost mutual funds available to provide globally diversified portfolios. Back to Articles List |