This is a really important Question: Should I buy stocks or mutual funds? I met with my adviser the other day and decided that stocks are a better choice than mutual funds. I wanted to know his opinion. You see, I was testing him since I know that he makes a lot more money from mutual funds than he does when I purchase a stock, even with the commission on the trade that he receives.
My rationale for purchasing stocks and not mutual funds was as follows:
- Mutual funds have not performed well in the past three years
- Mutual fund managers continue to collect MERs (fees) even for poor performance
- You lose around 2% of the income a fund receives from fees
- Funds stopped making dividend payments to unit owners and still paid themselves the MER Fee’s
and he really could not argue with me on almost all of these points. I even told my investment adviser that if I have this wrong or do not understand something, please tell me where I do not understand things correctly. There was no answer to my statements, really. What he did say surprised me.
Stocks or Mutual Funds – My Adviser’s Reaction
Mutual funds are for people who do not have time to manage their investments and want diversity and professional management. Also, mutual funds often invest in many of the same companies unless you go far afield. For example, a balanced fund would have many of the same stocks that a dividend fund would have! Where is the diversity?
I have reached the conclusion that despite all of the conversations I have had with him over the years, I really do not have that great of an investment adviser. Still, my portfolio has grown, and it is intact. I have recovered from all of the downturns and grown well beyond the original values. I did not lose half or more of my portfolio’s value during 2008’s market dive, so on those fronts, I have recovered nicely.
What Have I Learned from this Conversation?
I guess I have learned several things from this current episode or discussion with my adviser, which can probably be applied to many advisers we might work with:
- He is just a guy like me, maybe a bit more informed
- He has no magic crystal ball
- He is managing the averages and avoiding significant risk areas
- His guidance overall has meant that I have done well with my portfolio
- Am I satisfied with the services he provides in general, yes
- Could I have done better, absolutely
- Should I change to another adviser – no, sometimes it is better to have an honest conservative adviser that you know.
The bottom line is that I will stay with my current adviser. However, I will challenge him a lot more and push him to justify his recommendations. As always, all decisions about investments will continue to be mine, but I will do a lot more of my own research than I did before. My basic strategy is to invest in blue-chip companies with a history of high-quality bonds, regular dividend payments, and increasing their dividends!
General Trends and Guidance
Here is some more to think about regarding investing, regardless of whether you choose mutual funds or stocks:
- Stock prices are cheap compared to earnings.
- Earnings are growing at a healthy pace.
- Economic growth is likely to continue.
- The TSX and S&P 500 dividend yields are higher
- Stocks have underperformed bonds.
- Consumers lack confidence.
- Volatility is high.
- Companies have cash, and they are not afraid to use it.
- North American companies are global companies.
- Inflation is powerful.
- Strong companies have growing revenue, pay regular dividends and increase their dividends every year
Comments are welcome, and we will include your link if the comment is constructive and interesting for our readers.
For more thoughts and ideas about investing in equities and mutual funds, click here.
so far this year three of my stocks have raised their dividends and I get 100 % of the raise. Not so with mutual funds, they always take a cut of the raise and even if they do not make money they still take their percentage for their management fee. I am into dividends.