10. Just not as darn much FUN as picking stocks yourself.
9. Lust for control. Well, I’ll admit it: control is a big
thing with me.
8. Tax timing. With a mutual fund, your taxable gains
and losses are realized largely by the fund manager. (YOU only get into
the act if you choose to cash out of the fund itself.) On your own, you can
arrange to take losses for tax purposes and let your winners grow untaxed and/or
wait until gains go long-term. Not that this matters in a tax-sheltered account,
or that you should ever let the tax tail wag the investment-decision dog -- but still.
7. Can’t give appreciated securities. If you give to
charity, there’s a big tax advantage in giving appreciated securities you’ve
held more than a year. Say your mutual fund is sitting on a stock -- Intel,
perhaps -- that’s up ten-fold . . . but it’s mixed in with all its other more
mediocre holdings, and your fund shares themselves are up only modestly (or maybe they’re down). There’s no way to pull out just the Intel shares to give away.
6. Have to pay a management fee. Own a stock
directly, and you get all its dividends and appreciation for yourself. Own
it through a mutual fund, and the managers take a slice.
5. Have to pay administration fees. But at least the
managers might be doing some useful research or making some savvy
decisions. On top of their slice, you’re also socked for your share of the
cost of printing up all those prospectuses and quarterly statements and
answering the 800-number -- all that stuff. It’s a drag on performance,
plain and simple.
4. Loads. Most people still buy load funds -- funds
that charge a commission, either up-front, as a surrender fee, or via an
annual "12b-1" sales fee. Yet another drag on performance.
3. Miss out on tiny stocks too small for funds. Few
mutual funds can invest in small companies. For one thing, it’s just not
worth their time. For another, buying -- and eventually selling -- $1 million
worth of some small, illiquid company is bound to drive the price
up (and then down), making it very expensive to get in and out. But some
of the best, albeit riskiest, opportunities lie in these "micro-caps." The
little guy, with his/her 100-share or 500-share stake, can move in and out
with relative ease.
2. Don’t get to vote on stuff. If you own shares
through a mutual fund, you don’t get all those annual reports, you don’t get
to approve the auditors or vote to toss out the board. (Not that any boards
ever ARE tossed out -- personally, I just toss out the proxies.)
And the number one reason not to invest via mutual funds . . .
a little number one music please, Paul:
1. Not invited to the annual meetings!
