Mutual funds versus stocks: The winner is?
[The following is for informational purposes only. No professional investment advice is given or implied.]
Twelve years ago I made twelve small investments. Seven were in large company individual growth stocks and five were in diversified growth actively-managed mutual funds.
Stock results:
One company went up, split, went way down, became almost worthless, and I sold it.
Two stocks immediately fell. I sold them for tax losses.
One went up and came back down. I still own it, but I’ll be selling it this year.
Two great companies just sit there, year after year, promising to go up in value.
One went way up, and I sold it. Best investment I ever made. No, it wasn’t Apple.
Mutual fund results:
All went up. Then all went down. Then all recovered to current new highs.
Total score:
Mutual funds are winning. If I had purchased only one grand slam stock, such as Apple, I wouldn’t be writing this now. If I had bought only stock index mutual funds, I also wouldn’t be doing it.
(If you are new to investing and the terms I’m using are not familiar, let me know and I’ll provide some useful information to help you learn.)
Individual stocks can be exciting, boring, or exasperating. You can gain and/or lose a lot of money, or none, by owning stocks of domestic and foreign companies.
Mutual funds are not very exciting, and are usually rather boring. You can have large, small, or no gains in them, but usually not as severely as with stocks.
If I had it to do all over again, knowing what I do now, I would have invested half of my modest cash in Apple Computer stock, and the other half in a Vanguard Index Fund. I would have sold the Apple stock right after Macworld Expo 2007, and be waiting until a serious market collapse to invest those earnings in more of the Vanguard Index Fund.
But I’m a middle-aged guy, almost a geezer, with no kids in college, car loans, or mortgage payments. You are in a different place in your personal and financial life cycle.
The day I wrote these comments, the stock I intend to sell posted a 75 percent increase in profits, and its shares went down. The Chinese stock market is in a buying frenzy. The world turns, and investing is hazardous and upredictable.
What can we learn from the well-informed mistakes and brain-dead brilliance of investors, people just like you and me? Do a little homework, save and invest with your eyes and ears open, and choose your investments with an exit strategy in mind.
Actively-managed stock mutual funds anchor my unpretentious portfolio because thirty years ago, when I began investing in tiny amounts, these funds were the best choices available. Now passive index funds tip the eminence scales. Either way, mutual funds typically make money for their investors. Stocks don’t.
Your thoughts, comments, suggestions, and corrections?
[Nemo]
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