Why You Should Manage Your Own Portfolio

10 Reasons Why You Should Quit Mutual Fund Investing And Allowing An Advisor To Manage Your Wealth: Do It Yourself Instead

How have your investment returns been doing over the last few years?  Do you even know what you’re invested in?

Many are overwhelmed when it comes to making investment decisions and instead of putting in a small amount of effort to achieve better results, they sit back and let a banker in a suit make recommendations for them.  And it’s mostly because most people don’t believe they’re smart enough.

We’re taught to believe that we need someone with a Finance Degree that works for a bank to do our investing for us, otherwise you’ll never meet your retirement objectives.  But the honest truth is that probably 95% of these advisors don’t even know what the hell they’re talking about.

Why else would they be doing that stressful job listening to your complaints?  If they were really so amazing then shouldn’t they be managing their own portfolio’s or working for a hedge fund somewhere?  They’ve never even met the actual portfolio manager, the guy who really know’s what he’s doing.

I started realizing all this when I worked as a mutual fund salesman in 2013 to 2014.  I ambitiously completed my CSC course and got a promotion so I could really learn the ropes of investing.  But to my own disappointment, I realized that the majority of people around me didn’t know how to invest, nor did they care.

Even worse, they didn’t care about what they recommended for clients.  I truly despised being a mutual fund advisor for these reasons.  It wasn’t the learning environment I had signed up for and I didn’t feel comfortable recommending garbage to people.

I use to hold mutual funds as part of my portfolio, but this experience as well as the fee’s soured me on the idea.  So now, I’m mutual fund free and manage everything on my own.  Heres 10 reasons why you should manage your own portfolio.

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The Internet

The first reason you should manage your own portfolio is because we are in the year 2016.  There’s this thing available called the internet that’s full of free information.  The amount of resources, finance blogs, websites, and tools out there means there’s absolutely no excuse why you can’t do it yourself.  You have the same access to information as the advisors, plus more incentive because it’s your money.  There’s literally tools like vuru.co that will analyze a stock for you.  There’s sites like Morningstar that provide all the fundamentals needed.  And If you’re really a go getter, you can look up a companies website, call them, and ask them about the business straight up.  This is a tactic Peter Lynch talks about in his book, One Up On Wall Street.  It’s not a method I’ve personally used but If you’re a potential investor, they should be willing to talk to you.  You have the ability to do your own research.

Fee’s

This is a big one especially over the last 1-2 years as mutual fund companies are now required to display what fee’s they charge on the statement.  Brokerages have even been hiring and preparing to receive more volume of investors because of this.  On average, most mutual funds have an MER (Management Expense Ratio) of close to 2%.  Thats 2 % of your return eaten away and most of the funds wont even beat the market.  Don’t believe me? Check your next statement or call and ask your adviser what type of MER costs are being charged.

The Advisor Doesn’t Care About You

Most people working in the finance industry are not investors, they are salesmen.  All they really care about is the big fat bonus they’ll get once they meet their quota.  This is really the truth.  I always felt a little off when I was suppose to recommend something I didn’t believe in to someone, but most of these guys have absolutely no shame.  And on top of that they’re usually limited to the select mutual funds offered at that institution.  Even if there’s something clearly better they wont tell you about it.  They will just try to steer you in whatever direction leads to the easiest sale.

You’re Smarter Than You Think

Just because you don’t have a Finance degree or you haven’t taken any courses doesn’t mean you’re not capable.  Aside from the internet, there’s also a plethora of books on investing available.  And you probably have a few friends/relatives that might be more knowledgable on the subject that could lend some help.  I started off reading The Intelligent Investor by Ben Graham, and with no financial education other than that book, I ended up making more than a few early successful investments.  You will probably surprise yourself.

Higher returns

While I was at the bank for the last 3.5 years, my employer contributed to a pension for me.  The pension was held at Sun Life and my employer was contributing a percentage of my salary each pay.  This was fantastic and added up quite quickly, but the only problem was my limited investment choices.  I could only invest in the few select funds that firm carried, which wasn’t much.  When I left the firm, I compared the returns of the mutual funds to my own portfolio and was surprised to find out that my passive bluechip portfolio beat out Sun Life’s fund.  In their defence, it was a Target 2045 fund planned specifically for retirement so maybe over the next 30 years I wouldn’t have faired as well.

Dividend Growth

This is a big one for me.  Most mutual funds pay distributions annually, sometimes more often, but are somewhat unpredictable.  The distributions can depend on the fund managers performance and capital gains during the year.  Dividend growth stocks on the other hand are fairly predictable.  A lot of the best dividend growth stocks pay quarterly distributions on set dates and raise the amounts annually.  I’ve been holding Coca Cola stock for since February 14, 2013 and I’ve received raises in 2013, 2014, 2015, and now 2016.  My next dividend payment, on April 1st, is now almost 25% higher than what I was receiving in 2013.  This is the type of distribution growth a mutual fund simply can’t replicate.

You Know Your Goals & Risk Tolerance Better Than Anyone

This plays into the third point about your advisor not caring about you.  When he/she is going through the risk tolerance profile and making recommendations and making it seem personalized, they’re actually just going through the same script as the last meeting/call.  They don’t truly know the picture you’ve painted for your retirement.  They might not know or care that you plan to use the money to start a business.  They might be bringing in their own biased opinion on investments which could greatly differ from yours.  It’s your wealth on the line and there’s no one it means more to than you.

Dollar Cost Averaging

Dollar cost averaging is a beautiful way to invest if you have a long time horizon.  While I was working, I took advantage of this in 2 ways.  The first was through my companies stock sharing plan, which was actually amazing.  Each pay I contributed 6% of my salary directly to company stock, and then they matched 50% of that.  There was no commission costs either.  I also utilized this strategy to build my own portfolio.  Each time I had $500 or so in my brokerage account I would allocate it to one of the best valued bluechips on my watchlist.  It didn’t always work in my favour as I purchased a portion of my IBM shares at higher prices than todays, but over the long run it usually works out.  It also propelled the size of my portfolio, built habits, helped me learn fundamental analysis, and really jumpstarted my dividend income.

“Just making monthly investments in a low-cost index fund makes a lot of sense” – Warren Buffet

Index Funds & ETF’s

Why pay these high mutual fund fees when you can now purchase index funds and ETF’s and pay practically nothing.  Two great ETF companies to look at are Vanguard and iShares.  Both offer very lost cost index funds and ETF’s.  Take for example Vanguards S&P 500 Index ETF (VFV).  The management fee is 0.08% with an MER of 0.07%, which compares quite favourably to any mutual fund you want to compare to.  If I didn’t want to do any stock analysis, this is where I’d put the majority of my money.  I’d just keep dollar cost averaging my way into it.  And if you don’t want to take my advice then listen to what Warren Buffet told Lebron James.

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Ease Of Investing Yourself

I’m not sure what I would have ended up doing if I was working 25 years or more ago.  The internet has made investing so much more simple than it use to be.  It’s provided access to investing for anyone.  I’ve never experienced it myself, but I’ve heard many older investors talk about how difficult it was.

You couldn’t just sign into your brokerage account and place an order, you had to call your broker a couple times to get a quote, do an analysis, and then call back again to place an order.  And you couldn’t just sign in and look at your performance after that.

You would get issued a certificate and then you had to call back in again to get a quote to see how your returns are doing.  We’re incredibly lucky these days.  I wake up in the morning and sign into my Questrade account, and in seconds, I and have access to trade pretty much any North American equity I like.

Question: What are your thoughts on mutual funds?

8 Comment

  1. I second to all the reasons for DIY investing. I particularly like the risk tolerance and dollar cost averaging.

    Financial advisors or salesmen tend to tell you that you need to buy these funds over the other funds based on your risk tolerance. The truth is, when it comes to risk tolerance, it is only you that can fully understand your risk tolerance. You may not really feel confident because you don’t have an idea about investing but the truth is there are ways that you can learn about investments and help you become confident about investments and help you understand more about your risk tolerance. The internet is a vast repository of information on investments. Everything you need to know is over the internet. You just need time to research and understand the concepts.

    When it comes to dollar cost averaging, I think that this is a safe way of investing. This is what I currently do with my investment. Rather than investing at one time, I invest constantly. This way, I reduce the chance of buying shares when the prices are high.

  2. graham.bell1@icloud.com says: Reply

    Thanks for commenting Allan! I completely agree with you. By investing consistently over the long run, you definitely reduce chances of buying too high. And once you own the investment, you start to really get a feel for when a good time to buy again is. But as I truly think dollar cost averaging and also a diversified portfolio is the way to go. Thanks again.

  3. Derek says: Reply

    Good Post! I agree bank fees are crazy for every service they offer. Anyway to get out them is good. I always though excessive management fees are like paying the bank to lose your money. Because when you fund is way down they still got there cut, so they don’t care.

    1. graham.bell1@icloud.com says: Reply

      Thanks Derek! It’s true about the MER fee’s. They get paid no matter what. Often times they do a good job of preventing it from doing as badly as the market. But if you’re someone who does your homework then it’s definitely worth it. Thanks for commenting!

  4. The Intelligent Investor was also one of my earliest finance related books thanks to reading Roger Lowenstein’s book on Warren Buffett. Chapters 8 & 20 about Mr. Market & Margin of Safety still remain some of my favorite literature on investing.

    I completely agree with your points on mutual funds being ineffective as compared with index funds.

    The second half of the post is great post about financial advisors. I agree, but I do want to suggest a few times when a financial advisor or outside help might make sense.

    When dealing with a larger family and starting to tackle the issues of estate planning & trusts, things become complicated quickly. You can still do this all yourself, but sometimes it helps to make sure its done properly as there is a good amount of paper work.

    Also, if you own your own business, I would also suggest seeking out a CPA to see if there are opportunities to fine tune your cash flows.

  5. graham.bell1@icloud.com says: Reply

    Hi Distilled Dollar,
    Thank you for reading & commenting! And also thanks for sharing those points because they are important things to point out in relation to this post. I definitely agree with the scenarios you listed there as far as dealing with estates & trusts. And thats a good suggestion if you own a business. And I do believe that it can be worth paying an expert to help with your areas of weaknesses. Thanks again

  6. TJ says: Reply

    It’s interesting that Vanguard only has ETF’s in Canada. They must be cheaper to operate than Canadian mutual funds?

    I use some actively managed funds, but for the most part, they are inexpensively managed by Vanguard. I don’t expect to deviate too far from the index, but I like the idea of the manager, though I accept that it is a risk that indexer’s don’t take. I haven’t gone down the Individual stocks rabbit hole yet, but maybe I would enjoy it.

    1. Graham says: Reply

      Hey TJ,
      Thanks for stopping by!
      ETF’s are much cheaper to operate than Canadian Mutual funds. Most mutual funds have an MER of 1.5 to 3 %. ETF’s are usually under 1%.

      I do intend to invest more in index funds in the future to diversify. But I mainly like to select stocks individually because I am building an income portfolio. Also, because I like to look at it from a business owner and marketing perspective. Everything I learned about picking individual equities was from The Intelligent Investor. I need to read that again as a refresher. Thanks for stoping by! Have a great weekend! 🙂

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