Joseph Wang Financial - Advantages Of A Portfolio Over Investment Funds

The main advantages of direct investment in shares in respect of investment funds are:

1) Regular Rent: A portfolio generates income for dividends paid by stocks in the portfolio. This advantage is important. The money received as payment of dividends can be used with complete flexibility to reinvest in the purchase of more shares, destine for consumption or for payment of expenses (electricity, water, community owners, etc..), Mortgage payment of a property (primary residence, second home, local business, real estate for rent, etc..), payment of bills of a vehicle, etc.. And all this without having to sell the shares. Throughout the life of the target investor dividends may shift with full flexibility depending on your needs and stage of your life when you are. Get a regular income by investing in funds is very difficult because the evolution of dividends is much more stable and predictable than in prices. For a regular income of a mutual fund shares must be sold, and that means reducing the size of our heritage. Therefore there would be a real income (as in the case of dividends), but his investment. In addition there is a risk of market declines divest.

2) lower Commissions: Commissions paid to maintain a portfolio are significantly lower than those of a mutual fund, and this has a decisive influence on the final yield obtained. An equity fund can charge a full Commission departments (management, storage, etc..) Of 2.00% -2.50%. Some people think it is because a low commission compared to the total portfolio value. The problem is that this commission is charged every year. The dividend yield of an index like the IBEX 35 is not far from those numbers, at times may be somewhat higher and others slightly lower. That means that the fund roughly gets the dividends received by their work. For perspective imagine the case of a real estate investor who hires a manager to bring her property portfolio and in return the manager takes all the money from rents. The investor would keep the property but will not get any of the properties. In addition, by investing directly in stocks can select actions that pay higher dividends and discard those that pay lower dividends and non-payers, so the dividend yield of the portfolio may be higher than the IBEX 35 ( or the chosen benchmark).

3) Effect "herd" in the fund managers: It is named the tendency of fund managers to make management very similar to that of their peers, differing little from the group of operators. The consequence is that the vast majority of managers makes a very passive management, obtaining very similar results (almost always lower, as reflected in studies on the subject) to the index used as a reference. In these cases the supposed advantage of professional management on management that can make an individual fades to practical cut-off. There are several reasons for this behavior. One of the most important is that managers live on his salary, not the return they get on the market. Many managers get bonuses, bonuses and all, but the mortgage, the light and the schools are paid salary. If you are separated from the group and are right can get a bonus higher, but if they are wrong and get a return well below the average can be dismissed. It is clear that most prefer not to risk not only for the possibility of being fired but because, even if the group clearly overcome the tension suffered to do daily can be very high. Individual investors can buy securities that are not fashionable (and thus have fallen significantly) but have a great fundamental and good prospects without worrying about the next quarter's rankings. By following the index managers spend as much money on larger values, which are not always the best option.

4) Total freedom to invest or not: The individual investor has no obligation to be purchased at any time or to sell if you wish. But a fund manager not only has to be always in market but it may happen that you get a lot of money to invest (further input from participants) at a time when you would rather not do it and at other times may be forced to sell (by mass withdrawals of participants) when their view is that a good time to buy instead of sell.

5) Agility in and out: An individual investor can enter and exit a value at any time, as their positions are negligible compared to the size of the market. But a fund manager can take several weeks or even months, to enter or exit a value for the large volume of cash handling. This may cause the manager to get worse prices (for the whole portfolio) buying and selling individual investors. The smaller the value the greater is the advantage of individual investor versus fund manager.

6) Ability to invest in securities that are not in the index: Most funds are index-linked, so ignore all those companies that do not belong to this index. This leaves out very good companies whose size or liquidity are not eligible to be included in the indexes. In Spain you can cite the cases of CEPSA and Zardoya OTIS, companies whose profitability in recent decades is among the highest in the Spanish market and yet are not in the portfolio of many funds do not belong to the IBEX 35. Other funds do have or have had shares in these companies but at a very low percentage, given its fundamental soundness, not to be included in this index. On the other hand, are sometimes included in the rates companies with large market capitalization and high liquidity and profitability but whose basic leave much to be desired. An example of this (among many that has been, is and will be) can be Terra. The vast majority of unitholders of mutual funds in Spain had some of their money invested in Terra during his fall from 157 to 2 euros, as almost all funds have bought shares of Terra in their portfolios. Many of these funds, however, had no shares in CEPSA Zardoya or who had an appreciation well above average while Terra fell. Indexes are a selection of the most solid and profitable values, but the most liquid and market capitalization. There are very strong values that are very large and liquid but not so in all cases.

7) The indices do not reflect dividends paid by companies

Advantages of mutual funds relative to a portfolio

by: Joseph Wang

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