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it makes all the sense in the world.the fund manager is rotating stocks around in the fund as they see fit . i can sit with one fund for decades ,in fact i have. but what it holds is always changing.
that doesnt make sense to you?
if its an index fund then individual company risk for the most part is out of the equation as well.. with hundreds or even thousands of issues you can just assume market risk and not worry so much about the whims of one company. i cant buy enough individual stocks on my own to take individual risk out of the equation and so i have to watch those stocks very carefully as the failure of even one can sink my boat.
it makes all the sense in the world.the fund manager is rotating stocks around in the fund as they see fit . i can sit with one fund for decades ,in fact i have. but what it holds is always changing.
No, it really doesn't. You now seem to be talking about actively managed funds (not just mere index funds), but these type of funds crash all the time when the underlying investment strategy fails.
Quote:
Originally Posted by mathjak107
i cant buy enough individual stocks on my own to take individual risk out of the equation and so i have to watch those stocks very carefully as the failure of even one can sink my boat.
Why can't you? Is there some sort of rule that restricts how many stocks you can own?
An index fund doesn't take "risk out of the equation", it just exposes you to different sorts of risks.
Anyhow a "buy and hold" strategy in a well diversified portfolio of stocks is going to be just as active as a "buy and hold" strategy with a single mutual fund. Now someone just starting out may not have enough to create a diversified portfolio, but that is a different issue. An individual can easily create a very strong portfolio with a mere $100k though.
your missing the point
:
the op was asking about buy and hold. im assuming he means like our parents did. they bought a few companies, didnt look for 20 years and then were pleasently surprised . the answer is it is very risky to take just a few stocks, tuck them away and think things will turn out okay over time. as many of our blue chips have shown us,they are only good until their not.
a diversified fund has both a manager riding herd and or such a huge basket of issues that if one company fell thru the cracks and failed you wont even notice it most of the time.
thats not to say there are not a whole host of other risks in a fund including bad managers. no investment in the world can be left on auto pilot and its performance has to be monitored . when the investment fails to meet your objectives and goals it should be gone..
now,if you have enough dough to take positions in enough stocks to limit individual company risk then you created your own mutual fund. most folks dont come close to owning anywhere near enough issues when they do things on their own to rule out individual company risk. they buy a few things and call it a portfolio and that can work, but you have to monitor those issues like a hawk.
again most small investors fail at getting decent returns from funds according to morningstar who tracks small investor money , they do even worse speculating in a handful of stocks and thinking its a portfolio.
what does buy and hold even mean?????? do you tuck the stocks away in a drawer and look again in 20 years? do you only hold it until for whatever reason you sell it?
look a janus 20 fund. it held only 20 issues .it was the hottest darling fund on wall street scoring huge gains year after year. well that was until it didnt. it became the waterloo of many investors when the few companies it held fell on hard luck.
if your going to put all your eggs into one basket you better do a real good job watching that basket.
you better have enough issues or 1 failure will hurt you for a long time.
if anyone thinks they can put an investment in anything on auto pilot be it a fund or a stock they will for sure fail .
funds can have bad managers, bad sector weightings etc. but nothing wrong with sitting with a fund forever as long as the manager performs.
i own one such fund, fidelity low priced stock fund. im in it since its inception 20 years ago and joel tillinghast has driven that fund up 1300-1400% since im in it..
all funds have risks whether they are index funds or whether they are managed but they typically eliminate the one risk owning only a few issues takes on especially in buy and hold and thats individual company risk. i already have enough to worry about in my investments without worrying about any one particular companies performance.
Last edited by mathjak107; 12-30-2010 at 04:12 PM..
I agree with mathjak107... I prefer to be ultra diversified in good mutual funds instead of single stocks. There are many mutual funds investing in solid cream of the crop companies. What may seem like a solid company today, just might not be tomorrow. It all comes down to the amount of risk you are willing to accept... with the speed that this world is changing, I want all the diversification I can get.
the op was asking about buy and hold. im assuming he means like our parents did. they bought a few companies, didnt look for 20 years and then were pleasently surprised . the answer is it is very risky to take just a few stocks, tuck them away and think things will turn out okay over time. as many of our blue chips have shown us,they are only good until their not.
The OP said nothing about the number of stocks they have or anything about his portfolio.
Quote:
Originally Posted by mathjak107
a diversified fund has both a manager riding herd and or such a huge basket of issues that if one company fell thru the cracks and failed you wont even notice it most of the time.
And the same can be said of a diversified portfolio.
Anyhow, you can "hire" someone to manage a fund for you or you can manage your own fund. I'm not sure why you think the two are some how different in terms of risk, etc.
Quote:
Originally Posted by mathjak107
most folks dont come close to owning anywhere near enough issues when they do things on their own to rule out individual company risk.
It doesn't take that much money to create a diversified portfolio, it is something that is well within the means of most middle-class investors.
Anyhow, for some reason you think owning individual stocks means you have massive exposure to one company, but that doesn't have to be the case.
User_ID.....i didnt think you invested in stocks, because the US will only have to bail them out someday.
Please don't grossly distort what I said in other thread an inject it here.
Regardless, I don't invest much in stocks, if/when I do its individual stocks though. Generally, I'm far more interested in investing in businesses that I'm actively involved with. Anyhow, as whole I think the stock market will be a bad investment for the foreseeable future so I have no interest in things like broad mutual funds. I put any money that I'm not using into the bank, or perhaps some bonds.
The OP said nothing about the number of stocks they have or anything about his portfolio.
And the same can be said of a diversified portfolio.
Anyhow, you can "hire" someone to manage a fund for you or you can manage your own fund. I'm not sure why you think the two are some how different in terms of risk, etc.
It doesn't take that much money to create a diversified portfolio, it is something that is well within the means of most middle-class investors.
Anyhow, for some reason you think owning individual stocks means you have massive exposure to one company, but that doesn't have to be the case.
i never said you cant do it on your own, i said most folks dont have enough skill or money to buy a few hundred stocks or few thousand stocks.they also need more money for the rest of the portfolio too . its not really practical to have to deal with so many stocks each with a little bit of money in it if you really want to elminate individual company risk .
as we learned its not just about a bet on good times with equities and other asset classes are needed as well.
i dont recommend when asked that folks go individual stocks until they have at least 100k for the equity portion. there is no efficiancy in trying to manage so many stocks on your own especially when each has realatively little money. its far more efficiant to just buy a fund and roll with the market cycles.
my own definition of investing is when you accept the returns the markets give you good or bad ... my own definition of speculating is when you think your smarter then the markets and will attempt to beat those marklet returns by buying only what you think will go up or do the best. not buying enough diversification breaks my own rules of investing because with not enough individual issues how you do is based on individual companies doing well not markets.
yes a fund manager can try to out guess the markets and weight the sectors poorly but thats not individual company risk and both individual stock owners and fund owners have the same risk they are in an un-favored sector at that moment,thats commen to both.
thats not to say folks arent successful with less holdings but one bad earnings report can send a stock plunging 30% in one day.
i dont mind the cycling of markets. we had a one day drop of 25% in one session in 1987. but markets always cycle back. individual issues may never come back.
ge was an example of a company that was thought of as a great blue chip because it held so many companies it was looked at as its own mutual fund.
well even ge it turned out wasnt diversified enough and they got crushed by what they own. even now ge sells for half of what it did while markets recovered.
Last edited by mathjak107; 12-31-2010 at 03:13 AM..
About what? My comment about bail-outs (again from a different thread) was in reference to retirees.
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