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Build Your Own Mutual Fund

Did you know that you can “build” your own mutual fund, thus giving you even mopre control over your financial future?

With personal portfolios, you can.

If you fall into that category, then personal portfolios are certainly worth a look.

Here’s what they are – and how they work:

Personal portfolios, also known as “folios” in Wall Street circles, enable average Americans to bypass those high mutual fund fees and awful brokerage commissions and build (and own) their own personal mutual fund. That means choosing the stocks that comprise a fund (usually without the direct help of a financial advisor or money manager, though personal portfolio providers provide help), managing the portfolio, and customizing the portfolio periodically to satisfy one’s own objectives.

How They Work

With the typical personal portfolio, investors can buy anywhere from 1 to 50 stocks in a given investment category, pre-selected by the folio provider to meet common investment objectives like growth, balance, or capital preservation. Normally, as in the case of Foliofn, the total amount of stocks you can by is limited to about 3,500 listed securities – roughly 95 percent of the amount of stocks listed on the New York Stock Exchange and Nasdaq. While that number includes the most commonly-traded stocks on Wall Street (like IBM, Microsoft, Proctor & Gamble, and some of the newer, hotter technology and biotechnology companies), it can cost extra – around $15.00 per transaction – to buy stocks outside of the 3,500 listed.

Typically, investors can trade in their personal folios twice daily, giving them ample – but not unlimited – opportunity to change the complexity of their personal portfolios. Folio providers make investors’ portfolios readily available for easy viewing and updating, almost always in the form of “portfolio tracking” pages on their company Web sites.

Advantages of Personal Portfolios

With personal portfolios, investors can manage their folios any way they like. If, for example, tax liability is a big concern for a given investor, he or she can create built-in “triggers” in their portfolios (again, with the help of the folio company) that automatically sell a security or two to meet tax planning objectives and avoid a big year-end tax bill. Try doing that with a mutual fund.

Companies like E*Trade, Quick & Reilly, and Charles Schwab that market personal portfolios say they give investors the diversification advantages of mutual funds, plus more control over fees and taxes, and the added bonus of direct stock ownership.

Point by point, it’s hard to argue with personal portfolios. In our next blog we'll take a more detailed look at them, and how they differ from mutual funds.


Published Nov 15 2006, 09:55 AM by moneycoach
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