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More on Personal Portfolios

Now that we know how personal portfolios work, what advantages do they give us?

Let's have a look.

-- No need to play catch up. With a folio, you can assemble a long-term portfolio quickly.

-- As a long-term stockholder, you could avoid most capital gains taxes. If you did sell, you could match winners and losers and keep taxes to a bare minimum.

-- As a stockholder, you can vote in corporate proxy fights.

-- You can benefit from stock splits and spinoffs.

-- If you’re a socially conscious investor, you can sell stocks you find objectionable, such as alcohol or tobacco companies.

While personal portfolios may not knock mutual funds off their perch anytime soon, they’re sure making progress. In 2004, the Boston investment analytical firm Cerulli Associates released a study that said the growth in personal portfolios has outpaced the growth in mutual funds for the previous three and a half years by between 2.5 and 6.7 percentage points annually. Consequently, Cerulli believes that fund companies may take a “if you can’t beat’em, join’em, mentality and begin creating their own folio offerings. While that wouldn’t be good news for the online folio start-up firms that have hit the marketplace in the last two or three years – imagine a Fidelity Investments or a Vanguard Group taking on a small folio company – it would be great news for investors, who would have more personal portfolio choices than ever.

Granted, personal portfolios aren’t for everybody. If you’re a risk averse investor who is uncomfortable calling the shots, personal folios probably aren’t right for you. Chances are a good index mutual fund would allow you to sleep better at night.

Correspondingly, if you itch to become a professional trader and want to pull the trigger and trade 10, 20, or even 30 times a day, personal portfolios don’t allow you to do that. For those risk-takers, a solid discount brokerage firm may offer a better alternative.

But for the average investor who is sick and tired of being kicked around by indifferent mutual fund companies, and who want to take more control over their financial fortunes while paying lower fees and enjoying more tax flexibility, it’s hard to argue with personal portfolios.

Published Nov 17 2006, 03:35 PM by moneycoach
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