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The issue with individual shares is risk. | 458 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
but that's as it should be.
Authored by: Anonymous on Tuesday, September 25 2012 @ 11:26 AM EDT
>How many people today *think* they are diversified across several
funds, and will get a nasty shock to discover all the funds are in the
same shares? etc etc.

Back when I had a 401-K, the money was offered across around 25
different plans. However, in looking at what they held, I had five
choices:
* US companies on US stock exchanges: the "low-risk" options;
* Non-US companies on non-US stock exchanges: the "high risk"
options;
* US and non-US companies on US and non-US stock exchanges: the
"medium risk" options;
* Commodity futures --- which had a minimum net worth requirement,
that I'd never be able to meet;
* Precious metals --- with a buy-in that was more than my annual salary;

Regardless of the plan, stock was bought in the same set of companies.
The only difference was the percentage of the plan that was invested in
each company.

(Within three years of "investing", I lost all of my money, because
the
plan management managed to lose 30% of the fund value each year that
the FTSE 100 and DOW went up by more than 5%.)

[ Reply to This | Parent | # ]

The issue with individual shares is risk.
Authored by: Anonymous on Tuesday, September 25 2012 @ 02:48 PM EDT
I don't *want* to invest in individual shares. It would expose me to far more
risk, and it would also require me to spend time that is already scarce doing
research that I'm not really qualified to do.

Mutual funds make a lot of sense on two fronts. First, we largely eliminate
single-company risk, putting most of our exposure to the performance of the
market segment as a whole rather than individual companies within it. Second,
we pay experts (in the case of actively-managed funds) to do the research on the
companies for us; in the aggregate, their skill is reflected in the fund's
historical performance (making for a reasonable level of personal research), and
the aggregation of a number of equities in the fund also means, again, that
we're insulated from an error by the manager on any one of them.

Perhaps there's room for a few sensible regulations to increase involvement of
fund investors in the governance decisions of the fund managers. However, if
people really *want* that level of involvement, why aren't there funds offering
it now?

[ Reply to This | Parent | # ]

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