Some people like other people to do things for them, some people like to do it themselves, this article is for those exploring mutual fund investing for themselves. Anyone can buy a mutual fund, but how about creating your own mutual fund?
What is a mutual fund?
A mutual fund consists of a basket of stocks, bonds, or both. When you purchase a mutual fund through a broker you are paying someone a management fee in selecting the investments that will be in your mutual fund.
There are two ways to go about creating your own mutual fund. First you can buy various stocks or bonds, and what you have done is essentially create your own mutual fund. Secondly, by researching stocks using online resources you can see the top ten holdings in nearly every mutual fund.
What are the benefits of creating your own mutual fund?
Depending on the fees which very from fund to fund, buying the stocks in your brokerage account can save you a great deal of money over your investing lifetime. Secondly, you get to choose what stocks you might want to exclude from your mutual fund.
For example, in a class I was teaching at a local college we were doing this very activity and a student let us deconstruct the mutual fund they held. This was in early 2007 and the stocks that were dragging the fund down were related to banking and finance. The student talked about diversification, but I asked “Do you think things in the economy are going to get better or worse?” the student replied, “worse”. Well, if your mutual fund is holding stocks that you know are not going to perform well, creating your own mutual fund can help you make more money.
If you are willing to do some research in mutual fund investing, you might see that it is not as difficult as the pros would want you to think. Another benefit is you are in control of your money, not an investment advisor, and as long as you keep your accounts in the FDIC limits for insurance, no one will take your money.
So, if you are ready to explore mutual fund investing do-it-yourself style, when you are on Yahoo or Morningstar, click on mutual fund holdings to see what stocks they are holding, then apply your own due diligence to see if this may be right for your personal finances.
