One-Fund Investing

Posted on July 19, 2023 by

Charles Varma

You could have some, perhaps all your assets in a stock mutual fund when market conditions are favorable.

We want a mutual fund rather than basket of individual stocks because ...

Many retirement accounts usually do not offer usage of stocks.

We want the broad diversification obtainable in a fund. A specific stock may miss most or most of an over-all market advance, but a fund with wide market exposure will probably get a little bit of the action.

You'll save well on commissions, fees along with other costs connected with jumping in and out of stocks. Most retirement accounts usually do not charge to go among stock funds, cash, bonds, etc.

Time. Investors have a tendency to monitor their stocks a lot more closely than their funds, tracking daily movement, adjusting stops, increasing positions and taking profits. With funds, you follow the marketplace direction--and our advice--and move around in and out of funds with several clicks of the mouse at an internet site or perhaps a short mobile call to your broker. That suits nearly all investors saving for the Golden Years.

So inside our opinion you need to trade stocks in another trading account and use mutual funds for the 401(k) and IRA.

Until recently, we suggested having a few of your cash in a little and mid funds because they were on the list of biggest gainers. At other times we suggest small large caps according to the market leaders. Often we just throw our money into an index fund.

This is really a fund that closely mirrors the movement of the entire market. If the DOW, NASDAQ and S&P 500 are increasing, so will your index fund, and vice versa.

However, your retirement plan can provide you a selection between two funds, an "Index Fund" and a "Total Market Fund." You need to understand the subtle differences between your funds prior to making your decision.

An Index Fund reflects the action in the S&P 500 while a complete Market Fund represents the Wilshire 5000 Index. The coverage within an Index Fund is broad because the S&P 500 includes nearly every stock that moves the marketplace. However the coverage of the full total Market Fund is even broader because the Wilshire 5000 includes ALL American companies, including many with international exposure. Therefore, the full total Market Fund is free from the chance of underperformance.

Don't enter a tizzy, though, if your account doesn't provide a Total Market Fund. The Index Fund is really a legitimate substitute as the S&P 500 represents about 75% of the marketplace capitalization of the Wilshire 5000. The returns on both fund types are really close. Both have low expenses, plus tax efficiency as the annual distributions are minimal.

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