Investing in the stock market can be a confusing and stressful venture if you don’t understand the game. A lot of people look to mutual funds as a way to own stocks and reduce their overall risk. Through research and my own experiences, I decided that mutual funds were not the best vehicle for maximizing my long term wealth. Here are the reasons why I sold most of my mutual funds and bought individual, dividend growth stocks instead.
Control over My Own Investments
I like having control over what I invest in. As I made the move from passive to active investor, I began choosing the securities I felt were right for my personal financial goals. With mutual funds, you’re stuck with investments the fund manager deems appropriate. Even if you are comfortable with the fund’s prospectus, certain stocks are subject to elimination if the manager reallocates securities. Such an action may or may not prove advantageous for the overall value of the fund. I am more of a long range investor and prefer only to sell stocks based on my own strict criteria. For me, quality dividend growth stocks are powerful, income producing investments not to be traded at the whims of short term market fluctuations.
No Annual Fees
Most people don’t read fine print. Mutual funds normally charge various fees that can be overlooked by the average investor. These fees are guaranteed to erode wealth over time. Funds charging as little as 1% can translate into thousands of dollars of lost income over a 20 year period. When I buy individual securities, I only pay a one-time brokerage fee. Depending on which brokerage firm you use, this amount is usually low. As my own fund manager, I pay no other fees to hold the stocks in my portfolio. Eliminating this burden puts more money in my hands to purchase additional shares of dividend growth stocks. The more shares I own, the greater my dividend income flow becomes.
Predictability is hard to come by in the stock market. When I invest in high quality companies, I know what I’m getting. Most of my investments are with Dividend Aristocrats that have increased their dividend payments for at least 25 consecutive years. When corporations such as Coca Cola, Johnson and Johnson, and Chevron announce a dividend hike, my annual income is virtually assured. I don’t have the same consistency with mutual funds. Most offer semi-annual or annual distributions that are often uneven from year to year. It’s a lot easier to budget and forecast income growth with a steady and reliable stream of dividend payments.
If you’re looking to minimize exposure to mutual funds in your portfolio, consider dividend growth stocks as a replacement. Remember to always conduct your own research before deciding on the plan that’s right for you. Investing should be tailored to your overall goals and level of risk that you’re willing to endure.
I am not a professional financial manager, just someone interested in taking charge of my own money. Please conduct your own research before investing.
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