I met with a new client recently with a portfolio of solid, blue chip stocks. Knowing that we use mutual funds predominantly in building our portfolios, he asked the question, “Do you manage stock built portfolios the same as mutual fund ones?”
The answer was “yes” with some caveats. Before I discuss the similarities, let’s discuss philosophy. At HMC Partners, we are a fee-only firm so we charge fees for the management of assets versus being paid for transactions. We view assets as vehicles to drive rate of return and if that vehicle becomes an Edsel, we buy a more appropriate means of transportation.
We use mutual funds primarily because of the buffer a bucket of stocks provides especially since the last decade has been rife with volatility. We view stocks through the same viewfinder, as providers of return, expendable when their usefulness has passed.
The difference is that individual stocks that make up larger percentages of your portfolio can potentially make your investments more volatile and additional management would be suggested. Stop and limit orders should be considered to protect your portfolio should a stock drop or climb too precipitously. A sell stop order is an instruction to sell at the best available price after the price goes below the stop price.
If you have a stock dominated portfolio there is a chance your stocks fall in the large cap growth or value asset classification. This means that you may have less than recommended mid and small cap stocks and could be underweighted in sectors that make sense in any given moment.
So, your portfolio can be filled with appropriate mutual funds in those asset classifications where research is more limited and the inherent nature of the stock is more volatile.
Regardless if you have a portfolio of stocks, mutual funds or both, the key is active, proactive management. Neither should be viewed as “buy and forget” assets. In this quickly changing interconnected world, investments should be actively managed regardless of the type investment it is and viewed as expendable as yesterday’s newspaper.
*There is no assurance that the techniques and strategies discussed would be suitable for all investors or will yield positive outcomes. Stock and Mutual Fund investing involves risks including possible loss of principal.
*The opinions voiced in this material are for general information only and are not intended to prove specific advice or recommendations for any individual. To determine which investments(s) may be appropriate for you, consult your financial advisor prior to investing. Securities provided through LPL Financial. Member FINRA/SIPC.