Rational Advisor

Many people think that a mutual fund is passé. There is a negative connotation to having a mutual fund.

In essence everything in the world is a mutual fund

A mutual fund is a grouping of investments.

So, if you have a single stock like Royal Bank, what you have is a company with multiple business lines, - Retail banking, investment management, discount brokerage, investment lending, etc. What you have is a group of businesses (mutual) already wrapped up into one company (fund) - a mutual fund concentrated on financial services, that mutual fund happens to be called RBC. And yes, they do charge a fee, because they have to do audits of their books, they have to pay taxes, lawyers, custodians etc.

If you hold Berkshire Hathaway, you actually hold a group of companies (mutual) , Insurance (GEICO), soft drinks (Coka Cola), consumer products (Procter and Gamble) , candies (See’s Candy’s), weapons systems (Level 3), Bonds etc all wrapped up into one company (fund), managed by a manager Warren Buffett, aged 78. – You hold a diversified mutual Fund, with bonds and equities in it.

So, this whole thinking about “I don’t want mutual funds” needs to be revisited - virtually everything in the investment universe is a mutual fund.

These discretionary managers, like to play on the illusion, that they are different - “we don’t put you into mutual funds” - Well, if they put you into investments that have more than one stock in it, they have you in a mutual fund - multiple positions in one account. You can call it whatever you want – pooled, segregated, models etc. But, guess what they DID put you into a mutual fund!

Smart investors, don’t get caught up in mutual fund or not. What they want is to make sure they have an appropriate investment vehicle that will meet their financial objectives with the amount of volatility they can tolerate over the length of time they are intending to have it working.

What is important is
1. Financial objective
2. Time period of investment
3. Volatility and Risk toleration.

Whether it is a mutual fund or not does not matter.

So, get over it - Everything is a mutual Fund!

Rational

Comments RSS