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How we really feel about mutual funds
Mutual funds are valuable for providing (in some,
but not all, cases) broad diversification. Examples of this diversification
include broad access to U.S. stocks, to foreign companies, to large companies,
to small companies, or even to bonds. If selected with careful precision, they
can provide a one-stop shop for the do-it-yourself investor’s investment needs.
This is important especially if the investor is treading into a market in which
he/she is not comfortable enough to select individual securities. Mutual funds
are also convenient investment choices for 401(k) plans and 529 plans, where the
plan sponsor wants everything as streamlined and trouble-free as possible.
Finally, mutual funds make sense in small accounts, where trading costs can be
onerous in buying small positions.
But
consider what Monarch offers and what mutual funds don’t offer:
1. Accessible
portfolio managers. Customers can talk with us anytime to ask questions or seek
financial advice, and even meet with us face-to-face. Good luck getting a
mutual fund manager on the phone.
2. Personal
CFO service. Our customers have needs that go beyond investment management. We
can assemble all the right people and information to help you make the best
financial decisions. You’re the CEO of your life, and we can act as your
personal Chief Financial Officer.
3. Accountability.
We are directly accountable and responsible for the performance of our
customers’ portfolios. We don’t have the luxury of picking a bad fund, then
blaming the fund manager. Our customers know they can talk to us about
anything.
4. Objectivity
and Independence. We do not buy the stock of the day. We don’t have a special
relationship with a mutual fund family. We buy stocks with one intent in mind:
that they will perform well. By charging one simple fee, based on assets under
management, the only way we prosper is if you prosper.
5. Tax
management. Mutual fund investors generally have no control over the capital
gains taxes they must pay. Because mutual fund turnover is so high, many funds
even force short-term capital gains onto their investors, which are taxed at the
investor’s income tax rate. The worst deal for
fundholders is buying into a
fund after it has already performed very well (which many investors do, see
Mutual Fund Performance…Not
so Good). New fundholders can be faced with massive capital
gains distributions based on past performance that they never got to enjoy. At
Monarch, our attention to each customer, as well as our low turnover, allows us
to manage your capital gains tax bill to $0 if you want.
6. Customized
income. Mutual fund investors can buy into funds that have a stated yield level
on any given day, but whenever interest rates or stock prices move, yield levels
change. By owning bonds directly, our customers can lock in a specific income
level for as long as they own the bonds.
7. Customized
risk tolerance. Monarch can individualize risk to a customer’s tolerance
level. We want our customers to be able to sleep at night. This can be done
with mutual funds, but only after investors have done much research in
determining their risk levels. And then they must rely on the fund to not
change how much risk it takes. Our long-term customers know that our investment
philosophy has never changed.
8. Lower
fees. The “expense ratio” of the average stock fund expense ratio is now around
1.5%, and for the average bond fund, it’s around 0.9%. These figures are for
funds that charge no loads. If you buy a fund from a financial planner
or broker, you will likely pay another fee for their trouble.
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