Mutual Funds: How Times Change

building a 401k

A lifetime ago when i first enrolled in my company's 401k plan, i was totally disappointed that my only choices were Mutual Funds.  If I had a choice, I would have wished that it allowed us to buy and sell individual stocks in the 401k.  Now years later I am not even teaching about  investing in individual stock selection  etc and focusing on Mutual Funds  and   IRA's 401K's.  Now it helps to  understand  stock and bond basics   because   Mutual Funds invest in these,  but  not how to choose and individual stock.

Why this change.  Because the playing field has changed in investing in the stock market. 

Sophisticated computer programs buy and sell within  seconds  or nano seconds based upon the market.  Plus think about it ... for every buyer there is a seller... so you are right only about 50% of the time on average.
Getting it right is a challenge even for individual sophisticated day traders  ( individuals who buy and sell stocks all day).  I don't think any of us has this as our full time  job.

Not that there is anything wrong with buying and selling individual  stocks but do you have the time to do all the things  you need to do to be an expert.  And, if your listening to someone else's advice then you still aren't really doing the research either. 

 I still own an individual stock portfolio in although a lot less than  I own in mutual funds. and of all the numbers and calculations in chapter 12, the only one I really use is dividend yield  pp322 12b .   Why? I want to project my income from these holdings.  Then as I am older I am more concerned about income than growth so that  this may not be the  best tool for you to use to evaluate stocks.  

The most useful part of chapter 12  (last week  )are  the charts on page 316 and 317.  If you truly understand the DB posts  from last week and this..  Are you read to invest ?  Risk and Wealth Triangle  then  you should be able to figure out  where to  invest.

I am showing my prejudice here but  the book  shows all kinds of fancy financial calculations  and almost nothing on choosing the  right funds for your retirement account?  For an investment that is likely to be your largest or 2nd largest after you home  investment ever?  Spend more time buying a phone than good investments? YIKES!  The numbers can be calculated by someone else  understand  the  concepts  and you will make better choices. 

Every analysis you see says the same thing.  In the long term Asset Allocation and Diversification will make you successful so weeks 13 and 14 are really designed as follows

Week 14  Understanding your 401 k plan or IRA itself ,   Understand mutual funds and whats in your plan or will be some day .

Week 15  figuring out how  much you need for retirement and looking at an asset allocation and diversification strategy that might be right for  you.     

Will you be the carton the left or on the right? Or neither and be like your professor who didn't wait until 65 to retire.