Hi Karl,
Thank you so much for sharing your thought process when it came to working through your investment management preferences. I appreciate that you first considered your constraints (like time, control and education), then thought about your types of accounts (and if those posed any restrictions), as well as additional fees. This will ultimately help you decide in the next step: Selecting and Managing Your Investments - when we show you how to choose investments that fit your goals, risk tolerance, allocation strategy and investment management preferences.
I think you would get a lot out of attending our PRISM webinar tomorrow!
Here is a link to register if you are interested. Again, thank you so much for sharing, Karl. As you can see, each step of the PRISM process relies on each other to build a good framework - especially when you mentioned going through the four lessons of "I" and seeing how it relates to other aspects of the investment process.
Have a wonderful day, Karl!
------------------------------
Jenna Brashear
AAII Community Manager
Chicago, IL
------------------------------
Original Message:
Sent: 02-14-2022 22:23
From: Karl Markey
Subject: Identifying Your Investment Management Preferences: Lesson 4
For many things, I am a do it yourself type of person. I do not yet have the time or knowledge for individual stock selection and I am on the fence about whether I have the long term desire for that. However, my time and now (I think!) my knowledge is adequate enough at this point to make better educated decisions about what parts of what markets I want to have money in. This points straight toward making my own fund selections. A 401k has been my main path for putting away money but this does not pose a constraint for investment options. I realized that the 401k plan has access to a brokerage account and I now have the option of in-service roll-overs to accounts completely separate from the 401k. Risk does not play a role in whether I select or funds or individual stocks. I have a new outlook on 'risk' from some of the earlier lessons. I am OK with paying fees to portfolio managers to analyze and select stocks on the assumption I am getting more in return after fees than a random selection of stocks from the same market area. I won't pay a penny for front or back end loads. Division of money between pre-tax (non-Roth), Roth and HSA (also with available brokerage account) accounts does create a little inconvenience of balancing investments but does not affect my preferences.
After having worked through the 4 lessons so far in this step, what I am seeing for investment preferences simply reinforces what I worked on at the end of last year and early this year - a complete restructure of my investments into slew of funds broken down by market, market cap and growth/value. Selections were done using the mutual fund screener to generate a candidate list in each market area and then a look at the candidates' prospectus for some items. I now have much better visibility of what is doing better or worse in my portfolio and can compare that to what I should be expecting from the markets at this point. Maybe I jumped the gun on the PRISM schedule here but hey, enthusiasm.
------------------------------
Karl Markey
Original Message:
Sent: 02-10-2022 13:55
From: Jenna Brashear
Subject: Identifying Your Investment Management Preferences: Lesson 4
Reflect
Before you jump into diversifying your portfolio, you will want to understand the advantages and disadvantages of investing in funds versus individual securities.
Whether you are just beginning to build your portfolio or are looking to diversify an existing one, it's important to consider how choosing to invest in funds versus individual securities will impact your wealth management preferences – and vice versa.
For example, if you have time constraints (which you determined in the previous lesson) you may want to look at investing in funds where someone else takes the time to research and choose a group of securities. However, if you want more control and have enough time to research individual securities, you may want to choose your own stocks or bonds.
This is why identifying your investment management preferences is crucial before we begin the next section: "S" - Selecting and Managing Your Investments, where we will delve into how to choose specific assets for your portfolio.
Engage
If you haven't done so already, please complete the "Identifying Your Investment Management Preferences" worksheet, which assesses what type of investment management preference may be right for you.
View the infographic on choosing funds versus individual securities to see if your constraints impact your choice.
Then, participate in the below discussion to understand how other AAII members think when deciding between funds versus individual securities.
Participate
Complete the worksheet and answer these two questions in the discussion below:
- Does your portfolio comprise of mostly funds or securities and why did you go this route?
- What constraints you identified in the last lesson impact your decision to focus primarily on funds versus individual securities?
Discussion Example
- My portfolio is a 50/50 mix between funds and individual stocks. At first, I only had two ETFs and now I have mixed in individual stocks. I went this route initially because I did not have time to choose, research and watch individual stocks, which made me feel less confident that I would be able to give my investments attention.
- My primary constraints were time and wealth; therefore, I should put more focus on funds rather than individual securities such as stocks because bonds often need more capital/wealth to invest in effectively.
View and download the Identifying Your Investment Management Preferences worksheet
------------------------------
Jenna Brashear
AAII Community Manager
Chicago, IL
------------------------------