With separate accounts and individual securities, we have the ability to customize a portfolio and investment strategy that’s tailored to you in a way that holding products like mutual funds cannot be. Let’s take a closer look and compare the two approaches side by side:
While there are mutual funds that earn their fees and can enhance an investor’s portfolio, there are downsides to holding a portfolio of investment products, including:
Higher overall fees. Many mutual funds carry management fees, administrative fees, and often one or more sales charges (front-end loads, back-end loads, and/or 12b-1 fees). Why can mutual funds be so expensive? Because most people don’t know what they are paying, and if they do, they have no idea what amount is reasonable. Mutual funds and other products are often expensive because they can be.
Tax inefficiency. Mutual fund investors share capital gains and income taxes regardless of how much they actually benefited from those gains. Because investors have no influence whatsoever over when something is bought or sold within the fund, they can’t plan for tax savings, including loss harvesting and limiting short-term gains.
Limited customization. Mutual fund managers can’t consider your other holdings, income needs and specific socially responsible objectives. And, mutual funds tend to be “one-size-fits-all” in part because the fund manager’s goal is to amass as much in assets as possible. Therefore, they often buy what is pleasing to most and “hug benchmarks,” meaning they don’t want to risk underperforming their benchmark (like the S&P 500) and risk losing customers.
Rather than using a mutual fund product, we prefer to invest directly in publicly traded securities. Investing this way has its advantages, including:
Lower overall fees. Our financial advisory fees are simple and asset-based: 1% annually or less.
Tax efficiency. Using individual securities increases the ability for tax savings, including loss harvesting and limiting short-term gains. Cadinha & Company works with you specifically to achieve what is most tax-advantageous to your unique situation.
True customization. We can consider your other holdings, income needs, and specific objectives including social responsibility. Cadinha tailors an investment strategy, as well as the assets in your portfolio, to your needs. And we focus on true performance rather than relative, market-based benchmarks.