FOLIOfn: Giving Mutual Funds a Run for Their Money?
by Sharon Rockey, Contributing Writer
If you are an Index Fund investor, you appreciate the lower cost of investing
in passive funds versus the high costs of owning actively managed mutual
funds. You like the long-term growth and the even keel of investments that
outperform mutual funds over time. And you're probably not remotely
interested in making all the decisions necessary to create your own portfolio
of "winning" stocks.
Maybe if it weren't for all those additional fees and broker commissions, you
might consider owning your own personal portfolio of stocks, picking and
choosing, managing it all yourself, . . you know . . having a little more fun.
But that takes a lot of research, it requires constant vigilance, and it's only for
those with financial savvy and money to burn. . . Right?
Not exactly. Enter FOLIOs, an investment vehicle that allows you to
customize and manage your own portfolio of stocks for a price well below the
cost of purchasing stocks individually.
For a flat annual fee of $295, or a monthly fee of $29.95, investors can
purchase a group of securities in a single transaction by choosing from a
number of "Ready-to-go" FOLIOs -- stocks selected and arranged by market
sectors or risk levels -- or by using tools provided to build their own FOLIOs
from scratch.
Leading the charge in this low-cost, do-it-yourself investing is FOLIOfn, a
company founded by CEO Steven Wallman, former Commissioner of the
U.S. Securities and Exchange Commission.
In a recent on-line chat, Wallman was asked to compare FOLIOs to standard
fund investing. "Mutual funds, especially low cost index funds, can be great
investments for those who do little or no trading and have smaller amounts
to invest," he said, "especially if there is little concern for the specific stocks
(like tobacco or no tobacco) that the investor is purchasing."
In other words, index funds have great advantages for those passive investors
who have no interest in having precise control over where their money is
invested. If you think charting your own course might offer a little more
zing, take a closer look and see if FOLIOs are a risk worth taking.
FOLIOs were created to combine the diversification benefits of typical funds
with the advantages of having control over fees and taxes, and the
personalization of direct stock ownership.
Diversification is possible because of the broad range of "Ready-to-go" FOLIOs
including: Major Market FOLIOs which provide broad-based exposure to
major markets - the FOLIO 50, for example, holds the 50 largest stocks in the
S&P 500 Index; The Global FOLIO includes U.S. and international stocks; or
if you prefer, choose a selected portfolio of up to 50 stocks from categories like
Sector, Geographic, Social Issues, Wall Street Analysts, Bond, Media
Favorites, and others. You may have a total of up to 3 separate FOLIOs.
The FOLIOfn website at www.FOLIOfn.com provides plenty of investor
education and support in an easy-to-understand and non-intimidating
environment. There are research quarterly sector reports and company
research reports, along with risk questionnaires designed to help you evaluate
which investments are best suited for you.
With point and click purchasing, the "Ready-to-go" FOLIOs can be bought "as
is" or just considered starting points since the site allows total customization
of each group of securities within the FOLIO. Or you can skip the tailor-
mades and go straight for building a FOLIO from the ground up one stock at a
time up to 50 stocks. Which ever option you choose, you can invest in or
modify as often as you want - up to twice a day everyday with no minimum
investments.
FOLIO investing has obvious benefits over mutual fund investing. Investors
may manage their FOLIOs anyway they choose. FOLIOfn's tools provide
benefits like tax planning support. Shares can be automatically sold in order
to keep taxes low or to meet other tax planning goals. Selling a stock from a
FOLIO at a loss could still result in a capital loss even though the value of the
whole FOLIO has increased significantly. After a sale or purchase, hitting the
Rebalance button triggers the FOLIO to automatically rebalance. These
features are all bundled into the same flat monthly fee of $29.95 along with
all the trading you like in twice daily windows of up to 3500 different stocks.
Details of each stock in a "Ready-to go" plus the criteria FOLIOfn used in
choosing each one and information about how often they are replaced are
included with each FOLIO. A Holdings page allows investors to monitor and
sort accounts using various criteria and to view the tax details of all their
holdings, both FOLIO and non-Folio.
Just how deeply has Wallman penetrated the investment world with his
concept? From the recent flurry of press releases, it appears FOLIOs have
considerable traction and are gaining momentum. Not only has acclaimed
financial writer, James Glassman former columnist for the Washington Post,
joined forces with FOLIOfn as a Chief Columnist, the list of impressive
strategic alliances formed in recent months has been grabbing attention.
CNBC.com now allows the 1.5 million people using their Portfolio Tracker
tool to instantly buy their stocks at FOLIOfn.com. The partnership also
includes content sharing, FOLIOfn-specific message boards and joint
promotions. A FOLIOfn alliance with WR Hambrecht & Co. makes IPOs
more accessible to the broad public as investors begin using FOLIOfn to
research and buy shares of companies offering stock to the public for the first
time.
CUNA Mutual, a leading provider of financial services to credit unions is
now offering FOLIO investing to members. Advent Software, providers of
Advent Office, a portfolio accounting and management system licensed by
more than 6,000 investment management firms has struck a deal to create an
interface between Advent Office and FOLIOfn.
It's clear that there is a growing FOLIO allure. And the FOLIOfn website offers
you just about every related service you could want, including a cost
calculator that lets you compare the costs of owning FOLIOs versus mutual
funds.
But take a step back before you make the leap, look at the big picture, and
proceed with educated caution. When trading becomes this trouble free, it's
easy to focus on low monthly flat fees and forget the consequences and
hidden costs of frequent trading -- costs like inherent price spreads between a
stock's bid and ask price, and slippage - the cost between the best price
available at the time the order is placed and the price when the order is
actually filled.
Is FOLIO investing destined to be the demise of mutual funds? Will anything
ever consistently outperform the old tried and true investment strategy of
"buy and hold?" Do your homework and then decide what's best for you.
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