AT LOOSE ENDS DURING the summer of 1967, when I was between college graduation and the start of my psychology training, I chanced upon a book by Sheldon Jacobs. An early advocate of no-load mutual fund investing, Jacobs’s book and his subsequent No-Load Fund Investor newsletter provided my market mantra until exchange-traded index funds (ETFs) started taking off circa 2000.
Buying directly from the fund company, and thereby bypassing brokers and their upfront 8.5% commission, was a roguish development in the notoriously button-down mutual fund community. Just toss a check in the mail and—voila—you owned shares in a stock portfolio. To a nerdy introvert with a knack for numbers and a hankering for money, it seemed like a miracle.
It wasn’t long before I traded my RollingStone magazines and conspiracy books on the Kennedy assassination for Barron’s and The Wall Street Journal. I purchased a subscription to The Growth Fund Guide, a market glossy that followed the performance of 10 or so no-load mutual funds. Alongside each written description was a graph plotting the progress of the fund over the past year. All the lines sloped from the bottom left to the page’s upper right corner. One in particular looked like it was laced with testosterone. It belonged to the Janus Fund, and so began my whirlwind tour as an unknowing momentum investor.
In my family, the road to manhood was paved with money, and I felt pressure to prove my worth. I set aside my interest in mutual funds and turned my attention elsewhere. Options became my solution for making it big and in a hurry. But anxious to avoid large losses, lest I become a family pariah, I often set my stop-loss orders perilously close to the current price and would be taken out by an innocuous dip.
A friend once told me that my anxiety and manic tendencies were a poor fit for options trading. He was, of course, right. Fortunately, I was an impoverished student back then. My dollar losses were modest, even if my percentage losses weren’t, and I managed to walk away with more damage to my ego than to my wallet.
A few years later, I found success investing in rental properties and became less haunted by the family mandate. I also reconnected with my old friend, the mutual fund, this time as a growth-at-a-reasonable-price investor. But I was disenchanted by the bear market of the early 1980s.
I still remember a memo that John Neff, manager of the storied Vanguard Windsor Fund, wrote to his fellow portfolio managers on a particularly harrowing day: Don’t be afraid to buy. I was struck by the courage and confidence of the message, which influenced my gradual transition to becoming a value investor. As I grew more aware of my counterproductive need for excitement, I was able to make the leap from youthful impulsivity to long-term investing—a strategy I had once mocked as pedestrian.
When I returned to mutual fund investing, index funds were still a revolution in the making. If they’d been around, I would not have beaten them. In the venerable Forbes mutual fund rating system, I would likely have been a B- investor in both up and down markets. What if, from my 1967 introduction to investing, I’d simply stuck with almost any plain-vanilla fund that averaged 10% annually? I would have earned an A+ on my financial scorecard.
Over the decades, I’ve given myself much grief for sacrificing the bottom line in my quest for parental approval and market-beating returns. I can’t say I’m at peace, but I’ve come a long way. As the British poet William Henley wrote in 1875, after amputation of his infected left leg, “My head is bloody, but unbowed.”
The ETF wave that formed about 20 years ago carried me along with it. I have been an avid participant and need not recite here the many advantages over the flat-footed mutual fund. But today, at 77 and beset by the infirmities of old age, I am approaching the time when the race is over and the baton must be passed. I want to leave my wife and son a portfolio that suits their needs.
All this nostalgia and self-reflection has led me back to my trusted companion, the much-maligned mutual fund. My wife Alberta has been schooled in how they function and their idiosyncrasies, and feels more comfortable managing them than she would eyeballing a list of ETF symbols with prices blinking every five seconds on a blue computer screen. She won’t care for real-time trading and she’s certainly not going to be placing any stop-loss orders.
What she will require are automatic investment and withdrawal privileges, along with no bid-ask spreads. I want her to have access to the assistance and free advice of phone reps, and I’ve found such help more on offer for mutual funds than ETFs. After I’m gone, Alberta will have enough in her life to contend with, and shepherding her liquid assets should be as simple and free of worry as possible.
The search for funds has always been a joy for me, and I already can hear the clarion call of one that may provide the core. Vanguard Total World Stock Index Fund (symbol: VTWAX) offers cheap exposure to domestic and foreign markets, and will remain broadly diversified even after Alberta raises cash or makes an investment. So, yes, 55 years on, I’m back to owning mutual funds. Often, what appears to be the end is also a new beginning.
Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve’s earlier articles.