Guessing Game

ALL THIS MARKET turmoil has me thinking about my portfolio—and the things I’m a little hazy about.

One of my stock mutual funds just paid me a capital gains distribution of more than $5,000. I sure wasn’t expecting that. In fact, I wasn’t expecting any capital gains this year. It seems the net gain on the sale of individual stocks within a mutual fund are distributed to shareholders, no matter how the overall fund has performed. It was an a-ha moment for me, but I bet most HumbleDollar readers already knew about such things.

A friend recently asked if I owned any Apple or Tesla stock. My instant reply was no. But that wasn’t accurate. I looked at the top 10 holdings in one of my mutual funds, and both of those stocks are there. So are Chipotle Mexican Grill and dozens of other well-known companies. Who knew?

Actually, I did know, or at least assumed, that large companies would be in a large-cap mutual fund, but I never gave it much thought. When I checked the holdings of my other mutual funds, I found I owned the same stocks but in different proportions across my various funds.

One fund calls itself “balanced,” another “large-cap value” and a third “total stock market index.” Oops, there’s a “large-cap growth index” as well. Am I a major Apple shareholder? I wish.

It would appear I’m not as diversified as I thought. In my defense, there are significant differences in my funds’ investments when you go further down the list of holdings, and I also do hold various bond funds.

Am I a skilled investor? Not even close. Am I an obsessive saver? You bet. Devoting more time to investing might—I emphasize “might”—have given me a higher net worth. But along with my pension, it’s been saving every month since I began working in 1961 that’s assured my financial security and, I hope, a legacy for my family.

When it comes to investing skill, or the lack thereof, I bet I’m more typical than not. When I managed 401(k) plans, I monitored the investment choices of the 11,000 participants. With few exceptions, it appeared that throwing darts at the list of investment options would have rendered better results. Many employees who owned a target-date mutual fund—which is meant to provide a complete portfolio in a single fund—also owned several other mutual funds. Other employees had all their money in company stock.

I’m guessing the reluctance of many Americans to invest is due to both fear of losing money and the complexity of the process. Not investing is a shame because it takes very little to get started. Opening an account for your children, and then funding it with birthday gifts, babysitting money or whatever, can pay lifelong dividends—no pun intended. Yet, as of 2019, just over half of Americans (53%) directly or indirectly owned stocks, according to the Federal Reserve’s Survey of Consumer Finances.

I can hear the wheels turning. Why hasn’t this guy used an investment advisor? I could make up several excuses. But I suspect the truth is, I’ve always been too cheap. When I recently consolidated all my investments with Fidelity Investments, I asked about hiring an advisor. I was quoted a fee of about 1% of assets. My internal calculator instantly rejected the idea. We’ll never know if I made a mistake.