I have repeatedly said on this show that I prefer investing in funds than individual shares. But recently, iTunes reviewer CF040PV called me out and said that I had never really dealt with the reasons why this is my preference.

 

 

 

 

 

Never one to shirk a challenge I immediately began writing this session. The short version: in 16 years of financial planning, I can count on one hand the number of people who can keep up to the demands of a share portfolio and make it work for them. And in every case these are people who were already wealthy – the shares were just for fun.

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My experience with shares

So, shares vs funds. In my 16 years of advising clients on their investments, these are my observations of how people deal with shares:

1. Most people have no strategy for the shares they buy
2. Most people with share portfolios have very concentrated risk
3. Most people with share portfolios fail to deal adequately with the paperwork and complain about it all the time
4. Many people hold shares for sentimental reasons, against their better judgement

These are just four of the reasons I dislike investing directly in shares – there are more!

Why I think investing in funds is better than holding shares directly

There are so many benefits to investing via a fund rather than buying individual shares directly:

1. Diversification
2. Reduced administrative burden
3. Expert investment management or betters till, passive spread
4. Risk Management
5. Access to higher-level investments
6. Capital Gains management

I know that I sound very much against investing directly in shares here, but for the right people it can work. I covered the hows of getting it right back in session 54. There are pros to investing in shares, just as there are cons. But hopefully I’ve answered the constructive criticism from CF040PV on iTunes that I haven’t explained why I have a preference for investing in funds.

Ultimately, this is the point: far too many people approach investing in a haphazard, not-thought-through way. Most people who own shares invest this way. Investing via funds can brings an element of discipline and structure to the process, which can only be a good thing.

What do you think, have I convinced you?

Session Resources

• Session 41 – Building an Investment Portfolio
• Session 10 – Asset Classes
• Session 46 – How to Organise Financial Paperwork
• Session 54 – Investing in Shares

Transcript

Click here for a sort-of complete transcript of this week's show. Opens in new window.

This week's iTunes reviews

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