Building Your Ideal Mutual Fund

Summary

Designing a personal mutual fund allows you to control your investments, minimize fees, and maximize returns. By selecting 12-15 companies with a strong history of dividend growth, you can ensure a steady income stream. This approach eliminates unnecessary fees and focuses on long-term growth. Learn how to build a fund that works for you, not against you.

Key Features of the Perfect Mutual Fund

• Diverse Yet Focused Portfolio:

  • Aim for 12-15 companies.
  • Ensure each company has a history of increasing dividends for at least 8 years.
  • This strategy provides diversification and regular income.

• No Hidden Fees:

  • Avoid management, commission, and advertising fees.
  • Every dollar invested should contribute to your return on investment (ROI).

• Regular Investment Plan:

  • Add to your holdings quarterly.
  • Use dollar-cost averaging to buy shares at varying prices.
  • Reinvest dividends to increase your share count without extra fees.

• Dividend Growth Focus:

  • Companies should consistently raise dividends.
  • Lower stock prices can increase dividend yields, enhancing income.

Why Build Your Own Fund?

Pros

• Control and Transparency:

  • You decide where your money goes.
  • No hidden fees or unexpected costs.

• Potential for Higher Returns:

  • Focus on companies with strong dividend growth.
  • Reinvest dividends to compound returns.

Cons

• Time and Effort:
  • Requires research and ongoing management.
  • Not as hands-off as traditional mutual funds.

Alternative Perspectives

Traditional Mutual Funds

• Pros:

  • Managed by professionals.
  • Diversified across many sectors.

• Cons:

  • Often come with high fees.
  • Less control over individual investments.

Exchange-Traded Funds (ETFs)

• Pros:

  • Lower fees than mutual funds.
  • Trade like stocks, offering flexibility.

• Cons:

  • May not focus on dividend growth.
  • Still subject to market volatility.

Interesting Stats

• Dividend Growth: Companies that consistently increase dividends have historically outperformed those that don't. According to a Ned Davis Research study, dividend growers and initiators have returned an average of 9.6% annually from 1972 to 2018, compared to 2.4% for non-dividend payers.

• Fee Impact: A Morningstar report found that high fees can significantly erode returns over time. A 1% fee can reduce a portfolio's value by 28% over 35 years.

Conclusion

Building your own mutual fund can be a strategic way to manage your investments, focusing on dividend growth and minimizing fees. While it requires effort and research, the potential benefits of increased control and returns make it a compelling option for many investors. For more detailed guidance, consider resources like "The Stockopoly Plan" for step-by-step instructions.