By John Drachman
Despite Covid-19, Wall Street has been having one of its “shooting the lights out” years.
Individuals and institutions just kept right on investing through the extreme volatility of September and October. Even the fall spike in coronavirus cases couldn’t keep investors out of the market. With the recent distribution of the first vaccines and growing confidence in an eventual Congressional agreement for a fresh round of fiscal stimulus, the buoyant mood has continued through December.
As always, the market’s proof is in its performance. For most equity mutual fund investors, 2020 looked likely to be a banner year for outstanding success – until they noticed what single stocks were doing.
Top 2020 mutual fund performers in December included Delaware Smid Cap Growth Institutional, Lord Abbett Growth Leaders F and American Century Focused Dynamic Growth Investor Class which turned in a resounding 81.8%, 69.4% and 68.0% respectively. Further down the list, Alger Large Cap Growth 1-2 delivered a category busting 61.6%.
However, all of that good mutual fund news is overshadowed by the skyrocketing performance of 2020’s best stock picks. Tesla stock for one has soared 735% since the beginning of the year – more than tripling in price since August. Other winners this month include Zoom Video, Moderna and Plug Power which zoomed to 504%, 698% and a stellar 827% respectively.
Should prudent mutual fund investors re-allocate part of their portfolios to good old-fashioned stock picks?
“If mutual funds are like the city bus, personalized portfolios of individual stocks are like chauffeured limousines,” says Forbes’ Chris Carosa. “You have your own specific needs and concerns. These can translate into practical strategies for your investment portfolio.” Benjamin Beck of Beck Bode, LLC adds that individual stocks can offer a more relevant degree of portfolio diversification. “Most funds have more securities than needed to diversify properly. This over-diversification ends up diluting future returns.”
In addition to providing greater potential for undiluted equity performance, allocating to individual stocks offers other benefits:
- Managing tax efficiency: Individual stocks put more trading control in the hands of the investor while mutual funds may saddle investors with unexpected tax liabilities on dividends and realized capital gains.
- Reliable income: Especially important to retirees, a dependable income stream may be more attainable through individual dividend-paying stocks than mutual funds.
- Sustainable investing: Placing a larger bet on a stock that reflects your values can deliver another kind of dividend: a sense of putting a personal set of beliefs into concrete actions.
- Pride of ownership: Shares of a single stock represent real interest in a business you own; a business that produces products or services, has patents, and is driven by senior managers you can elect – or reject – as a shareholder.
Even the most avid do-it-yourself investor though can benefit from having “a sounding board.” Before tackling single stock issues on your own, consider checking your investment ideas and assumptions with a licensed professional who can take the time to understand your goals and your comfort with volatility first.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.
