Buy and Hold! Did you know...

[TexasHusker]

I hear a lot of folks saying "I'm not a believer in trading stocks...I buy and hold mutual funds."

Did you know that the average managed mutual fund turns over about 85 percent of its portfolio per year? In other words, if they have 100 holdings today, a year from now only 15 of those will remain. At least according to Motley Fool. http://www.fool.com/School/MutualFun...s/Turnover.htm

So in an effort to buy and hold, we may be investing in funds where equities are being traded like Mardis Gras beads.

[disneysteve]

Did you know that the average managed mutual fund turns over about 85 percent of its portfolio per year?

Which is one of many reasons that we recommend avoiding actively managed funds and sticking with index funds. Very low turnover, more tax efficient, and far lower expense ratios.

[StormRichards]

I'm not trading my Mardi Gras beads. Had too much fun receiving them.

Anyway. I'm with Steve on this one. Index funds are the way to go as far as buy and hold goes. I've considered maybe doing some trading with a small percentage of our portfolio. Something DH and I could do together for fun to see how well we do.

[disneysteve]

I've considered maybe doing some trading with a small percentage of our portfolio. Something DH and I could do together for fun to see how well we do.

I've shared before that I do exactly this.

I have a small SEP-IRA that represents less than 1% of our portfolio. Every now and then, I get the urge to trade a bit and I use that account for that purpose. I've had some decent wins and I've had some disappointing losses. But since I'm using a small amount of money, it really doesn't impact the big picture either way.

[Nutria]

Which is one of many reasons that we recommend avoiding actively managed funds and sticking with index funds. Very low turnover, more tax efficient, and far lower expense ratios.

Of course... someone out there has to be trading individual stocks. Otherwise, liquidity would drop significantly!

[GoodSteward]

I'm currently looking into taking maybe 1k and learning how to invest on my own. I dare not try to use much, but I think it would be fun to learn. I know of a company I feel is going to go up more over the next year. Thinking of putting into that one.

[disneysteve]

Of course... someone out there has to be trading individual stocks. Otherwise, liquidity would drop significantly!

Very true. We say the same thing about new cars - if everyone stopped buying them there wouldn't be a steady supply of great used cars for us frugal folks to buy.

[TexasHusker]

Of course... someone out there has to be trading individual stocks. Otherwise, liquidity would drop significantly!

Yes, we couldn't do without the traders for sure! They are the market makers!

[Nutria]

Very true. We say the same thing about new cars - if everyone stopped buying them there wouldn't be a steady supply of great used cars for us frugal folks to buy.

Unless we drove them until they died...

[disneysteve]

Unless we drove them until they died...

True. We need folks to buy, or even better, lease new cars, and get rid of them in 3 years.

[StormRichards]

I've shared before that I do exactly this.

I have a small SEP-IRA that represents less than 1% of our portfolio. Every now and then, I get the urge to trade a bit and I use that account for that purpose. I've had some decent wins and I've had some disappointing losses. But since I'm using a small amount of money, it really doesn't impact the big picture either way.

The funny thing is I was thinking about the percentage and corresponding dollar amounts of what we might be comfortable with and "less than 1%" is what I came up with. I just posted that we surpassed $700k in retirement accounts, and the quick math to calculate dollar amounts was resulting in quick "NO"s. It is kind of funny because in the grand scheme of things 2% wouldn't have a huge impact on the end game. But I just don't view $14k as play money. Even $7k is more than I think we would be comfortable with.

Maybe $5k but even that is a hard sell in my own thought process let alone for both of us to agree.

[disneysteve]

I just don't view $14k as play money. Even $7k is more than I think we would be comfortable with.

Maybe $5k but even that is a hard sell in my own thought process let alone for both of us to agree.

Keep in mind it also depends how you deploy that money. If you are talking about taking $5,000 and going all in on a penny stock, that's a lot different than if you are going to take 2 or 3 positions in a couple of more established companies.

For example, I've traded some well known stocks like Ford, Bank of America, and Apple in that account, as well as some smaller and lesser known companies like Caribou Coffee and a couple of others. And unless you are extremely unlucky AND not paying attention at all, you're not going to lose the whole investment. Put a stop loss order on your positions to ensure you don't lose more than 10% or 15% or whatever you are comfortable with.