Despite our emphasis on individual securities, we do feel mutual funds sometimes make sense for client portfolios. We occasionally recommend them for exposure to international markets, or to target particular sectors or countries. ETFs (Exchange-Traded Funds) are especially useful for this. We also recommend mutual funds for client portfolios that are too small to obtain adequate diversification from individual securities.

I. It enables us to personalize investment portfolios to better match the goals, tastes, and desired risk level of the client. For example, a client may favor a socially responsible portfolio that is tailored to exclude certain industries (e.g. tobacco).

II. We can focus more precisely on exciting growth opportunities, and react faster to those opportunities.

III. We avoid the significant fees embedded in all mutual funds (both load and no-load funds).

Annual mutual fund expenses average around 1.5% annually for equity funds and about 1.1% annually for bond funds. Mutual fund companies extract these fees from the fund portfolios before investment returns are calculated, so the fees often go unnoticed by investors.

IV. Individual securities are more tax efficient than mutual funds. Large capital gains can be deferred indefinitely, whereas mutual funds are required to pass along taxable capital gains distributions annually.
At Bon Investments, most of the investment portfolios we manage are predominantly comprised of individual securities. We select, monitor, and decide when to sell these securities for clients. We generally prefer investments in individual securities over mutual fund investments for the following reasons:
At Bon Investments, we contribute 5% of our net income to charitable causes annually.