Well, I’ve gone and done it. I’ve created my own mutual fund that might rival what Vanguard can do in terms of expense ratio and taxability. Well technically it might not actually be a mutual fund, but functionally it accomplishes all that a mutual fund does, but I think it’s even better. I used my M1 Finance account to create a new “pie” that would be ideal for a taxable account. Here are the goals I set out to accomplish when creating my little “Go Catch Growth” fund.
No Expense Ratio
This “fund” has no expense ratio. I’m just holding all the underlying stocks at zero cost and with no ongoing maintenance cost. If I make a periodic investment, the buying algorithm will rebalance the portfolio. This is just how M1 Finance works. There’s no ongoing fees or assets under management fees like rivals Betterment or Wealthfront.
This M1 “pie” is held in a taxable account. I’m not just looking to minimize fees but also to minimize if not eliminate any unnecessary taxes. I did this by only choosing stocks that do not pay a dividend. Now I like dividends as much as the next guy, but dividend-paying stocks generate a bill at tax time if they’re not held in a tax-advantaged retirement account. To avoid a tax bill I constructed this as a “growth” fund. The goal is not to get quarterly income but to realize capital gains in the distant future.
I’d prefer not to put too many eggs in one basket so to me it made sense to diversify across 20 companies. Now to be fair these companies are mostly in the tech sector so the pie isn’t diverse from a sector perspective. But at least I’m not weighting any one company more than 5%.
Here’s where I stopped pretending to be a Wall Street investment banker and freely admit I’m no pro. The methodology I used to choose stocks was mainly going off of what I would call a fundamental belief these are companies that might do well long term. Studies have shown that a monkey can picks stocks as well as a Wall Street Investment banker so I won’t stress on this too much. Study after study shows these monkeys should probably be managing our portfolios.
Bogleheads know the value of keeping expenses to a minimum as fees and expense ratios eat away at your total return. A hidden cost that many don’t consider is the cost of income tax when stocks or a mutual fund distribute dividends. These dividends are typically taxable. These fee concerns motivated me to create my own mutual fund so to speak by means of a “pie” in M1 Finance.
Here’s what I created and why I think it may do well.
Some of the Companies I Picked
If you want to peek at all the stocks in the portfolio you can do so here. Here’s what the selection process looks like to add stocks to your pie:
I should mention, that while I’ve been investing for more than 22 years and consider myself to be knowledgeable about the topic, I’m not an actual financial advisor so these are just ideas and you should consult with a financial advisor before investing any money.
I’m an affiliate of M1 Finance and may receive a commission on new account signups.