Transitioning from Mutual Funds to Your Own Growing Portfolio


Like most people you probably have an existing portfolio made up of mutual/index funds, GICs, bonds, and/or term deposits. Long-time readers will know the benefits of investing in dividend stocks and creating your own stream of growing passive income. So, how do you go about transitioning from mutual funds to building your own portfolio?

The transition is going to take time, so don’t rush anything. It took me almost 3 years to completely get rid of my mutual funds and build a stock only portfolio. I would say give yourself at least 12-24 months.

You also need to build your confidence when investing on you own. The time it takes to build confidence is going to be different for everybody. Start small, by buying a few stocks, keep most of your mutual funds in the beginning. Monitor the performance of your stocks and watch as the dividends start to roll in. Slowly over time start selling your mutual funds and start buying more stocks. Some people like to do this all at once and have transitioned everything in less than a month, but for most people I don’t recommend that strategy.

Here are some guidelines to help you get started:

1. Do not put any new money into mutual funds. The only exception here is Money Market mutual funds that you can use as a parking spot for your money to accumulate until you have enough to buy stocks.

2. If you participate in a company 401K/RRSP plan have them put your contribution and the company’s contribution into a Money Market fund or leave it as cash.

3. Wait for all your GICs, Bonds, Term Deposits to mature (when the term is up) then take the cash and buy dividend stocks with it, or put it in a Money Market Fund again as a holding spot.

4. If you have any Mutual Funds that have gone up in value since you bought them, sell them and take your profits while you can. This money can go into quality stocks.

5. I hate selling investments at a loss. So any Mutual Funds that are worth less than you paid for, you could hold onto them until their price rises. 3 things to consider here:

i. Your mutual funds may never come up in price, at which point you may have to sell at a loss.

ii. When the markets go up (and they will), you’ll see headlines in the new like “Dow up 8% in one day”, “Market at highest level since March 2017”. Then it might be time to sell the mutual funds. You may still have to sell them at a loss, but the loss will be minimal.

iii. If you sell the mutual funds when the markets are low (not a good time to sell), you’ll be able to allocate that money into stocks since they’ll be priced low too (a good time to buy). So you have to make a judgment call here. It’s kind of like selling your home; do you sell when prices are high or sell when prices are down? If you sell your home high, great you’ve made a big profit but now you have to turn around and buy your next home which will also be priced high too.

7. Give yourself 12-24 months at least to start building a solid dividend portfolio. You want to buy stocks when they are undervalued but at any given point not all stocks will be undervalued (priced low). In my experience different industries get depressed at different times. For example, when oil stocks go down, you may want to buy some oil stocks, then in a few months or in a year the financial stocks are down, you may want to buy some financial stocks. Take your time and only buy quality stocks when they are undervalued. It takes time to build a solid diversified portfolio.

The key is to buy quality dividend paying stocks when they are undervalued, I use my 12 Rules of Simply Investing to help me find good stocks with a history of growing dividends.

Avoid paying Mutual Fund fees, and create your own stream of growing passive income.

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