Be Your Own Fund Manager

Folio investing gives you control over which stocks you own--and excellent tools for picking them

Remember a while ago when your supermarket seemed to put a new flavor of juice in the cooler each week? Instead of having to choose only between orange and grapefruit juice--by itself, enough to cause a fight in my family--suddenly you had Orange-Strawberry, Orange-Tangerine, Pineapple-Orange-Banana, and more, some with extra pulp, others pulp-free. It was all too strange for me, so I just stuck with plain OJ. But did I miss out on something better?

Similar confusion is flowing right now from Wall Street, where the flavors for investing your money are multiplying beyond standard brokerage accounts and mutual funds to "separate" accounts and exchange-traded funds, among others. Most striking, if you've tuned into CNBC, are the incessant ads featuring a tall, thin, very bald man and a black dog ushering us into a new world of "folio" investing. Folios are baskets of stocks that, like mutual funds, offer easy diversification. But because you own the stocks directly, you have better control over your returns--and the taxes on them--than in a pooled fund.

Tempting. But are folios more than a flavor of the week? And should you take a taste? After testing them, I'd say yes, and maybe.

Steve Wallman is the tall, thin, very bald CEO of FOLIOfn. (He has three dogs, but not the one on TV.) He also is a former Securities & Exchange Commissioner who has taken on a big job--"to change the way people think about investing," he told me. While FOLIOfn is first with folios, it's not alone. E*Trade plans a rival service, and Netfolio, led by What Works on Wall Street author Jim O'Shaughnessy, sees a March debut. "Mutual funds," he said, "are dinosaurs."

THE REAL THING. That's a silly sound bite. But FOLIOfn (, which I tested myself, and Netfolio (, which O'Shaughnessy showed me in a demo, are the real thing. Traditional brokers and fund companies had better watch out: These folio services are full of fresh, investor-friendly features and tools, such as Netfolio's deep database of company and market data, which investors can use to back-test all kinds of stock-picking strategies. They're flexible, allowing investors to pick stocks and build portfolios to taste. And for all but small investors, they're cheap: Basic service costs $295 at FOLIOfn and $200 at Netfolio, making them cost-effective for anyone with more than $25,000 to invest.

FOLIOfn has more ins and outs than I can cover, but here's my single favorite feature: the clear and full reporting of costs and performance. With a few clicks at FOLIOfn, investors can call up charts and tables showing the true returns, after fees, on their investments--what finance types call the "internal rate of return"--and compare them to benchmark indexes, or individual stocks and funds. Figuring this from today's typical brokerage statement is impossible, an ugly truth that Wall Street and its regulators should be ashamed of.

So the folio firms are on to something. But are they for you? Yes, if you enjoy spending time investing and don't mind doing it online. In a simple test, I compared investing $500,000 at FOLIOfn vs. index funds (table). FOLIOfn's fees are lower, but I estimate that most people would spend more time monitoring and tinkering with their folios. Also, some preset folios, including one with stocks of companies sponsoring NASCAR winners, struck me as goofy, and FOLIOfn doesn't yet offer a way into municipal bonds, a staple of taxable portfolios. It hopes to add one soon.

Since I'm eager right now to spend less time, not more, with my portfolio, I'm not ready to swap my funds for folios. Yet like indexing 30 years ago, folios have arrived on Wall Street as a better, if strange, idea. Take your time, but folios are worth checking out.

Questions? Comments? Send an e-mail to or fax (321) 728-1711

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