At GHP Investment Advisors, our investment philosophy is rooted in long-term fundamentals, disciplined portfolio construction, and thoughtful risk management. One of the most common questions we receive from clients is why we often favor individual stock portfolios rather than relying exclusively on traditional mutual funds.
While mutual funds can play an important role in certain situations, we believe individual stock ownership offers several structural advantages, particularly when it comes to control, transparency, tax efficiency, and cost.
When you own individual stocks, you own the underlying companies directly. That distinction matters.
With mutual funds, investors delegate security selection, position sizing, and trading decisions to a portfolio manager whose objectives may not fully align with their own. Holdings can change without notice, sector exposures can drift, and risk concentrations may emerge beneath the surface. By contrast, individual stock portfolios allow for precise control over allocations. We can deliberately size positions, manage sector exposure, reduce overlap, and ensure that every holding serves a clear purpose within the overall strategy. If a company’s fundamentals deteriorate, valuations become excessive, or better opportunities arise, we can act decisively, without being constrained by fund mandates or forced turnover
One of the most overlooked drawbacks of mutual funds is their embedded tax structure.
Even in years when a mutual fund posts modest, or even negative, returns, investors may still receive taxable capital gain distributions. These distributions occur when fund managers sell holdings inside the fund, and the tax liability is passed along to shareholders regardless of when they personally invested or whether they sold any shares.
With individual stocks, taxes are driven primarily by client-specific decisions, not the actions of other investors in a pooled vehicle. Gains are generally realized only when positions are sold, allowing for greater flexibility in managing timing, harvesting losses, and coordinating with broader tax planning strategies.
Another key advantage of individual stock portfolios is cost efficiency.
Most mutual funds charge an annual management fee, often referred to as an expense ratio, which is deducted automatically from the fund’s assets. While mutual fund expense ratios have declined meaningfully over the past several decades, costs still add up. According to data from the Investment Company Institute (ICI), the average equity mutual fund continues to charge approximately 0.40% points annually. When combined with a 1% advisory fee, an investor invested solely in mutual funds may be paying closer to 1.4% in total portfolio costs.
With individual stocks, there is no embedded management fee at the security level. Investors are not paying an ongoing expense ratio for portfolio turnover, internal trading, or fund administration. This structure allows more of the portfolio’s return to remain invested and compounding over time.
We believe costs matter. Minimizing layers of fees is a critical component of long-term wealth accumulation, particularly when combined with disciplined portfolio management and tax-aware decision-making.
Mutual funds report holdings with a delay, and the full picture can be obscured by internal reallocations or turnover. Investors may know the fund’s name and general category, but not always the true drivers of risk and return.
Individual stock portfolios provide complete transparency. Clients can see exactly what they own, why they own it, and how each position contributes to the overall portfolio. This clarity fosters better understanding, stronger conviction during market drawdowns, and more productive conversations around risk and expectations.
No two investors are identical. Tax situations differ, income needs vary, legacy holdings matter, and personal circumstances evolve.
Individual stock portfolios allow us to customize around existing positions, manage concentrated holdings, incorporate tax-loss harvesting, and tailor income or growth objectives more precisely. Mutual funds, by design, apply a one-size-fits-many approach that may not fully reflect an investor’s broader financial picture.
This does not mean mutual funds have no place in a well-constructed portfolio. In certain asset classes, account types, or diversification strategies, they can still be effective tools.
However, when it comes to building core equity exposure, particularly in taxable accounts, we believe individual stock ownership offers meaningful advantages. Greater control, improved tax efficiency, lower ongoing costs, and enhanced transparency align closely with our commitment to disciplined, client-focused portfolio management.
As always, our focus remains on long-term outcomes, prudent risk management, and aligning investment strategy with each client’s unique goals.
Top Row L to R: Brad Engle, Mike Sullivan, Sebrina Ivey, Christian Lewton, Jason Kitner
Bottom Row L to R: Carin Wagner, Angela Kennedy Lee, Jenny Merges, Brian Friedman, Deirdre Mcguire, Barbara Terrazas, Reed McCoy