Zivney, T. L. & Hoban,
J. P. (2001). In
defense of investing in individual securities.
Financial Counseling and Planning, 12(2), 23-31.
In Defense of Investing in Individual Securities
L. Zivney1and James
P. Hoban, Jr.2
papers have shown that very low turnover of assets within the mutual fund
is the key to high tax efficiency. In contrast, Constantinides (1984) prescribes
a nearly 100% annual turnover because tax law provides the direct investor
in securities with two valuable timing options. While a mutual fund investor
can sell a fund that has lost money for tax purposes, the option to sell
individual securities is more valuable than the option to sell an entire
portfolio. Simulation using 35 years of data confirms Constantindes’ predictions,
with higher terminal wealth from recognizing losses each year.
Key words: Index funds,
Individual investors, Investment, Portfolios, Stocks
L. Zivney, Maxon Distinguished Professor of Finance, Ball State University,
Muncie, IN 47306. Phone: 765-285-2198 E-mail: firstname.lastname@example.org
2. James P. Hoban, Jr., Professor of Finance, Ball State University, Muncie,
IN 47306. Phone: 765-285-5200 E-mail: email@example.com
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