Folio News

Mutual funds…give the small investor what large investors always could afford: professional management and diversification. [FOLIOfn’s] variation on this invention is to let the investor hold widely diversified portfolios directly…[A] single mouse click can create a simultaneous buy or sell order for all stocks in the portfolio. [This innovation] offers two things to the small investor. One is that it cuts costs dramatically. The other thing is that direct ownership of stocks has a big tax advantage. A computerized portfolio [allows you to] pluck [losing positions] out for sale, giving you a capital loss to claim on your tax return and leaving the winners undisturbed. Treating the market like a lottery is a loser for most people, most of the time,…[FOLIOfn] hopes to make the market a lot better for them. Meaning, make it more efficient for the little guy, giving him some of the advantages of exceedingly wealthy and institutional investors.

As a separate matter, please note: Although we were obviously extremely pleased to be selected as one of the fifteen people and innovations that will reinvent the future, we once again find ourselves unfortunately being portrayed, as happens too frequently, as wanting to “rip-up” the mutual fund industry. Of course, that is not the case. In fact, FOLIOfn currently works with many mutual fund companies, has two mutual fund companies or affiliates as an investor in FOLIOfn, and is building more relationships with the mutual fund industry. As should be clear, the FOLIOfnplatform complements extraordinarily well the investment management expertise of mutual fund companies, allowing fund complexes to offer both separate managed accounts though our system at far lower costs than they otherwise would incur through traditional platforms, as well as other innovations such as folios of funds. Due to the misimpression in the article, we have written a letter to the editor of Forbes requesting a correction.

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FOLIOfn’s core product, FOLIOInvesting, is offered to retail investors through the Web. Investors can build their own portfolios of one to 50 stocks, or choose from over 100 pre-selected portfolios as a starting point. With either option, customers can sell or add stocks to their portfolios as often as they wish. The service provides 500 commission-free trades a month (further trades incur a commission of $1 each). Trades are aggregated and executed during two windows per day.

FOLIOfn provides a number of sophisticated automation features, including automated portfolio rebalancing and tax-lot tracking software to help determine the tax impact of trades. One of the strongest selling points of custom portfolios is greater control of tax consequences compared to mutual funds. The tax-lot tracking feature gives customers the ability to maximize this benefit by enabling them to monitor tax consequences on an on-going basis.

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Sharebuilder likes to say it appeals to buy-and-hold investors who aren’t interested in bailing out. The past two-and-a-half years have tested the patience of the best of them. Consider an investor who held Enron in his Sharebuilder account.

The second negative is that Sharebuilder buys only once a week, on Tuesday mornings. So if you place an order on Wednesday, it’s not filled until the next Tuesday.

So here’s what it amounts to: You can get a round trip (a buy and a sell) at Folio for $8, and your trade will be made during one of the two daily windows. A round trip at Sharebuilder is $19.95 and there is a window only once a week.

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Sharebuilder.com, for example, offers $4 commissions, but only for buy orders. Customers selling shares have to pay a fee of $15.95. FOLIOfn customers can buy and sell for $4 a trade.

“Without being able to sell, you really do retract a lot of the benefit of having a low-transaction-cost buy,” Wallman said in a telephone interview.

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