Folio investing: Your fund manager is you

Folio investing is on a roll.

Just ask Gene Walden, one of the leading experts on this approach, which allows investors to create their own customized, low-cost stock portfolios.

Folio investing began in earnest only a few years ago. Today, many investors who poured assets into discount brokerage or mutual-fund accounts in recent years are shifting into folio accounts.

The numbers are not huge – yet. But folio investing is "now the fastest-growing sector of the brokerage industry," says Mr. Walden.

He guesses that less than $1 billion is currently invested in folio accounts. Aggregate figures have not yet been tallied. But the growth in the number of companies that offer folios suggests that more and more investors are using this investment tool.

Walden, a popular investment writer who pops up frequently on TV and radio, explains folios in detail in his new book, "The Folio Phenomenon" and on his website, www.allstarstocks.com.

Here's how they work: Suppose you have $4,000 to invest in the market. You turn the money over to a folio provider and request that it be split equally among, say, 40 stocks of your choosing.

This way "you don't have to settle for just having five or six stocks, because of costly commissions," Walden says. Instead, that money could be spread over hundreds of firms.

Folio companies charge annual fees of as little as $150. "At a typical full-service brokerage house, that $150 would have bought you, at most, maybe two stock purchases," Walden says. "Here, you get up to 500 or so trades for your money."

In picking your stocks, you will, of course, be on your own. "The investor is responsible for the research and selection," Walden says.

In the case of a mutual fund, a fund manager picks the stocks. In the case of a managed account with a brokerage firm, a broker advises you what stocks to buy and sell while presumably monitoring the account over time.

Currently, Walden notes, eight firms offer full-scale folio plans. They are Foliofn (foliofn.com), buyandhold.com, sharebuilder.com, freetrade.com, brokerageamerica.com, E*trade (etrade.com), Fidelity Investments (fidelity.com), and portfoliobuilder.net.

A number of major investment houses, Walden says, are starting to offer commission-based variations of the strategy – although their programs are not yet full-fledged folio plans.

While the cost structure varies with each folio provider, perhaps the most extensive folio plan is offered by Foliofn, Walden says. It has several pricing plans. For a portfolio of 50 stocks, the fee is $14.95 a month or $149 annually. To manage three portfolios of up to 50 stocks, the cost is $29.95 monthly or $295 a year. Additional portfolios cost $95 a year.

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