William Allan Wealth Management · Our Philosophy
Why We Buy Individual Stocks
At William Allan, we often use individual securities as part of portfolio construction for certain clients. We believe direct ownership can offer meaningful benefits in some situations, along with tradeoffs and risks. Here are eight reasons it may be appropriate.
Eight Reasons We Use Individual Securities
01. Control: More direct decision-making.
For some clients, individual securities can offer more flexibility over security selection, tax management, and account-level implementation than pooled investment vehicles. That flexibility also comes with additional concentration, monitoring, and trading considerations.
02. Lower Expenses: Expenses deserve scrutiny.
Different investment vehicles carry different costs, including advisory fees, fund expenses, spreads, transaction costs, and taxes. In some cases, direct ownership may reduce certain embedded fund expenses, but total costs still depend on the portfolio, custodian, trading activity, and account type.
03. Valuation Inefficiencies: Security selection can be more targeted.
If markets correct, individual securities often move by different amounts. Direct ownership can allow more targeted purchases or sales, but larger declines may also reflect fundamental deterioration rather than opportunity.
04. True Long-Term Time Horizon: Long holding periods can be useful.
Direct ownership can support longer holding periods when a security continues to meet investment criteria. Long holding periods can help with taxes and compounding, but they do not guarantee investment success.
05. Tax Loss Harvesting: Tax management may be more flexible.
Compared with some pooled vehicles, individual securities can provide additional flexibility for tax-loss harvesting and gain management. Tax outcomes vary by account, holding period, carryforwards, and future law changes.
06. Dividend-Based Income Strategy: Income can be customized.
When portfolio income becomes important, individual securities may allow more customization across dividend-paying stocks, bonds, preferreds, and other holdings. Higher yields can involve higher credit, business, or market risk, and some situations still require selling assets to meet spending needs.
07. Proper Diversification: Diversification can take different forms.
Some clients may use more focused portfolios, while others may benefit from broader diversification. A portfolio with fewer holdings can increase both conviction and risk, and there is no universally correct number of positions.
08. Dividends Grow: Dividend growth can matter.
Some established companies have histories of maintaining or increasing dividends over time, which can be helpful for income-focused planning. Dividends are not guaranteed and may be reduced or eliminated.
Individual Stocks vs. ETFs: The Tradeoffs
Tax Control: Edge to Individual Stocks
Owning positions directly means each holding is its own tax lot, so a specific loser can be harvested while the rest of the portfolio stays invested. Inside an ETF you hold one lot of the wrapper, so the individual names underneath are not separately available to you.
Cost Floor and Simplicity: Edge to ETFs
A broad ETF buys hundreds of companies in a single trade at a low expense ratio. Reaching comparable breadth with individual names takes more capital, more trades, and more ongoing attention.
Diversification per Dollar: Edge to ETFs
Pooled funds spread a small balance across a whole index immediately. A direct portfolio concentrates into fewer names, which raises both conviction and risk. This is the tradeoff that matters most at smaller account sizes.
Customization: Edge to Individual Stocks
Direct ownership allows a portfolio to work around a client's situation: excluding a sector, tilting toward dividend payers, or avoiding more exposure to an employer a client already holds through equity compensation.
Monitoring Burden: Edge to ETFs
An index fund rebalances itself by rule. A portfolio of individual securities requires continuous research, suitability review, and position sizing on every holding.
How We Actually Decide
This is not a doctrine at William Allan. Individual securities are used where the tax and customization benefits are real for a specific client, and funds are used where breadth and simplicity matter more. Most portfolios contain both.
By the Numbers
- 25+ - Years of equity-focused investing
- Varies - Portfolio construction by client
- Case by case - Use of investment vehicles
- 100% - Fee-only, fiduciary standard
Frequently Asked Questions
Why does William Allan use individual stocks instead of only funds?
For certain clients, individual securities can offer more control over security selection, tax management, and account-level implementation than pooled funds. That flexibility also brings added concentration, monitoring, and trading considerations.
Are individual stocks riskier than index funds?
Holding individual stocks can increase concentration risk compared with broad funds. William Allan manages this through research, suitability review, and position sizing, but direct ownership still involves real risk and periods of volatility.
Individual stocks or ETFs: which is better?
Neither is better in the abstract. ETFs give broad diversification in one low-cost trade and rebalance by rule, which is hard to beat for a smaller or simpler portfolio. Individual stocks allow lot-level tax management and customization around a client's specific situation, at the cost of concentration risk and more monitoring. William Allan uses both, and which one fits depends on account size, tax picture, and objectives.
Can owning individual stocks lower my costs?
It can reduce certain embedded fund expenses, but total cost still depends on advisory fees, trading, spreads, taxes, and account type. Lower fund fees alone do not guarantee lower overall costs.
Does direct ownership help with taxes?
Direct ownership can allow more targeted tax management, such as harvesting specific losses or controlling the timing of gains, coordinated with your broader tax plan.
Does William Allan only use individual stocks?
No. Individual securities are used as part of portfolio construction for certain clients, alongside funds and other vehicles, based on each client's objectives, risk tolerance, and need for diversification.
Talk through whether direct ownership fits your plan.
Schedule a free consultation to review your portfolio, risk tolerance, and tax picture.