Skip to main content
Mutual Fund Overdose!

I came across an article today about a woman who owned 84 mutual funds. So what, you might say? Well, having too many mutual funds can lead to several problems:

  • Time crunch – difficulty finding the time to stay up on developments that could negatively impact your portfolio performance such as a fund manager retirement
    Increased risk - due to overweighting in a particular stock owned by several different mutual funds
  • Diluted returns – if you have too many mutual funds, you could see the returns canceled by the losses in a one-to-one ratio such that your portfolio performance goes nowhere. How many mutual funds should you own to achieve effective diversification? The answer to this question varies depending upon your investment goals but you can use a standard rule of thumb to help make this decision.

The Asset Classes
Investors can choose from 15 different asset classes to include in their portfolio. In light of this, your portfolio should have no more than 11-13 mutual funds. You can further reduce that number in several ways:

  • Balanced asset allocation funds – also known as hybrid funds, the balanced fund invests in a mix of domestic stocks, bonds and cash within one fund
  • Blended fund – invests in domestic stocks of various sizes (large-, mid-, and small-cap) and mixed characteristics (value and growth) within one fund; typically you will find blended funds that focus on large/mid-caps and separate funds that focus on small-caps
  • Index funds – using index funds would allow you to have as few as 4 mutual funds: one fund representing the entire US stock market (i.e., Wilshire 5000 Index), one fund covering the international stock market (i.e., tracking the Total International Composite Index), one fund investing in the total domestic bond market (i.e., Lehman Aggregate Bond Index) and one money market fund

If you have more than 13 mutual funds, start paring back. Morningstar has some excellent tools to help you with this task. Check out their Portfolio Allocator and Instant X-ray.


Popular posts from this blog

Why should I get my credit report annually?

Under the Fair Credit Reporting Act you are entitled to a free copy of your credit report once every 12 months from each of the nationwide consumer reporting companies – Equifax, Experian, and TransUnion. If you want to order your free annual credit report online, there is only one authorized website, The Federal Trade Commission has a link on their website (click here to access the FTC section on free credit reports).

So why should you get your credit reports annually?
To detect identity theft - Your report will show you any new accounts opened in your name as well as who has been checking your credit. If an account appears on the report that you did not open or if a company (especially a retail store where you have not applied for financing) inquires into your creditworthiness, you can take action to prevent potential identity theft from taking place or at least minimize the impact.
Uncover errors - The reporting agencies make mistakes, trust me! Equi…

Get Organized to Save Money

How "Being Organized" can save you money... Taking a small amount of time up front to get organized can save you time and money.  Here are a few simply steps you can take today to keep more money in your pocket.
Set up autopilot for your bills -  Take advantage of your bank's online bill pay service to automatically send payments for your monthly recurring charges.  Set it and forget it!  Taking a few minutes to set up auto bill pay will pay off by preventing late charges and finance charges due to missed payments.Take inventory - You can avoid buying duplicate items when you know what you and have and where it is located.  Take a quick inventory  your pantry, the medicine cabinet, laundry room, and your office before shopping (online or brick-and-mortar).Stock up on consumables - You will always need shampoo, toothpaste, laundry soap, etc. so buy these items that get used up in bulk when on sale.  Of course, don't go overboard.  Buy what you can store …

Career Shift Budgeting (Part 1): Finding Your Next Career

Are you dissatisfied with your career and want to make a change?  Did you recently lose your job due to a layoff and want to pursue a new career? The first step to making such a shift is to identify potential careers to pursue. There are many resources available to assist you with this process, including working with a career development professional.  For you do-it-yourself types, here are a few of my favorite resources for finding a fulfilling career: Do What You Are: Discover the Perfect Career for You Through the Secrets of Personality Type What Color Is Your Parachute? 2011: A Practical Manual for Job-Hunters and Career-ChangersOccupational Outlook Handbook (online version) I Could Do Anything if I Only Knew What It Was: How to Discover What You Really Want and How to Get ItCareer BriefsOnce you've narrowed in on a few potential careers, you will want to explore the following:  Nature of the work - What does the day in the life of a person doing…