How many different mutual funds should you have in your portfolio?
My advisor buys and sells about 8-10 different mutual funds at a time and some have the same stocks. Is this for them to make extra money for the buy/sells or is this good to have for diversification. I am retiring in two years and still losing money!
Answers
114 points
241 points
Market101 answered 3 months ago …
I don't think there's an exact amount. The question you should be asking is, what are your objectives with owning mutual funds in the first place? Is it to diversify your investments? Is it to gain exposure to a particular sector? Or do you really admire a particular fund manager (e.g. Bill Nygren from Oakmark funds)?
If you think it's just smart to own mutual funds for the sake of owning them then I'm sorry to tell you but you're wrong. Mutual funds can be ok for diversification's sake, but I'd prefer to own a low cost index fund. Mutual funds tend to not out perform the market and therefore I'd rather just own a fund that mimics the market. If you're looking for exposure to a particular sector then you'll want to check out ETFs instead of mutual funds -- much lower cost basis and you don't have to worry about human error.
But if you're in love with a particular fund manager, then it really shouldn't matter how many funds you have in your portfolio.
288 points
CG answered 3 months ago …
For me and anyone I advise, the exact number is always zero.
Here's why, in part - http://www.investmentu.com/IUEL/2003/20030711.html
Maybe some ETFs from time to time.
3090 points
EthanR answered 3 months ago …
CG's article raises a good point, but the thing to realize is that many times a mutual fund will have a great year because it is a sector or index fund that was burning hot that year. Then when the market changes, it performs poorly. But it doesn't mean that you have to stay in the fund when it no longer is outperforming the market!
My answer to your question is that 3-5 funds should work well, but you need to monitor them, not just put your money in them and forget them. If you want diversification you can diversify by growth, growth and income, international, emerging markets, and aggressive growth, or you can go into different sectors. Fidelity sells sector specific funds, or you can use ETF's.
I think the thing to do is to figure out why you are losing money. Are you in poorly performing funds that were recommended by someone who stood to make a large commission from selling them to you? Having funds which overlap with the same/similar stocks is a waste as well.
152 points
Prudent answered 3 months ago …
Frankly most mutual funds are a suckers way to investing as they underperform, overcharge.
sector specific ETF's are better. And your best bet is learning about investing yourself even if you have an advisor. Its your money thats at stake.
Invest in Sectors that are expected to grow in the next 3 - 5 years or more. Buy ETF that represent those sectors.
And don't sleep on it yet, check the performance once a week, buy low and if its growth industry don't panic when you see small correction of 10% - 20%, hold till you see profits , better yet sign up for investment newsletters , like tycoon and learn the basics of good investment.
It will make you richer than any money manager can make you. Ever.
118 points
zellic answered 3 months ago …
I agree with most of the above. I used to invest in mutual funds for my RRSP's (Canada) until I learned or realized I got burned. They weren't going anywhere. The first problem was, I was over diversified. I learned that In bear markets there were some good performing stocks that helped bouy the fund. Also, in bull market poor performing stockskept the fund down.So in the end all you get is mediocracy. But, the real kicker was the MER( Management Expense Ratio) and commissions. Compunding effect over say 25 years is astronomical. At a 2% MER Over the 25 years half you origional investment is gone to fees. It's very difficult to make any gains in you portfolio this way. Imagine if the MER's are higher. So my answer to this question is none.
My solution is based on the fact that the markets go higher. Buy quality North American Stocks that have a long history of paying and increasing dividends and have the dividends reinvested.
103 points
gaurab answered 3 months ago …
Investment in mutual fund always have the risk.Over diversification creates problem in regular monitoring of your portfolio.If you want to diversify select the sectors you want to invest first.
Identify the low cost and long performing funds and always wait for investing at the time of low cost.Get in touch with some investment newsletter.
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