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How Many Mutual Funds Should You Have in Your Investment Portfolio?
FYI: (Less Is More) Time to take an inventory of your mutual funds. How many are there? What are their investment styles? Is your portfolio of mutual funds cluttered just like your closet? Have you owned some mutual funds so long that you have forgotten why you bought them? Are there some mutual funds on the top shelf, way in the back of your financial closet you haven't even looked at in a while? Regards, Ted http://www.aaii.com/evergreen/article/how-many-mutual-funds-should-you-have-in-your-investment-portfolio.touch
Ted - Who authored the piece and what are his or her credentials as an investment advisor?
A well written piece, but largely "fluff" IMHO. I won't say his or her assumptions are false per se, but don't see anything very revealing either. Similar to the page-filling pieces we get from Jonathan Clements now days.
The article was written by John D. Markese, president of the American Association of Individual Investors, and first published in April 1997. That's the "evergreen" part of the URL; reprints of what they consider classic articles. He wrote regularly but nothing popped out as deeply insightful (a phrase that might appear one day on my headstone).
If I read the attached article correctly, Mr. Markese currently makes $340,000 as a member of NASDAQ's board, but that figure might include compensation from serving on the board of C8 Venture Capital.
For me the piece just covers the minimum funds needed for adequate coverage. If one wanted to branch out and hold convertibles then that adds another, and then if they want to hold a tax free muni then that adds another ... so-on and so-forth.
I don't think anybody can put an exact number of how many is the exact right number to hold. I'd say the right number is what the investor feels is good for them. For me, I limit just how much I'll hold in a fund based upon certain elements. One of the elements is the less risk the more of it I'll hold. For example the amount held in one of my typical bond funds is much larger than that of my typical growth fund. Also, I'll hold more in a conservative allocation fund than I will an aggressive allocation fund. These elements were over looked by whoever wrote the article.
Another thing that is not addressed is in multi account portfolios how many funds are needed? For me, with five accounts, I would not have good diversification with just two to three funds in each account; but, might have overall.
And, for some funds, I think back to the old Brylcreem commericals ... "A little Dab'll Do Ya!"
# I don't know, could count quick if I wanted to..... but Dollars, they are 50% of My Total.....That's enough, hardly add $ anymore (except Dividends reinvested), buy ETFs & individual stocks, no need to pay anymore Managers than the Good ones I Have...
I actually think the difference of opinion between @Ted and @Old_Skeet is a good illustration of the reason why it doesn't make sense to generalize things like the number of funds you "need" or that you should "have". Not everyone has the same objective. Some prefer less risk, some prefer more opportunity, some want to sleep at night or only want to check their statements once a month (if that), others enjoy paying attention to the markets and investing as much as some like coffee and find it difficult to go through a day without knowing what's going on. None of these are right or wrong. I own many more funds than Ted and a good deal fewer funds than Old_Skeet, but like me, I'm confident both of them have very good reasons for the way they do things.
"....One bond mutual fund in a portfolio may make sense, but it is difficult to imagine the value of more than two bond mutual funds....The market for large domestic stocks and the U.S. government bond market fit the index fund criteria. Small domestic stocks and emerging foreign markets do not. These markets have attributes that make intelligent, thorough analysis more likely to contribute returns that can overcome the cost of active fund management....Be sure you can justify adding mutual funds to your portfolio beyond eight. Make certain you need them, that they truly cover new ground in asset type, geography, or investment style, and that the addition is meaningful." **************************** I recently cleaned house, and went from 13 down to 10 funds. One is wife's 403b, a miniscule holding in a small-cap index tool from Vanguard. NAESX. Holding a small-cap index fund cuts across the grain in the guidance offered in the article. But I'm very happy with the fund. Bond funds: PRSNX, DLFNX and PREMX. Years ago, I surely made a too risky and too big a bet on PREMX, but it did pay me handsomely, over time, after all. It also seems to me that depending on the sheer size of one's portfolio, the investor may very well need 15 or 20 funds. If I had $1M to invest, you can bet that I wouldn't shoe-horn it all into 8 funds.
This article reads very well and does not overwhelm ya with jargon that the uninitiated don't understand. But a true novice would still need to learn about some basic definitions, prior to making use of such an article. It was direct and straightforward. Thanks.
As David noted (and his encapsulated link will lead you) the article is 1997 vintage. That should not detract from the essence of Mr. Markese's message.
It does, however, explain a couple things I wondered about. First: Why no cautionary flags were raised during his discussion of bond funds. That may be because at the time of writing the Prime Rate was around 8.5% and the 3-month T-Bill was yielding over 5%. http://www.federalreserve.gov/releases/h15/19970908/
Also wondered about his recommendation one not own gold funds. Actually, in '97 the price of gold was hovering right around $300 per ounce. At $1200 today, you'd probably have done OK by it.
Comments
A well written piece, but largely "fluff" IMHO. I won't say his or her assumptions are false per se, but don't see anything very revealing either. Similar to the page-filling pieces we get from Jonathan Clements now days.
Perhaps I'm missing something?
Regards
If I read the attached article correctly, Mr. Markese currently makes $340,000 as a member of NASDAQ's board, but that figure might include compensation from serving on the board of C8 Venture Capital.
David
For me the piece just covers the minimum funds needed for adequate coverage. If one wanted to branch out and hold convertibles then that adds another, and then if they want to hold a tax free muni then that adds another ... so-on and so-forth.
I don't think anybody can put an exact number of how many is the exact right number to hold. I'd say the right number is what the investor feels is good for them. For me, I limit just how much I'll hold in a fund based upon certain elements. One of the elements is the less risk the more of it I'll hold. For example the amount held in one of my typical bond funds is much larger than that of my typical growth fund. Also, I'll hold more in a conservative allocation fund than I will an aggressive allocation fund. These elements were over looked by whoever wrote the article.
Another thing that is not addressed is in multi account portfolios how many funds are needed? For me, with five accounts, I would not have good diversification with just two to three funds in each account; but, might have overall.
And, for some funds, I think back to the old Brylcreem commericals ... "A little Dab'll Do Ya!"
Nice try ... but, it is a no sale here.
Old_Skeet
Regards,
Ted
****************************
I recently cleaned house, and went from 13 down to 10 funds. One is wife's 403b, a miniscule holding in a small-cap index tool from Vanguard. NAESX. Holding a small-cap index fund cuts across the grain in the guidance offered in the article. But I'm very happy with the fund. Bond funds: PRSNX, DLFNX and PREMX. Years ago, I surely made a too risky and too big a bet on PREMX, but it did pay me handsomely, over time, after all. It also seems to me that depending on the sheer size of one's portfolio, the investor may very well need 15 or 20 funds. If I had $1M to invest, you can bet that I wouldn't shoe-horn it all into 8 funds.
This article reads very well and does not overwhelm ya with jargon that the uninitiated don't understand. But a true novice would still need to learn about some basic definitions, prior to making use of such an article. It was direct and straightforward. Thanks.
It does, however, explain a couple things I wondered about. First: Why no cautionary flags were raised during his discussion of bond funds. That may be because at the time of writing the Prime Rate was around 8.5% and the 3-month T-Bill was yielding over 5%. http://www.federalreserve.gov/releases/h15/19970908/
Also wondered about his recommendation one not own gold funds. Actually, in '97 the price of gold was hovering right around $300 per ounce. At $1200 today, you'd probably have done OK by it.