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Actively managed or passive? Index or mutual? Honestly I think it's different for everyone's situation. But putting that aside I don't think that the size of the portfolio should matter nor do I think that having 2-3 or more of every category spreads out the risk to any great benefit. I also am of the opinion that if you don't have at least 3-5% of your assets in a particular fund you're just playing games with that fund. YMMV.
This is an open end subject and varies from investor to investor. I guess one might ask … How many hymns should be found in the church’s Hymnal? … and, How many parishioners should a church pew hold? And, How many church pews should be found in a church? Good questions … Answers, no doubt, will vary.
Here is how I have organized my portfolio. I have divided it into four areas with each area having at least two sleeves and each sleeve having at least three funds. The exception to this is found in the cash area.
Cash Area (20%) … Two Sleeves: Demand Cash (50%) and the other Investment Cash (50%).
Income Area (25%) … Two Sleeves: Fixed Income (30%) (six funds) and the other Hybrid Income (70%) (six funds).
Growth & Income Area (35%) … Four Sleeves: Global G&I Equity (15%) (three funds), Global G&I Hybrid (25%) (three funds), Domestic G&I Equity (25%) (six funds) and Domestic G&I Hybrid (35%) (six funds).
Growth Area (20%) … Four Sleeves: Global, Emerging & International (35%) (six funds), Domestic L/M (35%) (five funds), Domestic S/M (four funds) (20%) and Specialty (10%) (five funds).
The advantage I have found with the sleeve and multi fund concept is when one fund falters there are the others present that still can offer production for the sleeve as a whole. With this, the portfolio currently holds fifty funds with no sleeve holding more than six funds. The weighting of each sleeve, and the area, can easily be adjusted by adjusting the number of funds and/or the amount of each fund held.
This has worked well for me ... but, might not be right for you.
I own 11, and it will soon be 12. ($120,000. total.) I don't like it. I'd rather not have to keep track of so many. The "good" news is that most are bunched into the same fund house, for easier record-keeping. It is FOREVER a work in progress, so answering about the perfect, desired mix of large, small, foreign, etc. would be useless. My input would not be worth anything in that regard.
you should set up a brokerage account at fidelity, then you can buy almost any fund available and only have one fund company to deal with. when you reach 70 1/2 they will tell you how much you must take out every year to keep the govt. happy!!! i have had such an account for almost 20 years. if you call fidelity they will explain how to set up the account!!! its simple and easy to do!!!!!!! CALL 1-800-544-6666
Reply to @ducrow: Tried once, despite the fact that their closest office is 45 minutes away. And not an easy drive. Very trafficky. My initial conversation was with a guy who didn't seem to know what he was doing, so I forgot about it for the time being... I suppose I'll try again some day when I want to kill some time.
There is no right number. Missing from the original post is any mention of age, circumstance or risk tolerance - all very relevant to fund selection (but not to number of funds owned). The trend towards "fund of funds" (including the target date retirement variety) makes the question even harder to address. Holding just 3 of these hybrids - say one each from T. Rowe Price, American Century and Oppenheimer - would, in fact, already have you in 25-30 different funds. So, it's pretty hard to answer. And, as we get older and our time horizon shrinks, some of the areas you mention, like small cap, may no longer fit our risk appetite. Your question also assumes the investor maintains a static allocation at all times. Some do. But it's not uncommon for folks to move in to and out of differnt types of funds depending on their macro-economic read or other factors. So for them, the "right" mix today may not be the right mix a few months from now,. fwiw
How many funds you have depends on what you're comfortable handling, and to a certain extent the size of your portfolio (you can't really have 50 funds with $100K - that would be $2K/fund, less than many funds' minimums).
I'm not fond of the minimalist approach, but that's workable - something like: Equity - total world index, e.g. Vanguard Total World Stock (VT or VTWSX) Bond - total (US) bond fund (one that includes some junk), e.g. Dodge & Cox Income (DODIX) Cash - something very liquid and stable, e.g. GE Capital Bank (0.90% on savings)
Moving up from this minimum of three, I would add (and change) funds to (a) fill in gaps (e.g. foreign bond exposure), (b) tweak the mix (e.g. bring down the average market cap, as Ted suggested). If going even further, then add funds (c) for "esoterics" - sectors, alternate strategies, and finally (d) for management diversification (multiple funds covering same or similar areas).
For me, moving up from the bare bones three would somewhat follow along Skeeter's line of thinking. Generally though I would start with only one fund in each bucket, and my preference for buckets is a little different:
Cash - as above (obviously one needs a demand deposit account, i.e. one with unlimited withdrawals as well as a savings account). Might add an account that reaches for more income with minor volatility, e.g. short term muni fund such as Vanguard Limited Term Tax-Exempt (VMLTX, VMLUX), or with some loss of liquidity (e.g. I Bonds - cannot withdraw for one year, but then liquid, and after five, no penalty).
Equity - tweak via a mid cap or small cap fund.
Bonds - add a multisector fund for more junk and a fair amount of international exposure.
So now we're up to six buckets (2 cash, 2 equity, 2 bond), somewhat better market coverage, and a bit of flexibility in adjusting the portfolio mix.
Next step up would be to broaden the equity exposure and increase its granularity; and to broaden bond exposure:
Equity - large, mid, small (or micro) US; foreign (rather than global) large cap and mid/small cap; Bond - add a flexible foreign bond fund (that can invest in emerging markets as well as developed markets).
We're approaching ten buckets here (nine, actually). If you're looking at bonds in a taxable account, you might want to throw in a muni fund (e.g. Fidelity Intermediate Muni FLTMX). This number of buckets is more to my liking; of course YMMV.
I do go further, but for the most part, that's getting into (c) and (d) above - sectors, other strategies, management diversification. Things that I view as nice to have, but in the long run I don't expect to make a whole lot of difference.
Like emerging markets? You can add a touch of Seafarer (SFGIX) or some other EM fund; like Asia? Look into the Matthews funds. Like a sector or a "theme" - loads of funds to choose from; add in limited doses. Want something more "interesting"? There are tactical allocation funds that try to pick the best area to invest in at the moment, market neutral funds that try to hold portfolios to do well in any market, etc. Again, use judiciously.
When diversifying management, I suggest hitting different style boxes, or different management styles. For example, if one has a large cap growth fund, look for a large cap value fund. If one has a deep value fund, one could look for a relative value fund. It's easy to get up to 20 or more funds this way.
Reply to @Old_Skeet: Good morning: I follow your posts & a few questions if I may. How long have you divided your assets this way? About what % do you keep in each one? Lastly,do you use a stop lose point to control your assets when the markets TANK, 2008-9? I believe you have covered some of these question before, but a refresher would be nice. Tanks for your time & postings! Derf
Thanks for following my post and for your question.
I was the age six when my great-grandfather seeded me with some of the sales proceeds from one of his farms. I remember the date well as it was Easter Sunday 1954 when I received this money. He had envelopes for all, my share as a great-grandchild was $250.00. Before he would disburse, all the senior males, by generation, had to vote for the disbursement. Since, I was the senior male of the great-grandchildren I was able to vote for the disbursement. With this disbursement he let it be known that he felt it was time for the family to start to selling off the family farms and go from farming cash crops to harvesting cash dividends form the stock market. Thus this sum got invested in the Franklin Income Fund which he selected believing it to be a good fund. Today, this is my largest holding and is found in the Hybrid Income Sleeve of my portfolio.
Then in the mid seventies after my marriage to my wife, now of forty years, my father’s stock broker would call me from time-to-time and at times just to talk. After a while he got me to venture into several other funds … a growth fund and a growth and income fund. With this, he developed the asset allocation model for me which my portfolio still follows today. These areas are as follows: Cash, Income, Growth & Income and Growth. Now with this, I had three funds plus a cash checking account and a savings account.
During the eighty’s I was working in our company's Atlanta office and on the weekends having a company car we made frequent trips to the dog betting tracks in some neighboring states. I used some math skills I learned in college and applied it to picking the dogs to bet on. By betting on a three dog package each race to either win, place or show my winnings were better than if I just bet one dog to win place or show in a race. I used the envelope system with an envelope for each race with the amount of wager money in each. I would write the name of the dogs to bet and how to split up the $10.00 for each race on the envelopes. My wife ran the envelopes to the betting window collecting our winnings and putting them in the appropriate envelope and then placing the bets on the next race. It was not too long that the amount we bet on each race grew and they would began to recognize us at the tracks with seating in the dinning room and club area. They furnished runners for us and complements courtesy of the tack and our recognition had grown at the track. Then I got transferred and we have not been back to the dog tracks since.
As I continued to mass assets from gifts and inheritances plus my own working career I took my dog betting strategies to my portfolio and started adding funds to each area and three funds became nine within my Portfolio and the sleeve system was born offering better fund and asset diversification. About this time IRA accounts came into being and I open one for myself and my wife and we started investing in these more than our taxable accounts. With our 401k accounts we had at our employers we began to look for a system to know what we really had. So the sleeve system was expanded to include these accounts as the number of funds had grown along with our strategies. Then I begin to consolidate to some common holdings where possible keeping and again expanding the sleeve system.
You are now viewing what it has grown into overtime. I have noted my percentage allocations by area and by sleeve in my above post in this thread. The sleeves with three funds generally are split with the lead fund being no more than 50% and other two split with lesser amounts but usually no one fund less than 10% each. The sleeves with more funds are split with no fund within the sleeve being more than thirty percent and no other fund within its sleeve being less that 5%. If I want to open a new position it has to have the intent to become at least 5% to 10%, over a reasonable period of time, of the sleeve that holds it. This allows for some positioning in strategies. Plus, I have been kown to fire a fund manager and hire another one so the funds get reviewed form time-to-time and trailing funds get plucked. Currently, I have PASAX under review.
So Derf, now you have it. What really seemed to be complex at first now after review is really quite simple. To adjust the sleeve I can adjust the size of its positions and/or the number of positions held along with the number of sleeves held per area. Again, it is really quite simple.
I hope this helps you. It brought back some memories and a few chuckles for me while I wrote it.
I remember reading and think fundaholic was dealing with cancer ... and, that is dated information, that dates back to the FundAlarm board. I often wondered myself too.
Reply to @Old_Skeet: Thanks for the lengthy reply. I got a kick out of the racing comment. It applies to me also as I've been known to lay a bet or two on the puppies via the OTB. Next up I'll take a little time & see how you have divided your % among the sleeves. Good Investing, Derf
There's no reason to own 10 or 15 [mutual funds], [financial planner Joseph] Tomlinson [of Greenville, Maine] says. They probably overlap each other. If you choose well-diversified funds, such as low-cost index funds that follow separate markets, all you need is a broad U.S. fund, a small-company fund, an international fund, and an intermediate term bond-fund, spreading your money among them in whatever way you think is best.
This is essentially a slight variation on the six bucket approach I mentioned above. Differences are that she ignores cash, she breaks global into international and domestic, and in bonds she ignores junk and international (the only substantial difference).
But while complaining that more funds would overlap, she chooses to do exactly that, by combining a small cap domestic fund with a broad based domestic fund. I agree with that approach however, because it offers ability to adjust relative weightings. By following that concept in the other areas (international and fixed income), one gets up to ten funds, despite the admonishment in her article to avoid so many.
Comments
Regards,
Ted
This is an open end subject and varies from investor to investor. I guess one might ask … How many hymns should be found in the church’s Hymnal? … and, How many parishioners should a church pew hold? And, How many church pews should be found in a church? Good questions … Answers, no doubt, will vary.
Here is how I have organized my portfolio. I have divided it into four areas with each area having at least two sleeves and each sleeve having at least three funds. The exception to this is found in the cash area.
Cash Area (20%) … Two Sleeves: Demand Cash (50%) and the other Investment Cash (50%).
Income Area (25%) … Two Sleeves: Fixed Income (30%) (six funds) and the other Hybrid Income (70%) (six funds).
Growth & Income Area (35%) … Four Sleeves: Global G&I Equity (15%) (three funds), Global G&I Hybrid (25%) (three funds), Domestic G&I Equity (25%) (six funds) and Domestic G&I Hybrid (35%) (six funds).
Growth Area (20%) … Four Sleeves: Global, Emerging & International (35%) (six funds), Domestic L/M (35%) (five funds), Domestic S/M (four funds) (20%) and Specialty (10%) (five funds).
The advantage I have found with the sleeve and multi fund concept is when one fund falters there are the others present that still can offer production for the sleeve as a whole. With this, the portfolio currently holds fifty funds with no sleeve holding more than six funds. The weighting of each sleeve, and the area, can easily be adjusted by adjusting the number of funds and/or the amount of each fund held.
This has worked well for me ... but, might not be right for you.
Old_Skeet
I'm not fond of the minimalist approach, but that's workable - something like:
Equity - total world index, e.g. Vanguard Total World Stock (VT or VTWSX)
Bond - total (US) bond fund (one that includes some junk), e.g. Dodge & Cox Income (DODIX)
Cash - something very liquid and stable, e.g. GE Capital Bank (0.90% on savings)
Moving up from this minimum of three, I would add (and change) funds to (a) fill in gaps (e.g. foreign bond exposure), (b) tweak the mix (e.g. bring down the average market cap, as Ted suggested). If going even further, then add funds (c) for "esoterics" - sectors, alternate strategies, and finally (d) for management diversification (multiple funds covering same or similar areas).
For me, moving up from the bare bones three would somewhat follow along Skeeter's line of thinking. Generally though I would start with only one fund in each bucket, and my preference for buckets is a little different:
Cash - as above (obviously one needs a demand deposit account, i.e. one with unlimited withdrawals as well as a savings account). Might add an account that reaches for more income with minor volatility, e.g. short term muni fund such as Vanguard Limited Term Tax-Exempt (VMLTX, VMLUX), or with some loss of liquidity (e.g. I Bonds - cannot withdraw for one year, but then liquid, and after five, no penalty).
Equity - tweak via a mid cap or small cap fund.
Bonds - add a multisector fund for more junk and a fair amount of international exposure.
So now we're up to six buckets (2 cash, 2 equity, 2 bond), somewhat better market coverage, and a bit of flexibility in adjusting the portfolio mix.
Next step up would be to broaden the equity exposure and increase its granularity; and to broaden bond exposure:
Equity - large, mid, small (or micro) US; foreign (rather than global) large cap and mid/small cap;
Bond - add a flexible foreign bond fund (that can invest in emerging markets as well as developed markets).
We're approaching ten buckets here (nine, actually). If you're looking at bonds in a taxable account, you might want to throw in a muni fund (e.g. Fidelity Intermediate Muni FLTMX). This number of buckets is more to my liking; of course YMMV.
I do go further, but for the most part, that's getting into (c) and (d) above - sectors, other strategies, management diversification. Things that I view as nice to have, but in the long run I don't expect to make a whole lot of difference.
Like emerging markets? You can add a touch of Seafarer (SFGIX) or some other EM fund; like Asia? Look into the Matthews funds. Like a sector or a "theme" - loads of funds to choose from; add in limited doses. Want something more "interesting"? There are tactical allocation funds that try to pick the best area to invest in at the moment, market neutral funds that try to hold portfolios to do well in any market, etc. Again, use judiciously.
When diversifying management, I suggest hitting different style boxes, or different management styles. For example, if one has a large cap growth fund, look for a large cap value fund. If one has a deep value fund, one could look for a relative value fund. It's easy to get up to 20 or more funds this way.
Lastly,do you use a stop lose point to control your assets when the markets TANK, 2008-9? I believe you have covered some of these question before, but a refresher would be nice. Tanks for your time & postings!
Derf
Thanks for following my post and for your question.
I was the age six when my great-grandfather seeded me with some of the sales proceeds from one of his farms. I remember the date well as it was Easter Sunday 1954 when I received this money. He had envelopes for all, my share as a great-grandchild was $250.00. Before he would disburse, all the senior males, by generation, had to vote for the disbursement. Since, I was the senior male of the great-grandchildren I was able to vote for the disbursement. With this disbursement he let it be known that he felt it was time for the family to start to selling off the family farms and go from farming cash crops to harvesting cash dividends form the stock market. Thus this sum got invested in the Franklin Income Fund which he selected believing it to be a good fund. Today, this is my largest holding and is found in the Hybrid Income Sleeve of my portfolio.
Then in the mid seventies after my marriage to my wife, now of forty years, my father’s stock broker would call me from time-to-time and at times just to talk. After a while he got me to venture into several other funds … a growth fund and a growth and income fund. With this, he developed the asset allocation model for me which my portfolio still follows today. These areas are as follows: Cash, Income, Growth & Income and Growth. Now with this, I had three funds plus a cash checking account and a savings account.
During the eighty’s I was working in our company's Atlanta office and on the weekends having a company car we made frequent trips to the dog betting tracks in some neighboring states. I used some math skills I learned in college and applied it to picking the dogs to bet on. By betting on a three dog package each race to either win, place or show my winnings were better than if I just bet one dog to win place or show in a race. I used the envelope system with an envelope for each race with the amount of wager money in each. I would write the name of the dogs to bet and how to split up the $10.00 for each race on the envelopes. My wife ran the envelopes to the betting window collecting our winnings and putting them in the appropriate envelope and then placing the bets on the next race. It was not too long that the amount we bet on each race grew and they would began to recognize us at the tracks with seating in the dinning room and club area. They furnished runners for us and complements courtesy of the tack and our recognition had grown at the track. Then I got transferred and we have not been back to the dog tracks since.
As I continued to mass assets from gifts and inheritances plus my own working career I took my dog betting strategies to my portfolio and started adding funds to each area and three funds became nine within my Portfolio and the sleeve system was born offering better fund and asset diversification. About this time IRA accounts came into being and I open one for myself and my wife and we started investing in these more than our taxable accounts. With our 401k accounts we had at our employers we began to look for a system to know what we really had. So the sleeve system was expanded to include these accounts as the number of funds had grown along with our strategies. Then I begin to consolidate to some common holdings where possible keeping and again expanding the sleeve system.
You are now viewing what it has grown into overtime. I have noted my percentage allocations by area and by sleeve in my above post in this thread. The sleeves with three funds generally are split with the lead fund being no more than 50% and other two split with lesser amounts but usually no one fund less than 10% each. The sleeves with more funds are split with no fund within the sleeve being more than thirty percent and no other fund within its sleeve being less that 5%. If I want to open a new position it has to have the intent to become at least 5% to 10%, over a reasonable period of time, of the sleeve that holds it. This allows for some positioning in strategies. Plus, I have been kown to fire a fund manager and hire another one so the funds get reviewed form time-to-time and trailing funds get plucked. Currently, I have PASAX under review.
So Derf, now you have it. What really seemed to be complex at first now after review is really quite simple. To adjust the sleeve I can adjust the size of its positions and/or the number of positions held along with the number of sleeves held per area. Again, it is really quite simple.
I hope this helps you. It brought back some memories and a few chuckles for me while I wrote it.
Thanks again for stopping by.
Old_Skeet
I remember reading and think fundaholic was dealing with cancer ... and, that is dated information, that dates back to the FundAlarm board. I often wondered myself too.
Old_Skeet
Good Investing, Derf
But while complaining that more funds would overlap, she chooses to do exactly that, by combining a small cap domestic fund with a broad based domestic fund. I agree with that approach however, because it offers ability to adjust relative weightings. By following that concept in the other areas (international and fixed income), one gets up to ten funds, despite the admonishment in her article to avoid so many.