How Many Mutual Funds Should I Own in My Portfolio? (2024)

FAQs

How Many Mutual Funds Should I Own in My Portfolio? ›

The answer to that, as usual, depends on you. Unless you are very well versed with the markets and have expert knowledge about mutual funds, a good rule of thumb would be to own: Large Cap Mutual Funds: Up to 2. Maybe 3 at best.

However, analysts say that at any point of time, three to five mutual funds . A few multi-caps, combined with one large-cap and a mid-cap, should do the trick. If your appetite is a high-risk one, then you may pick a fund of small-caps. Additionally, you should make sure that funds you pick don't hold the same stocks.

So, what's the ideal number of funds? Well, there is no right or wrong answer. It can depend on a number of factors including the number of funds you're comfortable monitoring in your portfolio, your investment objectives and risk appetite.

For example, research from the University of Florida states that model portfolios which have a mixture of stocks, bonds and real estate outperform other portfolios. In view of this, the “optimal mix” should be 50% real estate, 30% stocks and 20% bonds.

If you have a particular strategy or want diversification within your portfolio, then investing in multiple mutual funds can be a good idea. Diversification implies spreading your investments across different asset classes, industries, and geographical regions to reduce your overall risk.

The Names Rule requires that if a Fund's name suggests that the Fund invests in a particular type of investment or investments, or in investments in a particular industry, group of industries, countries, or regions, then such Fund must adopt a policy to invest at least 80 percent of the value of its assets² in such ...

Unless you are very well versed with the markets and have expert knowledge about mutual funds, a good rule of thumb would be to own: Large Cap Mutual Funds: Up to 2. Maybe 3 at best. Beyond that, it doesn't make sense as there will be a great overlap in the shares owned by your mutual funds.

The 5% rule says as an investor, you should not invest more than 5% of your total portfolio in any one option alone. This simple technique will ensure you have a balanced portfolio.

A diversified portfolio should include a mix of asset classes, diversification within asset classes, and adding foreign assets to your investment strategy. Working with a financial professional can help you avoid diversification pitfalls such as over-diversification and not taking correlation into account.

Key Takeaways

Mutual funds are largely a safe investment, seen as being a good way for investors to diversify with minimal risk. But there are circ*mstances in which a mutual fund is not a good choice for a market participant, especially when it comes to fees.

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Therefore, you should consider the role of home equity and mortgage payments in your real estate allocation. According to some experts, the optimal range for home equity is between 20% and 50% of your net worth.

A good asset allocation varies by individual and can depend on various factors, including age, financial targets, and appetite for risk. Historically, an asset allocation of 60% stocks and 40% bonds was considered optimal.

If you wish moderate growth, keep 60% of your portfolio in stocks and 40% in cash and bonds. Finally, adopt a conservative approach, and if you want to preserve your capital rather than earn higher returns, then invest no more than 50% in stocks.

The ideal number of funds in your portfolio depends on your investment goals and risk tolerance. However, as a general rule of thumb, we recommend no more than 15 funds.

If you are a moderate-risk investor, it's best to start with a 60-30-10 or 70-20-10 allocation. Those of you who have a 60-40 allocation can also add a touch of gold to their portfolios for better diversification. If you are conservative, then 50-40-10 or 50-30-20 is a good way to start off on your investment journey.

Investing in too many funds, and justifying it as diversification, is redundant. Beyond a point, there are no additional (diversification) benefits available if you increase the number of funds in the portfolio.

The 15-15-15 rule suggests investing 15% of your income for 15 years in a mutual fund with 15% annual returns. Compounding is the process of reinvesting earnings to generate more returns. By following this rule, you can achieve long-term financial goals such as accumulating a substantial corpus for future needs.

Diversified management investment companies have assets that fall within the 75-5-10 rule. A 75-5-10 diversified management investment company will have 75% of its assets in other issuers and cash, no more than 5% of assets in any one company, and no more than 10% ownership of any company's outstanding voting stock.

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

Let's start with the 25:1 and 50:5 rule, a sort of “bright line test” with two simple guidelines: One issuer cannot contribute more than 25% of the portfolio's fair market value. Five or fewer issuers cannot contribute more than 50% of its fair market value.