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How many different mutual funds should I invest in?
The primary reason many people invest in a mutual fund is to diversity their investments. Since funds typically own dozens or even hundreds of different stocks or bonds, one mutual fund provides much broader diversification than you could ever get by investing in individual securities yourself.
Some investors take this farther and buy shares in many different mutual funds. While it’s usually wise to invest in different kinds of funds, owning three or four with different investment goals may well be enough. You don’t need to duplicate funds with the same investment objectives -- say, long-term growth -- because there’s a good chance that the two funds will be investing in many of the same securities. If that’s the case, you might think you’re adding more diversity to your portfolio when, in fact, you’re making it even less diversified.Return to Questions
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