Mutual Fund Diversification Fundamentals

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Mutual Fund Diversification Fundamentals

Mutual Fund Education

Mutual Fund Diversification Fundamentals

Daniel Cross Dec 28, 2015

Considering that there are over 14,000 mutual funds available on the market, trying to find the perfect fund is certainly akin to searching for a needle in a haystack. You don’t need to pore over every prospectus to find something that fits your needs though. The most important aspect of investing is diversification—spreading out your assets across multiple investments so that you aren’t overly exposed to a particular risk.

Understanding What Diversification Means in a Portfolio

While the fund may invest in a number of different stocks and sectors, there’s still plenty that you’ll be missing out on. You’ll have no exposure to small or mid cap stocks, value stocks, international stocks, bonds or other assets classes.

More than One Fund

The other thing investors tend to miss when it comes to mutual fund portfolios is the tendency for weights to shift over time. If you’re a conservative investor and hold bond and stock mutual funds, the stock funds will outperform the bond funds in the long run. That means that as your stock funds increase in value relative to your bond funds, a greater portion of your investment portfolio will be held in these riskier, more aggressive assets—something that could throw off your allocation and risk tolerance.

Bottom Line

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