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VOL. 132 | NO. 164 | Friday, August 18, 2017

Dana and Ray Brandon

How Many Funds Make a Good Mix?

Ray and Dana Brandon

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Ray’s Take: When it comes to building a portfolio for retirement, your goal shouldn’t be to load up with as many different types of investments as you can in the hopes that you’ll outsmart any fluctuations in the market. Diversification, like all things, has its limits.

Instead, you should work to build a well-diversified group of funds that can help you harness the power of the capital markets in a way that’s consistent with your financial needs, risk tolerance and goals. The idea is to put together a portfolio that can generate the returns needed to achieve your financial goals but won’t be so volatile that you’ll be tempted to make mistakes – from fear or greed – when the market goes through its inevitable swings. If you think you can just nimbly time your entry and exits to the capital markets, prepare to be humbled. If your adviser claims to be able to do it, you should consider finding another adviser.

There are many strategies for creating a great portfolio, but each portfolio shares some basic features. Before choosing your funds, you need to have a good idea of your goals and how much risk you can tolerate. Only then can you determine your appropriate asset allocation, which is the mix of investment assets that make up your portfolio.

When it comes to the number of funds to own in your portfolio, which can range from few to many, less is usually more, as with many things in life. If you start throwing more and more funds into the mix, you run the risk of turning your portfolio into a confusing mix of overlapping holdings. And this strategy can impact each fund in your portfolio, reducing the chances of success in reaching your goal.

Your focus should be on the diversity within your portfolio rather than the number of funds. You can own dozens of funds and still not be well-diversified. Conversely, you can own one fund that is well-diversified if that fund covers the entire stock market spectrum.

A good financial planner can assist you with makes the best decisions for your own portfolio.

Dana’s Take: According to Aristotle, temperance, or balance, is a virtue. Balance and restraint are two keys to long-term financial success. Unfortunately, our culture has changed since the 1930s from one of restraint and caution to one of instant gratification and impulsivity. While we are encouraged by the media to “just do it,” better advice might be your grandparents’ “look before you leap.”

Our grandparents’ over-cautiousness led them to live frugally and save ample amounts for their non-working years. Perhaps today’s younger generation will prefer to leave behind the overspending and consumer habits of the last few decades and pursue a simpler life with less energy spent on acquiring possessions and more spent on living.

Ray Brandon, CEO of Brandon Financial Planning, and his wife, Dana, a licensed clinical social worker, can be reached at brandonplanning.com.

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