Mutual Funds

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Anjanette Sauer
Anjanette Sauer's picture
Mutual Funds

Hi ,

I'm interested in investing in mutual funds and I have few questions to run by you:

1- How many different mutual funds should I own?

2- Should I make sure to invest in more than one fund family for diversification?

3- Can a mutual fund be too large?

Thank you!

Jason Pride
Jason Pride's picture

Hi Anjanette,

First, no investment is without risk and your situation is unique to you. Your needs and risk tolerance will determine the right investment for you. It is always best to seek the advice of a trusted financial planner who will review your situation with you and help you identify the proper course of action.

To answer yous specific questions:
1 - Mutual funds are designed to reduce the risk to you by including a variety of securities. In general these are stable and lower risk than any one stock. So it should not be necessary to own more than one. However, depending on your goals you may choose to purchase some more aggressive and some safer funds.

2 - Mutual funds by their nature seek diversification internally. The answer to this is very dependent on your own risk tolerance. Normally you would invest in a fund that matches your tolerance and not worry about diversifying yourself.

3 - Yes, mutual funds can become too big over time. As these funds purchase large blocks of stock it can cause artificial fluctuations in the stock price. You can find an interesting review of this topic here: http://www.bankingmyway.com/save/savings/when-mutual-funds-get-too-big