How Many Funds Should You Own?

Thursday, July 22, 2010, 6:00 AM | Leave Comment

I haven’t the foggiest idea. Experts mention a simple formula that you can follow. How much money do you have and how much of that money are you willing to invest in mutual funds?

See how simple it is. You don’t have to watch CNBC and other such shit “no more.” By the way I strongly agree with this formula.

Even if some one else is making these decisions for you, be always aware of their investment strategies and what shit they are investing in. Don’t take “nothing” for granted. It’s your money. You have earned it.

Especially don’t give it to some schmuck like Madoff. They are the anacondas still floating in the swamps of the consumers financial miseries.

However, having said that, there are some general rules that you may follow.

  • If you only have a few thousand dollars to invest, buy one or two asset-allocation funds. They invest in a combination of stocks, fixed-income securities and cash, depending on the state of the markets.

  • If you have a much larger sum, be willing to diversify. In that case, investing in 10 funds are not way out of line. But you must make sure that there are little or no duplication in the investment styles and portfolio of the funds.

  • Long-term investment

    The most important reason to avoid a fund is poor performance. But you must look at how it has performed for the last at least 3 years if not more. Always compare a fund’s performance with its peer-group average. You can check rankings in The No-Load Fund Investor, or in a variety of financial newspapers.

  • Comparing bond funds…

    If you are a conservative investor, bond funds may be just for you, especially Treasury bonds. If you want to take some risk, then corporate bonds or high-yield bonds might attract you for your diversified bond portfolio.

  • …But beware

    Bond funds are not actually bonds that you can buy individually. Bond-fund managers are constantly trading, and their funds, therefore, are subject to the daily price fluctuations that typically occur in the bond market.

In a Nutshell
In general, bond funds give you more stability and less risk than stock funds with more risk.

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