A. THE PERFECT MUTUAL FUND PORTFOLIO
1. How many funds?
· Mutual funds are ideal for investors that don't want to spend time towards research, buy, sell, and keep track of individual shares, and prefer to delegate it to a knowledgeable professional.
· But now the question comes - exactly how many funds do you need for your portfolio?
· You want just enough mutual funds to get adequate diversification to reach your goal.
· To start, pick one growth fund and one value fund, both in the large-cap space, to give you exposure to growth-oriented stocks and also to value-oriented stocks.
· Next, pick either one fund that focuses on mid- and small-cap stocks (it can be growth, value, or blend), or two funds - one mid-cap and one small-cap - in contrasting styles (small-growth and mid-value).
· Don't forget about international stocks -- pick one decent foreign fund that invests primarily in developed countries, with a dash of emerging markets thrown in for flavor.
· Lastly, choose a diversified bond (debt) fund if you need an allocation to fixed income securities.
· These 5-6 funds are sufficient for the perfect mutual fund portfolio.
· There is no need to have real estate funds, gold funds, China
· Diversification is the name of the game, and anything more is just distracting you.
2. Rebalancing funds
· There are two aspects to be careful about in asset rebalancing.
· One is the amount of monitoring or work required, and the second is the tax implication.
· Both are easily taken care of by not doing all this yourself and using a balanced fund instead.
· Balanced funds are the most under-appreciated idea in mutual fund investing.
· Balanced funds do all this automatically and without building up any tax liability.
· More importantly, when the market goes down, balanced funds fall less.
· While balanced funds typically invest more than 65 per cent of their assets in equity, less aggressive rebalancing options are also available.