Diversification Found with Multiple Asset Classes

Of the ‘7 mistakes fund investors make most’ revealed in Chuck Jaffe’s recent article in MoneyWatch, focusing too much on a fund, and not enough on the portfolio, brings to light the importance of differing asset classes in one’s portfolio.

“Finding good funds isn’t that hard; putting them together in an effective, low-maintenance, diversified portfolio is a lot more difficult. Too many investors have a collection of funds, rather than a strategic portfolio, where every fund has a role and every new addition is evaluated not just on its own merits, but on what it adds to the big picture.”

“Owning five or 10 mutual funds does not make an investor diversified if most of those issues come in one or two asset classes. Investors need more than a “good” fund; they need funds that enhance their holdings, diversify risk, bring additional asset classes into play and help the portfolio achieve their goals over time. ”

A proper asset allocation has funds that range from U.S., international and emerging market stocks to bond funds, treasury inflation protected bond funds, commodities and REITS. Dependent on your level of risk, time frame and dollar investment, diversification can be achieved through building a cost effective index or ETF portfolio or choosing from a range of mutual funds that fall into these various asset classes.