The Mutual Fund Show: What's The Right Number Of Funds In A Portfolio? (2024)

FAQs

How many mutual funds should you have in a portfolio? ›

However, the thumb rule is to have a diversified portfolio with 4 to 5 different types of funds. A diversified fund portfolio typically has exposure to equity, debt, gold, different sectors and global markets. Over-diversification should be avoided to ensure that the portfolio is easily manageable.

So, what's the ideal number of funds? Well, there is no right or wrong answer. It can depend on a number of factors including the number of funds you're comfortable monitoring in your portfolio, your investment objectives and risk appetite.

There might be other practical considerations that limit the number of stocks. However, our analysis demonstrates that, whether you own ETFs, mutual funds, or a basket of individual stocks, a well-diversified portfolio requires owning more than 20-30 stocks.

A commonly cited rule of thumb is to own between 10 and 20 mutual funds, but the actual number will vary depending on your individual circ*mstances. Too many funds can lead to unnecessary over-diversification and overlap. There's really no point in owning, say, two index funds that invest in the same index.

There isn't a strict rule, but between five and 10 funds is usually a good idea. That lets you allocate money to different types of funds and markets without doubling up too much. It's also a manageable number to monitor and won't cost you too much in trading fees. But, size does matter.

To determine how much to invest in Mutual Funds monthly, subtract your monthly expenses including contributions to your emergency fund and short-term goals from your monthly income. The remainder is what you can allocate to investments.

If you are a moderate-risk investor, it's best to start with a 60-30-10 or 70-20-10 allocation. Those of you who have a 60-40 allocation can also add a touch of gold to their portfolios for better diversification. If you are conservative, then 50-40-10 or 50-30-20 is a good way to start off on your investment journey.

Unless you are very well versed with the markets and have expert knowledge about mutual funds, a good rule of thumb would be to own: Large Cap Mutual Funds: Up to 2. Maybe 3 at best. Beyond that, it doesn't make sense as there will be a great overlap in the shares owned by your mutual funds.

Considering 8% returns, an investment of Rs 50,000 can fetch you Rs 2,33,051 in 20 years. Not suitable for long-term wealth creation or investors with a high-risk appetite.

If the average dividend yield of your portfolio is 4%, you'd need a substantial investment to generate $3,000 per month. To be precise, you'd need an investment of $900,000. This is calculated as follows: $3,000 X 12 months = $36,000 per year.

What is the ideal portfolio stock number? ›

Between 20 and 60 stocks

This is the ideal number of stocks to own. A number between this range will offer optimal diversification and, at the same, be easy to manage and monitor. As discussed above, different investments are expected to perform differently at a given time.

Even though Buffett is currently overseeing a 43-stock, $309 billion investment portfolio (not including exchange-traded funds), the lion's share of his company's invested capital has been put to work in his best ideas.

Diversification ensures you get the best returns, or so goes common advice. Rohin Pagdiwala, CFP and founder of Pagdiwala Investments, said a portfolio can achieve sufficient diversification with 7-10 funds. Asset allocation should determine the selection of funds, he said.

At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).

Financial experts generally recommend saving anywhere from $1 million to $2 million for retirement. If you consider an average retirement savings of $426,000 for those in the 65 to 74-year-old range, the numbers obviously don't match up.

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

The 15-15-15 rule suggests investing 15% of your income for 15 years in a mutual fund with 15% annual returns. Compounding is the process of reinvesting earnings to generate more returns. By following this rule, you can achieve long-term financial goals such as accumulating a substantial corpus for future needs.

There's no magic number for the ideal number of mutual funds. It depends on your individual circ*mstances. Some experts generally recommend 5-10 well-chosen funds. This allows for diversification across asset classes like equity, debt, and gold while keeping the portfolio manageable.

If you have a particular strategy or want diversification within your portfolio, then investing in multiple mutual funds can be a good idea. Diversification implies spreading your investments across different asset classes, industries, and geographical regions to reduce your overall risk.