If you have 00 a month that you can invest in mutual funds – and you are already well diversifed (large, mid, small blends/value/growth/emerging/foreign, etc. – as well as bonds, REIT and some specialty funds) – Is it best to purchase a NEW fund each month (while continuing to stay diversified) – or to simply add that monthly 00 to funds already owned (let’s say you have 2 or 3 funds in each of the ‘categories’ noted above)?
If you can, please note justification to support your thought.
If you can, please note justification to support your thought.
Many Thanks for your input -
nycigllc 7:57 am on March 16, 2010
First off, nice job diversifying, you’ve obviously captured every possible class of mutual funds. However, I would not suggest purchasing a new fund every month, as the odds are, you will be overly diversified, which can actually unnecessarily hinder performance. I say this, because, if you go out and buy three different large cap growth funds, chances are, they are holding many of the same companies. It cannot hurt to have up to three different funds, as it will lower your risk if a fund manager has a bad year, but after that point, you are not helping yourself very much from a risk or reward standpoint. On top of this, you are spending valuable time researching all of these new funds, which, in my opinion, is not justified given the small improvement in your risk profile. With that said, I would say, try to pick two or three top funds in each asset class and contribute to them on a regular basis, rather than buying every fund known to man, as the benefit of doing so is limited. Just my opinion, I hope it helps.
Best of luck!
Brendan Prewitt
engineer50 7:57 am on March 16, 2010
If you are diversified and happy with your portfolio, buy additional shares of the existing funds – its called "dollar cost averaging." It would be silly to keep opening new fund accounts.
Bluto 7:57 am on March 16, 2010
Dollar cost averaging is one of the most powerful wealth building strategies known.
Personally, I would avoid mutual funds. People are finally beginning to realize that there are much better investment vehicles available.
About 75% of all mutual funds underperform the market. All have management fees, usually between 1% and 2%. And many have sales loads.
Your first option should be to fund fully a retirement account. If you do this, and you have extra cash, then one of the best things you can do is open a DRIP Plan.
Go to : low-cost-stock-recommendations
.com
They have a DRIP Section and it is free.
These powerful investment plans are seldom talked about because brokers make very little money when they suggest them. Yet, they have proven to be one of the best, if not the best, long-term strategy on Wall Street.
They are perfect for small investors, as well as big investors. They are safe and allow you to not care about whether the market is going up or down. They are a must for any serious investor.
I strongly recommend looking into it. They are great plans.
Good Luck
jeff410 7:57 am on March 16, 2010
Set up an asset allocation among your funds, a certain percentage in each fund, add to them to keep those percentages balanced. Asset allocation and dollar cost averaging may be the best way to invest in mutual funds..
byloslhi 7:57 am on March 16, 2010
Congratulations on being in a position to invest $2,000 per month. Some have mentioned dollar cost averaging into existing funds, which I highly recommend. You are fully diversified within the mutual fund arena; however, your entire portfolio could drop in value at the same time, as stocks and bonds, whether large cap, investment grade, balanced fund, or any other category, tend to rise and fall, generally speaking, in lockstep. To reduce risk, and with your financial flexibility, I would recommend looking into additional investment choices in addition to stocks and bonds. Consider directly investing in investment real estate, not just exposure through REITS. Additionally, consider life insurance for estate planning purposes, annuities, and possibly managed futures for other investment choices that will add more diversification and lower the overall risk exposure of your portfolio. Good luck.