COVER STORY Portfolio review in client portfolios to take this into account . “ You don ’ t always get this right and sometimes you are too early , but I ’ d rather be too early than too late ,” he says . “ Facts change , so you need to change with them .”
How many funds is too many ?
A common mistake made by investors is to assume that more funds means more diversification . In fact , having small amounts of money spread across many funds could end up costing you more in fees and may even increase your risk level . Fund factsheets typically only show the top-10 holdings , so you may not have the level of detail needed to ensure you aren ’ t doubling up on exposure .
67.7 %
- The US ’ s weighting in the MSCI World index
Active or passive ?
DIY investors will not always have the time , inclination or expertise to properly research active funds . Rowe says they should consider holding cheap , no-frills passive funds such as exchange-traded funds ( ETFs ) or index trackers instead , so they can pay less in fees and simply obtain a return in line with the market . “ Active management ’ s alright if you ’ ve got the information , but you ’ re not going to have it if you ’ re doing it yourself , so go cheap ,” he suggests .
Between five and 10 funds with distinct mandates should give you more than enough diversification . Even holding a single multi-asset or global index fund could be enough . Blair subscribes to the idea of keeping portfolios concentrated . “ By buying too many funds , you will just end up buying the market and it becomes fruitless – you may as well buy a tracker at 10bps rather than 10 funds at 60bps ,” he says . Many novice investors hold individual shares in brands they know and use , or the company they work for , but this can be a risky
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