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Old 12-26-2007, 08:16 PM   #1
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Allocation

My year end review finds me money in 40 different investments. The number itself does not necessarily bother me - but is there a downside? I took a trip to the T Rowe Price website and used their X-Ray tool which indicated that I did not have any excess concentration in any individual company - except for my company stock inside the 401K - which is kept to the minimum permitted.
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Old 12-26-2007, 08:41 PM   #2
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40 sounds like an awful lot to me. My main concern would be the fees, but as an indexer, I'm bound to say that.

You should not need more than 8 - 12 carefully chosen funds to be well balanced and well diversified.

Another thing to consider is your spouse if married. Will he/she be able to cope with 40 different investments if something should happen to you. This happened to very close friends of ours and prompted DW to really get to know what I was doing and for me to really keep things as simple as possible
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Old 12-26-2007, 08:58 PM   #3
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40! That makes no sense at all! Listen to Alan.
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Old 12-26-2007, 09:45 PM   #4
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Is that 40 funds or 40 different investment including stocks, bonds etc.

40 funds is overkill, if it includes CDs, money markets, individual stocks, bonds, and funds spread out over 401K, IRAs, and brokerage accounts, that isn't unreasonable.

I have 60 but than I am retired... It certainly requires time an energy to watch them figure out how to reinvest/sell them etc.

The spouse issue is a valid one.
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Old 12-26-2007, 10:02 PM   #5
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My year end review finds me money in 40 different investments. The number itself does not necessarily bother me - but is there a downside? I took a trip to the T Rowe Price website and used their X-Ray tool which indicated that I did not have any excess concentration in any individual company - except for my company stock inside the 401K - which is kept to the minimum permitted.
If that is 40 mutual funds---that is ridiculous. Too many.

However, if you mean 40 individual stocks, it is a reasonable number to achieve adequate diversification. Some say one needs upwards of 20 for minimal diversification needed, so 40 individual stocks would be very reasonable.
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Old 12-26-2007, 10:11 PM   #6
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I see no problem with 40 to 60 or more separate funds or investments. My guess is that you don't need to even look at 90% of them except once every few years. But modern tools like M* X-ray, MSMoney, Quicken or even Excel makes tracking all the different investments pretty trivial.

You may take a hit on expense ratio. For example, we own VFSTX (short-term bond) in 3 different accounts. If we could get them into one account, we could get the lower expense ratio share class and save about $100 a year. Alas, aggregation is not possible because the accounts (IRAs) cannot be aggregated.

Another danger is that a small holding will have a loss and you will not want to sell it because it is so tiny compared to your other assets. So it lanquishes even though you could put the money to use elsewhere.

Some folks write, "If it's less than 5% of your assets, why bother with it?" And that is a fair criticism. If a holding of 0.5% doubles in value, that means your performance is only up 0.5% that year. It makes you feel good because you can forget about the asset that's 20% of your portfolio that dropped 10% and cost you 2% towards your overall performance, "Man, I had XYAXX double last year. I really know how to pick 'em!"
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Old 12-27-2007, 01:39 AM   #7
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Allocation is more to do with the percentage you have devoted to any one sector than total number of funds. Regardless of the number of fund the asset allocation question is more important. What is your actual allocation in the 40 funds? If they are all one asset type (like Large Cap US growth funds) then you have a problem no matter how many you have. On the other hand if you have a good asset allocation then the number of funds you own is no big deal - just more work to keep track of (and more likely you own some high exspense funds that will under perform the market). This is a less critical mistake than not having a good asset allocation.
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Old 12-27-2007, 06:55 AM   #8
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Thanks for the feedback - some answers to some questions:

1. 9 Funds in an IRA - all American Funds
2. 20 Funds in 401k - 90% in Fidelity funds - a few in Templeton
3. 2 Individual stocks in 401K (Employer Stock and Spinoff of Employer Stock)
4. 6 Individual stocks + 1 Fund in 2 Roth IRAs
5. 2 Funds in Taxable Accounts

Overall expense ration very acceptable to me - do have a few higher than average though. Also Allocation among Growth / Income / International / etc.. watched very closely. Total portfolio approx 600K.

I don't mind the # of funds. The Spouse issue is real though - thanks Alan. Additional feedback welcome.
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Old 12-27-2007, 07:50 AM   #9
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Sounds like a lot but if a person owns a Fidelity Freedom fund(target), you own roughly 26 funds within that fund alone. Of course that is stocks and bonds. One of these funds might be a better way for you to go.
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Old 12-27-2007, 10:27 AM   #10
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It all depends on overlap and beta of the portfolio...........
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Old 12-27-2007, 02:19 PM   #11
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I don't mind the # of funds. The Spouse issue is real though - thanks Alan. Additional feedback welcome.
If you are worried the spouse won't be able to properly keep up (in your abscence) with that number of funds, I would agree. I would worry about that situation for my own spouse too.

I am thinking there has got to be a simpler way to get very close to the same asset allocation you have (assumming your current AA is where you want it). A way with far fewer funds, or perhaps with one or two or even three of the target funds earlier mentioned.

Anyway, how your spouse is equipped to handle the investments after you are gone IS a valid and serious concern.
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Old 12-27-2007, 03:24 PM   #12
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I'd concentrate on reducing the funds in the 401K since that probably involves zero cost and no more work than just reallocating current and future contributions.

My model for 401K invest is the government Thrift Saving Plan, which has exactly 6 choices. G fund basically a CD, Fixed Income, Large Cap, Small stocks, International, and a Lifecycle Fund. (Which they just added for I guess the people who found 5 choices too many)

If you can get the 401K down to 5 or 6 life would be simpler
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Old 12-27-2007, 08:21 PM   #13
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My year end review finds me money in 40 different investments. The number itself does not necessarily bother me - but is there a downside?
Depends on who's doing the paperwork.

You might want to share stories with "Fundaholic" on FundAlarm.com. I think he's up in the 60s by now.
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Old 12-29-2007, 11:32 AM   #14
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40 are too many for me to handle. It's a nightmare trying to keep track of its dividends. Unless the assets of these funds do not overlap each other, holding 40 funds is ridiculous.
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Old 12-29-2007, 02:03 PM   #15
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Thanks all for the feedback. Seems like most people recommend the fewer fund route along with its simplicity. Must be something wrong with me since I seem to like tracking all the activity. Money software makes it easy and it makes me feel like I'm on top of things. With that said - I'll be looking to simplify in 2008.
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