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How Many Funds?
Old 08-14-2020, 04:52 PM   #1
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How Many Funds?

I have saved about low six figures, and checked with Fidelity to see how they would reallocate my ~six funds. I am doing well with the funds.
They gave me about 24 funds!

This just seems like too many for me to manage.

Is this a typical number?
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Old 08-14-2020, 05:01 PM   #2
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I hope they didn't suggest splitting the money between the 24 funds, as that is undoubtedly too many. Maybe they were suggesting to pick among the 24 funds?

I see nothing in particular wrong with 6 funds. You can get plenty of diversification with that many and you can always rebalance between them.
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Old 08-14-2020, 05:14 PM   #3
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For equities you need one or two funds. A total world stock fund like VTWAX if you are OK with holding the world on a cap weighted basis. With two funds, you can buy a total US market fund and season to taste with a total international fund. 70/30 seems to be a popular recipe here.

Someone else will be along to advise on bond funds.
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Old 08-14-2020, 05:34 PM   #4
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A bit off topic, but the thread subject made me look... if I put aside a preferred stock portfolio that is my "play" money, I am now down to two tickers.... SWAN and VSGDX.

You can construct a decent portfolio with a handful of ETFs.
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Old 08-14-2020, 05:54 PM   #5
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When you say checked with Fidelity, what exactly does that mean? Do you have someone there you work with regularly? What kind of accounts do you have there? I’m meeting by phone with a new contact Monday to review my rollover IRA and I presume my entire portfolio. I sure hope the heck they don’t suggest 24 funds. No way I’m doin that.
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Old 08-14-2020, 10:02 PM   #6
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If it's a managed account I wouldn't care how many funds they wanted. Of course taxes might become a problem if they want to churn the portfolio to look like they're doing something. I thought Fidelity was beyond suggesting 24 funds. That's kind of disappointing.

If it's your responsibility to run the portfolio I've been there, done that, and simplified down to four basic funds.

Start simple and expand if you feel like it. Six funds is fine as long as there's a decent diversification of equities. If it's six funds that were chosen because they were hot once in the past I'd rethink the entire AA.
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Old 08-15-2020, 04:02 AM   #7
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Made me look.

I'm in 13 different funds/ETFs across 5 asset classes.
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Old 08-15-2020, 04:43 AM   #8
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Too many. An ETF like VTI gives you the whole US market in one.
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Old 08-15-2020, 06:08 AM   #9
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We have sIx ETF's and 1 MF for equities

IVV
IJR
VEA
SCZ
VWO
VNQ
PRNEX
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Old 08-15-2020, 06:21 AM   #10
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A simple check is to look at Fidelity's lifestyle/target retirement funds and see what they are composed of. Probably a broad market US fund, an international fund, a broad bond fund, maybe a couple of others. Six is more than enough.
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Old 08-15-2020, 09:10 AM   #11
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@RandomPJ, the concept of diversification has been mentioned here. It's often misunderstood, so I'll amplify a bit as it bears on your "number of funds" question.

Diversification became a big deal with the 1952 publication of Harry Markowitz' paper "Portfolio Selection." This is the foundation of what is now called "Modern Portfolio Theory." Markowitz' main point was that portfolios should comprise uncorrelated and negatively correlated assets. IOW, assets that don't zig and zag together and, ideally, zig and zag in completely opposite directions/correlation of -1. Radical at the time, I guess.

In equities for us little guys, diversification basically translates into holding enough stocks that their zigging and zagging cancels out. This is called "diversifying away individual issue risk." With that done, the equity investor is left with only market risk, which cannot be diversified away within an equity portfolio.

The takeaway point here is that holding two mutual funds with roughly identical portfolios provides no diversification value at all. Two S&P 500 funds for example. Even combining a total US market fund with an S&P 500 fund will gain almost nothing, because 80% of the US market fund value is the S&P and the remaining stocks are so highly correlated that the two funds will track each other (= market risk) almost perfectly.

@GoldenSunsets' six fund portfolio is a little different approach. The IVV holding is the S&P 500 and is probably the bulk of the dollars. In addition, he/she has picked some specific segments (international plus real estate) to emphasize. This is sometimes called a "tilt."

Even there, though, the three international funds, VEA, SCZ, and VWO cover enough of the international market that their combined behavior (depending on weights) is probably similar to a total international market fund like VGTSX. So, again depending on weights, the @GoldenSunsets portfolio could probably be reduced by two funds and still produce the same performance.

We hold VTWAX -- all the stocks in the world. You can't get more diversified than that!

(You can play with this at https://www.portfoliovisualizer.com/backtest-portfolio Just plug in two or three funds as 100% portfolios and see how they behave. If it's essentially the same, then there is no diversification value in holding more than one of them.)

There is one more point here: It is in financial advisors' best interest to make investing look difficult. They want to be the priests and acolytes that mediate between us mere mortals and the gods of investing. The result is this: I have never seen an FA-designed portfolio that was not needlessly complicated. Your instinct is sound.
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Old 08-15-2020, 10:06 AM   #12
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Quote:
Originally Posted by donheff View Post
A simple check is to look at Fidelity's lifestyle/target retirement funds and see what they are composed of. Probably a broad market US fund, an international fund, a broad bond fund, maybe a couple of others. Six is more than enough.
I thought that was a good idea until I looked at the portfolio composition of Fidelity Freedom® 2020 Fund... outrageous!

I think Vanguard Target Retirement 2020 Fund is more sensible.

Domestic Equities29.24%
Equities26.76%
Fidelity Series Growth Company Fund4.64%
Fidelity Series Intrinsic Opportunities Fund4.36%
Fidelity Series Large Cap Stock Fund3.83%
Fidelity Series Stock Selector Large Cap Value Fund3.04%
Fidelity Series Value Discovery Fund2.29%
Fidelity Series Opportunistic Insights Fund2.24%
Fidelity Series Blue Chip Growth Fund2.12%
Fidelity Series Small Cap Opportunities Fund1.51%
Fidelity Series Large Cap Value Index Fund1.22%
Fidelity Series All-Sector Equity Fund1.07%
Fidelity Series Small Cap Discovery Fund0.46%
S&P500 EMINI FUT SEP20 ESU0-0.02%
Commodities2.48%
Fidelity Series Commodity Strategy Fund2.48%
International Equities25.79%
Developed-Markets Equities15.24%
Fidelity Series International Growth Fund4.25%
Fidelity Series International Value Fund4.22%
Fidelity Series Overseas Fund4.21%
Fidelity Series Canada Fund1.31%
Fidelity Series International Small Cap Fund1.19%
MSCI EAFE FUT SEP20 MFSU00.07%
Emerging-Markets Equities10.54%
Fidelity Series Emerging Markets Opportunities Fund9.49%
Fidelity Series Emerging Markets Fund1.05%
Bonds36.27%
Investment-Grade Debt25.33%
Fidelity Series Investment Grade Bond Fund25.33%
Long-Term U.S. Treasuries2.20%
Fidelity Series Long-Term Treasury Bond Index Fund2.20%
Inflation-Protected Debt6.81%
Fidelity Series Inflation-Protected Bond Index Fund6.81%
High-Yield Debt0.68%
Fidelity Series High Income Fund0.68%
Floating-Rate Debt0.12%
Fidelity Series Floating Rate High Income Fund0.12%
International Debt0.08%
Fidelity Series International Credit Fund0.08%
Emerging-Markets Debt0.63%
Fidelity Series Emerging Markets Debt Fund0.63%
Real Estate Debt0.42%
Fidelity Series Real Estate Income Fund0.42%
Short-Term Debt & Net Other Assets8.70%
Fidelity Series Government Money Market Fund6.70%
Fidelity Series Short-Term Credit Fund1.78%
Fidelity Cash Central Fund0.16%
UST BILLS 0% 09/03/200.08%
UST BILLS 0% 09/10/200.01%
UST BILLS 0% 08/13/200.01%
UST BILLS 0% 08/27/200.01%
NET OTHER ASSETS-0.05%

  
Vanguard Total Stock Market Index Fund Investor Shares29.90%
Vanguard Total Bond Market II Index Fund Investor Shares**29.30%
Vanguard Total International Stock Index Fund Investor Shares19.80%
Vanguard Total International Bond Index Fund Investor Shares12.80%
Vanguard Short-Term Inflation-Protected Securities Index Fund8.20%
Total100.00%
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Old 08-15-2020, 10:15 AM   #13
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Thanks to all for your advice and recommendations. They did want me to split the money into 24 funds--I think no one fund had more than 10% of my portfolio! I went in for a reallocation, not really management.


So I think I will diversify a bit, maybe add a bond fund, although I don't see why that is so important if I also have a real conservative ETF.



So thanks again.
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Old 08-15-2020, 10:33 AM   #14
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Originally Posted by pb4uski View Post
... outrageous! ...
Yes. That's more than enough to intimidate the average joe investor.

A nonprofit that I'm involved with has RBC running around $15M. I stopped counting when I got to about 200 individual stocks. Theirs is a slightly different approach, basically closet indexing*. I'm going to challenge them to graph their equity portfolio performance against something like a 65/35 total US/total international index fund portfolio and bet a nice dinner against a McDonald's hamburger that they will be essentially the same. But the 200+ stocks certainly satisfy the intimidation factor criterion.

I'm not particularly upset about this approach. If they want to deal with the complexity (though I'm sure it is a standard portfolio) and get index fund results that's fine. They are only charging 40bps

*https://www.investopedia.com/terms/c/closetindexing.asp
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Old 08-15-2020, 04:02 PM   #15
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I made an appointment for reallocation of my portfolio.
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Old 08-15-2020, 08:29 PM   #16
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The Fidelity index retirement funds will be simpler than their more active retirement funds.

Fidelity Freedom® Index 2035 Fund (FIHFX) has total (U.S.) market, Global ex-U.S., and two bond funds. A very normal index setup, recommended here often enough.
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Old 08-15-2020, 08:33 PM   #17
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Interesting. My bad. The Fidelity Freedom® Index 2020 Fund is much simpler... only 7 funds.

Domestic Equities31.06%
Equities31.06%
Fidelity Series Total Market Index Fund31.06%
International Equities21.22%
Fidelity Series Global ex U.S. Index Fund21.22%
Bonds37.11%
Investment-Grade Debt32.18%
Fidelity Series Bond Index Fund32.18%
Long-Term U.S. Treasuries2.93%
Fidelity Series Long-Term Treasury Bond Index Fund2.93%
Inflation-Protected Debt4.92%
Fidelity Series Inflation-Protected Bond Index Fund4.92%
Short-Term Debt & Net Other Assets10.61%
Fidelity Series Treasury Bill Index Fund7.63%
Fidelity Cash Central Fund0.00%
NET OTHER ASSETS0.06%
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Old 08-16-2020, 05:28 AM   #18
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2-3 funds would be easy to handle and give a broad AA. Years ago in my earlier years of investing I may have had as many as 8-10 but slowly reduced that number. Eventually I moved a few to TRP Target Retirement fund. Now I have 3 funds. Two in Wellington (my IRA) and Wellesley (wife's IRA) for a 50/50 AA and then one small amount in another taxable fund I will soon close out. Yes I know they are close to having the same stocks etc. but the stock/bond ratio makes my wife more comfortable. I also have quite a bit in a variety of stocks that would really put me into a high tax bracket if I were to start selling them. However, they provide a lot of dividends and I am already into RMD so I don't sell. They will be for inheritance or possibly donations where a new basis will be adjusted.


Cheers!
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Old 08-16-2020, 06:03 AM   #19
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2-3 funds would be easy to handle and give a broad AA. Years ago in my earlier years of investing I may have had as many as 8-10 but slowly reduced that number. Eventually I moved a few to TRP Target Retirement fund. Now I have 3 funds. Two in Wellington (my IRA) and Wellesley (wife's IRA) for a 50/50 AA and then one small amount in another taxable fund I will soon close out. Yes I know they are close to having the same stocks etc. but the stock/bond ratio makes my wife more comfortable. I also have quite a bit in a variety of stocks that would really put me into a high tax bracket if I were to start selling them. However, they provide a lot of dividends and I am already into RMD so I don't sell. They will be for inheritance or possibly donations where a new basis will be adjusted.


Cheers!
Since you are already in RMD territory you might consider qualified charitable distributions (QCD) from your IRAs instead of donating those stocks. You would get a top of the line deduction for the whole amount of the distribution and could make up your income needs with a taxable sale at CG rates. It all depends on your bracket.
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Old 08-16-2020, 09:30 AM   #20
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I have saved about low six figures, and checked with Fidelity to see how they would reallocate my ~six funds. I am doing well with the funds.
They gave me about 24 funds!

This just seems like too many for me to manage.

Is this a typical number?
Quote:
Originally Posted by RandomPJ View Post
I made an appointment for reallocation of my portfolio.
If you think it will help, stop back with your six funds and their allocation, and get better advice on where you are, and where you want to go.
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