Protect Your Portfolio from Overlap

Some investors own mutual funds, in part, to create a diversified portfolio that includes a number of asset classes and securities. But in their efforts to diversify, some investors inadvertently invest in many of the same asset classes and securities - and this over-concentration could result in a portfolio that risks more than they can afford to lose.

A potential problem is that many mutual funds invest in the same asset classes or securities. For example, a large-cap fund, a technology fund and even a global fund might all hold large amounts of Microsoft stock.

Detecting asset class or security overlap can be difficult. To detect asset class overlap, you could look at the top 10 holdings for each fund you own (generally available in shareholder reports and fact sheets), determine the asset class for each holding, then see if there is any repetition - but this can be time-consuming if you own a number of different mutual funds. And what about all of the other investments that are outside of the top 10 holdings?

Maybe we can help. We can analyze the breakdown of mutual funds by category, such as stocks, bonds and cash; by sector, such as consumer goods and technology; and even by expenses and fees. To avoid the over-concentration problem, many financial advisors suggest that you never buy a mutual fund or stock without considering how it will affect your overall investment strategy.

Even if you make no changes to your portfolio, it's a good idea to review your investments at least once a year for over-concentration, as changes in the market can potentially derail your long-term plans. As a hypothetical example, let's say that your target asset allocation is 70% domestic stocks, 20% domestic bonds and 12% international stocks. In a year when the U.S. stock market underperforms, and international markets do well, you might end up with a much larger percentage of your portfolio invested internationally than you desire. That could increase your market volatility risk.

Please note I always advise people to consult with their own qualified legal, tax, and financial advisor prior to making any investment decision.

We would be happy to do an analysis to see if your portfolio is as diversified as you desire. Although diversification does not guarantee against the risk of loss in a declining market, it can help you reduce the overall market volatility risk in your portfolio.

Please carefully consider investment objectives, risks, charges, and expenses before investing. For this and other information about any mutual fund investment please call the fund provider to request a prospectus. Please read it carefully before you invest.

If you would like to meet either in person or by telephone, or simply would like to receive my FREE 35 page "Investor Awareness Guide", please use the CONTACT US link and let me know.

I look forward to meeting you!